Apple’s fiscal second quarter earnings are out. As expected, Apple posted its first year-over-year revenue decline in 13 years. Apple stock is down in after-hours trading.
Revenues were $50.6 billion; net income came in at $10.5 billion. Revenues were off 13 percent year over year and 33 percent sequentially. Revenues a year ago were $58 billion, and net income was $13.6 billion.
Apple reported that international sales generated 67 percent of revenue. However, sales in China and Asia Pacific were off 26 percent and 25 percent vs. a year ago. Sales grew 24 percent in Japan.
Sales of iPhones and iPads, though down sequentially and vs. last year, beat Wall Street expectations. Here are the product-line numbers:
iPhone: 51.2 million units, $32.8 billion in revenue (beat expectations).
iPad: 10.2 million units, $4.4 billion in revenue (beat expectations).
Macs: 4 million units, $5.1 billion in revenue (below expectations).
Services (including Apple Pay, Apple Care): $5.99 billion.
Other (including Apple TV, Apple Watch, Beats products): $2.2 billion.
Apple is providing fiscal Q3 guidance of between $41 billion and $43 billion. This is well below Wall Street expectations of just over $47 billion. According to CNBC, Apple has a massive $233 billion cash and cash equivalents on hand.
Notes from the earnings call:
CEO Tim Cook:
Says it was a “busy and challenging quarter.” Says execution was excellent despite “macroeconomic headwinds” internationally.
Installed base of over one billion active devices continued to grow, including “Android switchers.” iPhone business is “healthy and strong.”
95 percent iPhone loyalty rate. We added more switchers in the first half of this year than during any other period.
In India, iPhone sales up 56 percent from a year ago.
Services revenue was “highest ever,” jumping 20 percent to $6 billion.
Music revenue has hit an inflection point and is growing after many quarters of decline.
Apple Pay continues to grow — more than 5x the transaction volume of a year ago. More than one million new users per week.
Apple Watch: Unit sales met expectations in the quarter. We expect Watch sales to mirror iPod sales, which generated 40 percent of revenues in the December quarter.
iPhone SE: Terrific customer response so far. Demand has been very strong and exceeds supply at this point. SE places us in a better strategic position to attract more customers to our ecosystem.
iPad Pro 9.7 selling well. We expect best revenue from iPad in two years in the June quarter. More than 1M iPad apps in the App Store.
Future is very bright. Product pipeline has exciting things in store. We’ve made 15 acquisitions in past several quarters.
CFO Luca Maestri:
June iPhone purchase intent is high.
Revenue from the App Store grew 35 percent. Average amount of money spent per customer grew.
We believe that we grew market share for Macs, despite a challenging quarter for the industry.
iPad: 78 percent share of US market for tablets priced above $200.
97 percent consumer satisfaction for iPad Air 2.
Revenue from “other” grew 30 percent due to Apple Watch. 94 percent customer satisfaction for Apple Watch.
90 percent of Apple’s cash is outside the US.
$12 billion in annual dividend payments.
Financial analyst questions/answers:
Apple Pay not a meaningful contribution to revenues/profits now but may over time.
Re growth in developing markets: Tim Cook says that LTE market is just kicking in this year in India. He expects that will help drive iPhone sales. India is where China was seven to 10 years ago.
Question re iPhone SE impact/demand: There’s iPhone SE demand beyond what we thought.
Question about China: Vast majority of China weakness is in Hong Kong (partly because of currency issues). Mainland China demand remains healthy. China is not as weak as discussed; it’s a lot more stable than the common view. Will have 40 open stores in China in June quarter.
Majority of remaining questions sought visibility to continuing hardware demand and explanations for “lackluster” quarter, but there was nothing of particular note or interest.
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