RELAX, IT'S JUST A ‘PAUSE IN APPLE’s GROWTH’

Apple posts historic misses as revenue, iPhone sales post new lows — but Cook unfazed

dubai — Another quarter, another record for Apple — but not exactly the kind that they had in the past periods when they were torching the competition.

After setting all-time highs in consecutive quarters, the tech titan reported its financial results for the second quarter of fiscal year 2016, showing the company’s first revenue drop in 13 years, as well as the firstever sales fall of its flagship iPhone.

This was not wholly unexpected though, as analysts had predicted such a decline.

Shares of the world’s most valuable company dived 8.2 per cent — wiping out about $46 billion of its value — after the conference call with chief executive officer Tim Cook and chief financial officer Luca Maestri, which ended at around 2am in Dubai on Wednesday. Again, this is not surprising as Apple’s stock normally drops after it announces its financial results.

Sales of Cupertino, Californiaheadquartered Apple in the second quarter were $50.6 billion, which was at the lower end of its firstquarter guidance of between $50 billion to $53 billion but lower than Wall Street expectations of around $52 billion. That was lower 13 per cent year-on-year and 33 per cent quarter-over-quarter.

The Americas topped Apple’s revenue generation with $19.1 billion, though it was down 10 per cent from a year ago and 35 per cent a quarter earlier. Greater China — a key market for the company — posted $12.49 billion in revenue, down 26 per cent from the year-ago period and dropping 32 per cent from the previous three-month period. Five more Apple Stores are set to open in China, which would bring the total there to 40; Maestri said Apple will continue to make a lot of investment in the world’s second-largest economy.

Unit sales of the iPhone, which is the company’s largest revenue maker, declined to 51.2 million from 74.8 million in the first quarter, a 32 per cent drop, and 61.2 million a year ago, 16 per cent decline. Revenue was at $32.9 billion, down 36 per cent from $51.6 billion and 18 per cent from $40.3 billion, respectively. Financial research firm FactSet had predicted 50.4 million units.

iPad tablet sales — which had already been seeing a steady decline over the years — were at 10.3 million units, good for a $4.41 billion revenue. This compares to 16.1 million and $7.1 billion — a 36 per cent and 38 per cent drop, respectively — in the first quarter, and 12.6 million and $5.4 billion a year ago, both dropping 19 per cent.

Sales for the Mac were 4.03 million, generating $5.1 billion in revenue. That compares to the first quarter’s 5.3 million units and $6.7 billion revenue — both down 24 per cent — and a year ago’s 4.6 million and $5.6 billion, lower by 12 per cent and nine per cent, respectively.

Apple’s Services and “Other Products” were bright spots. Services — which include offerings such as Apple Music, Apple Pay and the App Store — posted $6 billion in revenue, up 20 per cent from the year-ago period’s $5 billion, although it inched down from the first quarter’s $6.1 billion. Other Products — which includes the Apple Watch — were also up 30 per cent year-on-year at $2.2 billion — but dived 50 per cent from the first quarter’s $4.4 billion.

It was also revealed that Apple Pay has been welcoming one million users per week, and Apple Music now has over 13 million paying subscribers. Again, no figures were given for the Apple Watch, except for Cook saying that “we learned a lot” from it in its first year, and that Apple Watch sales are topping iPhone sales in their respective first years.

Apple Store revenue leapt 35 per cent. Also, the iCloud service is growing faster than the App Store. Cook, in a statement, implied that Apple was not spared from economic trends. “Our team executed well in the face of strong macroeconomic headwinds,” he said.

Later in the conference call, which started at 1am in Dubai, the ever-defiant CEO seemed to have brushed off Apple’s rather disappointing results, dismissing it as a “pause in our growth”, adding that he was very optimistic on what lies ahead.

He praised Apple’s Services division: “We are very happy with the continued strong growth in revenue from Services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices.”

Cook pointed out that there is lots of room to grow in emerging markets; in at least two occasions during the call, he pointed out India — which had 56 per cent growth for the company — as a prime example. He added that the roll-out of LTE or high-speed network services is critical, and that the country needs more infrastructure for this.

The average selling price for the iPhone dropped to $641, less than analysts’ views of $658, thanks to popularity of Apple’s mid-tier offerings, such as its latest addition to its smartphone line-up, the iPhone SE, which Cook sees as a good offering for India. The CEO acknowledged that the smartphone market is not growing “because of the macroeconomic environment”; however, “this will pass”.

Maestri revealed that Apple now has $232.9 billion in cash and marketable securities, up by $17.2 billion. Apple’s board also approved an additional $50 billion to its capital return programme to its shareholders. Under this, Apple plans to spend a cumulative total of $250 billion of cash by the end of March 2018. Since its inception in August 2012, Apple has returned over $163 billion to its shareholders.

The board also approved an increase of 10 per cent to the company’s quarterly dividend, and has declared a dividend of $.57 per share, payable on May 12, 2016 to shareholders of record as of the close of business on May 9, 2016.

For its fiscal third quarter, Apple provided revenue guidance of between $41 billion and $43 billion — way below analyst forecasts of $47.3 billion.

Cook added that Apple made 15 acquisitions in the last four quarters, and that they are on the lookout to add more.

On the issue of taxes in the United States, Maestri said that Apple — which he says is an advocate of tax reform as it will support the US economy — is studying the new regulations and that the company is the biggest taxpayer by a mile.

Apple’s latest quarterly results put it in rather unchartered territory, and it will be interesting to see how — or if — it will be able to bounce back. Investors fear that after stellar performances, the iPhone may have reached a saturation point — which could signal a potential end to the company’s mind-boggling growth.

“Apple is going to be put in a position — in a defensive position — of how they show growth, and this is an area that Apple has not had to do for the last few years,” Moor Insights & Strategy analyst Patrick Moorhead said.

Our team executed well in the face of strong macroeconomic headwinds

Tim Cook, CEO of Apple