Apple's first fiscal quarter 2019 results have arrived, and with them comes an explanation as to why it saw lower iPhone upgrade numbers.

The blame game

Apple CEO Tim Cook blamed foreign exchange rates, claiming the US dollar made the iPhone more pricey globally, so it plans to lower prices in emerging markets, like in Turkey, where exchange rates caused the iPhone to become more expensive. Cook also said iPhone subsidies are not as common and are affecting upgrade rates. In Japan, for instance, only half the iPhones were subsidised compared to three-quarters a year ago.

Cook also said Apple's recent battery replacement program allowed customers to change out their batteries in their iPhones for $29, enabling them to hang on to older iPhone models for a longer period of time. According to Daring Fireball's John Gruber, Cook told employees during a town hall meeting in January that there was a huge uptick in iPhone battery replacements: 11 million versus an anticipated 1 million to 2 million.

In Apple's earnings call, Cook noted analysts advised against the program, but it "strongly" believed it was "the right thing to do". Finally, Cook blamed issues in China, which led to a 15-per cent decline in iPhone revenue year over year.

Is the iPhone too expensive?

While iPhone upgrades dropped in China, the company did set new records in the US, Canada, Mexico, Germany, Italy, Spain, and Korea. During Apple's earnings call, Tim Cook was asked if he thought that the pricing of the iPhone XR, iPhone XS, and iPhone XS Max was too much for consumers to swallow. In response, he suggested that, while it wasn't an issue in the US, it was elsewhere.

The iPhone XS currently costs the same as last year's iPhone X, at $999, while the iPhone XS Max is $100 more and the iPhone XR is $749. Cook said that's a "pretty small difference in the United States compared to last year." He added: "I'm convinced that making a great product that is high quality is the best thing for the customer. That's the way we look at it."

However, in an interview with Reuters earlier on Tuesday, Apple confirmed it will lower iPhone prices in some emerging markets.

Services are the future

It wasn't all doom and gloom for the company, though. Its services category, which includes iTunes, the App Store, the Mac App Store, Apple Music, Apple Pay, and AppleCare, is a huge revenue driver, with growth hitting an all-time high. These services brought in $10.9 billion in revenue, up from the $9.1 billion year over year. Apple has more than 360 million paid subscribers across its services, a yoy increase of 120 million.

CFO Luca Maestri said Apple expects paid subscribers to surpass half a billion in 2020. With that in mind, Apple is working on expanding its services category in 2019, reportedly hoping to enter the television industry. It has more than two dozen original television shows in in development.

An Apple News subscription service is also in the works, and there have been rumours of a gaming subscription service.

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