Apple blows earnings, stock drops 8%
Apple delivered its March-period earnings report on Tuesday afternoon.
It missed estimates for earnings per share by $0.09, and the stock is down 8% in after-hours trading.
As expected, the company posted its first year-over-year decline in quarterly revenue since 2003.
Apple's guidance for the third quarter was also significantly lower than Wall Street expectations, indicating that the iPhone business might have one more rough quarter before it picks up again.
The company also said that 67% of its sales were international in the past quarter, which means that the strong dollar contributed of the "macroeconomic environment" conditions CEO Tim Cookcited as part of the reason for the company's disappointing earnings.
"The smartphone market, as you know, is currently not growing. However, my view of that is it's an overhang of the macroeconomic environment in many places in the world, and we're very optimistic that this too shall pass," Cook said.
But one bright spot for Apple is that while iPhone sales fell for the first time in the history of the device, they beat Wall Street expectations and landed squarely in Apple's own guidance. iPad sales also beat Wall Street expectations, but they fell year-over-year as well.
During a question-and-answer session, Cook once again emphasized the company's online-services business, which was one of the few parts of the business that grew last quarter. Services revenue was up 20% year-over-year, thanks to strong sales in the App Store.
"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 said in a statement.
Apple also announced that it would increase its share buybacks from $140 billion to $175 billion, and increased its dividend by 10 percent. Overall, the company now says it will spend $250 billion on buybacks and dividends by 2018. That $250 billion is approximately the amount the company has on hand in cash and marketable securities.
Detailed numbers and charts
Here are Apple's numbers vs. analyst expectations, based on data complied by Bloomberg:
- Q2 EPS: $1.90, down 22% YoY, vs. expectations of $1.99
- Q2 revenue: $50.6 billion, down 13% YoY, vs. expectations of $52 billion
- Gross margin: 39.4% vs. 40.8% last year and expectations of 39.47%
- iPhone unit sales: 51.2 million, down 16% YoY, vs. expectations of 50.7 million
- iPhone ASP: $642 vs. $651 expected
- iPad unit sales: 10.2 million, down 19% YoY, vs. expectations of 9.4 million
- Mac unit sales: 4.03 million, down 11% YoY, vs. expectations of 4.6 million
- Q3 revenue guidance: $41 billion and $43 billion vs. expectations of $47.35 billion
Here are tables Apple provided breaking down how many iPhones, iPads, and Macs it sold:
Apple
Apple
BI Intelligence
BI Intelligence
BI Intelligence
BI Intelligence
Live blog of the earnings call
5:01: Things are getting started. First up is CEO Tim Cook. Next is CFO Luca Maestri.
5:03: Cook just called it a "busy and challenging quarter" and a "pause in our growth."
5:04: Cook talking growth in online services, which is a big emphasis for the company this year.
5:05: iPhone sales come from three places: upgraders, switchers from Android, and first-time smartphone users, according to Apple. For the first half of this year the upgrade rate is higher than the 5S cycle, but lower than the iPhone 6, Cook says.
5:06: Cook citing survey that says iPhone has 95% loyalty rate. "We added more switchers from Android in the first half of this year than in any other 6-month period ever."
5:07: "March quarter services revenue was our highest ever," says Tim Cook. Services revenue jumped 20% to $6 billion.
5:07: Apple Music has 13 million paying subscribers.
5:08: Apple Pay has 1 million new users per week, says Cook. Teases that "more expansion of Apple Pay is coming soon."
5:09: Apple Watch sales "met our expectations" this quarter, Cook says. Expects it to be seasonal like the iPod, with 40% of sales coming during holiday quarter.
5:10: Tim Cook says Apple Watch has helped "even saved lives" with its heart rate sensor, Cook says.
5:12: "The future of Apple is very bright," Cook says. Says Apple has bought 15 companies in the past four quarters.
5:14: Now CFO Luca Maestri is speaking.
5:16: iPhone momentum in business market continues to be impressive, Maestri says. Cites study that 78% of corporate buyers want iPhones.
5:17: Maestri talks services: Thanks to App Store revenue, services revenue was up 20% year over year.
5:17: Maestri says the average amount spent per person on the App Store hit a record number last quarter.
5:19: For Mac, it was a challenging quarter for personal computers across industry, though Apple thinks it gained market share.
5:19: Maestri cites IDC study says iPad accounts for 70% of professional market.
5:20: Revenue for other products rose 30% year over year, thanks to Apple Watch.
5:21: Let's talk about cash! Maestri mentions the $50 billion in bonds Apple issued earlier this year.
5:22: Maestri confirms that it will increase share repurchase authorization to $175 billion from the $140 billion level announced last year. Dividend will increase to 57 cents per share from 52 cents per share.
5:23: Apple's dividend will increase annually going forward, Maestri says.
5:26: Maestri expects average selling price for the iPhone to continue to fall, especially because Apple added the $400 iPhone SE to the mix.
Question time
5:27: Is Apple a growth company or a mature tech company?
5:28: Cook: "The smartphone market as you know is currently not growing, however my view of that is it's an overhang of macroeconomic environment in many places in the world and we're very optimistic that this too shall pass."
5:29: "All of us know that the iPhone 6 cycle was an extraordinary cycle that accelerated upgrade," says Cook.
5:30: Cook signals that Apple will target India as a growth market.
5:31: Cook on purchasing companies: "we would buy something larger than we have thus far."
5:32: The SE is attracting two customers, according to Cook. 1: Those who want latest tech but in a compact package. 2: People who want to own an iPhone but couldn't afford one before.
5:34: Now that we have both a download model and a streaming model, we've hit an inflection point, and we can start growing our music business over time, says Maestri.
5:35: Maestri says iCloud is growing faster than App Store.
5:36: Maestri says the iPhone SE will affect margins.
5:38: Cook on India: "the infrastructure is one key, and the other key is building the channel out." Apple doesn't have stores in the country yet.
5:40: "We've been working with great energy over the last 18 months, and I'm encouraged by the results we're beginning to see." Cook says India is where China was 7 to 10 years ago.
5:44: A challenge in the tablet market in general is that the replacement cycle is materially different than in the smartphone market, Cook says. The iPhone SE isn't going to be like the iPad Mini.
5:45: We're going to have the best "compare" for iPad this upcoming quarter than we've had for a long time, Cook said.
5:46: iPhone 6S upgrade cycle is slightly better than what Apple saw with the iPhone 5S. But it's lower than the iPhone 6 — "not just a hair, but a lot lower."
5:47: If Apple saw the same upgrade rate for 6S that it saw for 6, "we would have a huge party," Cook said.
5:49: "China's not as weak as been talked about, it's a lot more stable than the common view of it," Cook said. LTE adoption continues to rise. Asks investors to look "underneath" the numbers.
5:53: Cook: "The most important thing is Apple wants to have a great customer experience, overwhelmingly Apple embarks on services that helps that and adds value to the ecosystem. In doing that, Apple developed large and profitable business in online services." Wants investors to see the services businesses in both scale and growth.
5:55: Services are "huge," Cook says.
6:01: And we're done here. Thanks for tuning in!
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