A BITE OUT OF APPLE
Drop in iPhone sales meant company missed revenue and profit expectations in the second quarter,
Tech giant reports first slowdown of its smartphone in markets, especially China
Apple shares fell Tuesday after the company reported earnings that missed both revenue and profit expectations on a first ever quarterly drop in iPhone sales, although CEO Tim Cook downplayed the decline as merely “a pause in growth.”
“We’re very optimistic that this too will pass,” he said on an earnings call with analysts, calling a slowdown in the global smartphone market an overhang of a difficult macro economic environment.
Sales of the iPhone came in at 51.2 million in the March quarter, slightly ahead of expectations for 50 million but down from a record 74.9 million in the first three months of the year and 61.1 million a year ago.
Revenue from the iPhone accounted for about 60 per cent of Apple’s sales, while the company shipped 10.3 million iPads in the quarter, just ahead of expectations and a less than forecast four million Mac PCs.
Apple said it earned $10.5 billion (U.S.), or $1.90 per diluted share in the second quarter ended March 26, 10 cents per share below the consensus outlook of analysts.
Revenue of $50.6 billion missed the forecast by $1.37 billion and is down 12.8 per cent year over year amid slowing iPhone sales in markets, including mainland China. Apple reported its first quarterly revenue drop since 2003, fuelling fears that the world’s most valuable company’s long era of explosive growth has ended.
Apple said it expects third quarter revenue of $41 billion to $43 billion, well below the $47.32 billion consensus outlook.
It guided to lower profit margins as average iPhone prices decline with introduction of the midtier iPhone SE.
The company said revenue from mainland China fell sharply both sequentially and annually after a more than 80-per-cent annual jump in the year ago period, but forecast strong demand in Asia for the SE.
It forecast a $2-billion inventory channel reduction, largely reflecting declines in higher priced iPhone inventory.
Apple also increased its share buyback program to $175 billion from $140 billion and hiked its quarterly dividend by 10 per cent to $0.57 per share.
Cook said he is pleased with continued strong growth in revenue from services thanks to the Apple ecosystem and its base of more than one billion active devices.
He also cited growth of the Apple Pay payment system and said the Mac continues to gain market share. He said price cuts have helped the Apple Watch become the most popular smartwatch in the world.
Apple expects sales of the iPhone to pick up later this year with a new product upgrade, but the company is relying increasingly on its growing services business led by the App Store.
Some market watchers expect that the iPhone outlook will remain challenging, with IDC’s Ryan Reith noting that “they have outpaced the market and that has to change at some point.”
Apple CFO Luca Maestri, meanwhile, commented on tax reforms in the U.S. that target so-called inversion structures allowing companies to avoid U.S. taxes by establishing a head office offshore.
He noted that Apple’s headquarters remain in the U.S. and said the changes should have no significant immediate impact on the company.
Sales of the iPhone came in at 51.2 million, down from 61.1 million a year earlier but slightly ahead of forecasts