Pretty much as expected, Apple Inc. today reported that iPhone revenue fell more than 15 percent in its fiscal first quarter from a year ago. But services revenue managed to save the day by surging 19 percent.

For the December quarter, Apple reported earnings before certain costs such as stock compensation of $4.18 per share on revenue of $84.3 billion, down 5 percent from a year ago. That was just above Wall Street’s forecast earnings of $4.17 per share on revenue of $84 billion.

The numbers didn’t really surprise anyone, since Apple had already shocked Wall Street earlier this month when it announced it was lowering its revenue guidance for the first quarter to $84 billion. Previously, the company had forecast revenue of $89 billion to $93 billion for the holiday quarter, only to slash this forecast due to what it said was a “faster-than-expected economic slowdown in China.”

“While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter’s results demonstrate that the underlying strength of our business runs deep and wide,” Apple Chief Executive Officer Tim Cook said in a statement. “Our active installed base of devices reached an all-time high of 1.4 billion in the first quarter, growing in each of our geographic segments. That’s a great testament to the satisfaction and loyalty of our customers, and it’s driving our Services business to new records thanks to our large and fast-growing ecosystem.”

Despite the shortfall in revenue, Apple investors seemed pleased enough with the results, as the company’s stock ticked up more than 5 percent in after-hours trading.

The company was reporting its results for the first time under a new structure in which it provides gross margin figures for its products and services, without detailing exact unit sales for devices such as the iPhone and iPad. Apple said during its last earnings report that the idea behind this change was to shift focus away from the iPhone to other aspects of its business.

Nonetheless, iPhone sales are always the key factor with Apple, and the company reported a steep decline, with revenue coming in at $51.98 billion, down from the $61.1 billion it reported a year ago. In a conference call, Cook said that this was the result of customers “holding on to their iPhones a bit longer than in the past.”

To try to offset the iPhone sales decline, Apple has said it’s putting more focus on its services, and that business segment was a bright spot in the quarter. Revenue there came in at just above $10.9 billion, up 19 percent from a year ago. Apple’s services business includes sales from Apple Music as well as revenue from Apple Pay and iCloud storage.

“We’re very happy not only with the growth but also the breadth of our services portfolio,” Cook said during the call. “Our revenue from services has grown from less than $8 billion in calendar [year] 2010 to over $41 billion in calendar [year] 2018.”

As for Apple’s other businesses, Mac sales grew by 9 percent, to $7.4 billion, while Wearables, Home and Accessories revenue jumped 33 percent, to $7.3 billion. iPad sales rose 17 percent, to $6.7 billion. Apple also reported a net cash balance of $130 billion at the end of the quarter.

Reaction to Apple’s earnings was mixed. Rob Enderle of the Enderle Group told SiliconANGLE that Apple was following a similar path to what IBM went down in the 1980s when it tried to cover up its slowing hardware sales by mining customers more aggressively for revenue in the form of services.

“But customers eventually figured this out and said enough, and IBM almost went under as a result,” Enderle said. “A trend where sales drops but services increases, particularly with consumer products because services are hard-tied to existing customers, suggests a huge problem in Apple’s future. Customers don’t have bottomless pockets and, at some point, they are likely to escape to less expensive pastures.”

Holger Mueller, principal analyst and vice president of Constellation Research Inc., agreed that Apple would be unable to rely on its growing services revenue to save the day in the long term. He said that Apple’s fourth quarter also shows that it has lost its innovation leadership and is unable to motivate customers to upgrade to the next generation of iPhones.

“Growing services revenue is nice to have, but is a trailing revenue, that depends on the number of iPhone out there, Mueller said. “As long as Apple is not selling more iPhones, services revenue cannot grow in the long run by enough to put Apple back on the growth path. Apple needs an iPhone product hit badly.”

But those somewhat downbeat views were contrary to what analyst Charles King of Pund-IT Inc believes. He told SiliconANGLE that Apple is still in “remarkably good shape.” He pointed out that although it has had its problems, it’s still hugely successful and possesses a war chest that eclipses most of its rivals. “The biggest problem is Apple’s next act, but that’s been a recurring theme during the Cook era,” King added.

King also said the growth in services revenue was a promising sign, and that this could grow even more if rumors that it will launch a new video streaming service in April hold true.

“The only caveat there is that the company will be one of many in a crowded field,” King said. “At this point, there’s no way to say whether Apple’s device imprimatur will translate to media services demand, but the company has lots of cash and brainpower to throw at the problem.”

But that money and brainpower won’t do Apple much good if issues beyond its control, such as Brexit and the U.S./China trade war, continue to undermine the overall technology industry. “If those disputes continue or worsen, and the global economy suffers as a result, the success of shiny new devices and services will be the least of Apple’s worries,” King said.

In the meantime, all eyes were on Apple’s guidance for the second quarter, and the company didn’t disappoint, saying it expects revenue of between $55 billion and $59 billion. That’s more or less in line with the analyst consensus of $58.99 billion in revenue for the period.

Still, the forecast year-over-year decline in second-quarter sales is Apple’s first in recent memory after having banked $61.2 billion in revenue during the second quarter of 2018.

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