Apple’s $1T dreams are on hold as it delivers a disappointing quarter despite iPhone X launch

Apple’s dream of becoming a $1 trillion company will have to wait — at least for a little while.

But while iPhone sales this year were about flat (down about 1% to be exact), revenue from the iPhone rose 13% year-over-year. That means Apple is finding ways to get more revenue out of the same number of units, so it may indeed be finding demand for higher-priced phones amid the usual consumer appetite for new iPhones. That higher average selling price means that Apple may have indeed succeeded in unlocking a new tier of consumer demand for higher-priced products, and its three-pronged approach may end up paying off in the end — though it still has to figure out how to ignite that massive upgrade cycle among the rest of its consumer base.

Despite the release of the iPhone X, which was accompanied by a wave of positive reviews and seen as Apple’s interpretation of what a next-generation smartphone looks like, Apple wasn’t able to create the so-called “supercycle” that would prompt a massive wave of new iPhone upgrades — leading to a bit of a collective shrug from Wall Street as everything else about hit on target. Despite looking to unlock a new, higher-priced tier to tap potential demand for early-adopters, Apple wasn’t able to see the kind of massive wave that a new size of phones brought.

Here’s the scorecard:

• Revenue: $88.3 billion, compared to $87.1 billion analyst estimates.
• Earnings: $3.89 per share, compared to Wall Street’s expectations of $3.83 per share.
• iPhone sales: 77.3 million, compared to 80.2 million iPhones sold expected by Wall Street.
• iPad sales: 13.2 million
• Mac sales: 5.1 million
• ASP: $796 (this is a big one)
• Services revenue: $8.5 billion, up 18% year-over-year
• Other products: $5.5 billion, up 36% year-over-year
• Guidance: between $60 billion and $62 billion, compared to $65.7 billion expected from Wall Street.

Over the past several weeks, reports of weaker demand for the iPhone have come in from a number of different directions — and while it wasn’t clear exactly how it was going to play out until Apple delivered the numbers today, it did serve as somewhat of a signal that Apple wasn’t able to hit that crazy ramp with the iPhone X for any number of reasons. Apple’s guidance also fell a little on the weaker side, which means that the company might not be getting that huge lift from the iPhone X that Wall Street had initially sought.

Here’s what the revenue looks like:

Services continued to be a bit of a bright spot for Apple, once again rising around 18%. In addition to building a new iPhone to re-ignite its growth engine, services — which includes things like Apple Pay and Apple Music — is an increasingly important part of that puzzle. Consistent, methodical growth from its services business translates to just added-on incremental value for Apple, which can offset the peaks and troughs that come with iPhone update cycles. Apple CEO Tim Cook has said a few times that he expects Apple’s services business to be the size of a Fortune 100 company.

For Apple to get to that insane (largely symbolic) $1 trillion market cap, it had to show Wall Street it could deliver on multiple fronts: build that huge services revenue business, come out with new products like the AirPods (and theoretically HomePod) that were successful, and of course come out with a new blockbuster iPhone. Signs were pointing in the right direction on its last earnings call, which pushed the company to a $900 billion market cap, but the reality of fickle consumer demand is settling in as Apple continues to try to find a way to spark that huge upgrade cycle.

Those reports brought a massive run from Apple to a halt after it looked like it was primed to become a company with a $1 trillion market cap with a new generation of iPhones. The iPhone X had a staggeringly big price tag, but the bet that there would be a bracket of consumers that would pay extra for a newer phone was one that made sense in theory. So, that run to $1 trillion is probably on hold until Apple is able to really create that “super-cycle” that it wants.