By Robert McMillan
Apple Inc. posted its first annual revenue decline in 15 years,
but projected a return to growth in the current quarter behind
strong sales of its new iPhone 7.
Apple has grown to be the most valuable company in the world
over the past decade on the tremendous success of the iPhone. But
that formula proved less effective in the past year amid lukewarm
sales of the iPhone 6S models and slowing growth in smartphone
sales world-wide, especially in China, Apple's biggest growth
market in recent years.
For its fiscal fourth quarter, ended Sept. 24, Apple reported
its third consecutive decline in revenue and profit. Net income
fell 19% to $9 billion, or $1.67 a share, from $11.1 billion, or
$1.96 a share, in the same period a year earlier. Analysts polled
by Thomson Reuters had expected earnings of $1.65 a share.
Revenue fell 9%, to $46.9 billion, mostly ahead of the launch of
the iPhone 7, which went on sale a week before the end of the
quarter.
The iPhone accounted for 63% of Apple's revenue in the
just-completed fiscal year, but growth in the smartphone market has
slowed recently and consumer buying habits are changing. In the
fourth quarter, Apple said it sold 45.5 million iPhones, 2.5
million fewer than a year earlier.
But Apple projected revenue of $76 billion to $78 billion in the
current quarter, which includes the holiday-shopping season and
sales of the new phone. That would be an increase from $75.9
billion in the same period a year earlier. Before Apple's
announcement, analysts had been expecting revenue in the current
quarter of $74.9 billion, according to FactSet.
Apple also projected gross margin, a closely watched measure of
profitability, of 38% to 38.5%, ever so slightly up from 38% in the
just-completed quarter.
"We return to growth in the quarter despite the supply shortages
that we've currently got," said Apple Chief Executive Tim Cook.
Mr. Cook said the response to the iPhone 7, released in
September "has really been off the charts." He said there are waits
for some models, particularly the high-end iPhone 7 Plus. Neil
Cybart, an independent analyst who follows Apple, said there is an
eight-week wait for some models.
Mr. Cook also touted improvements in the company's services
business, which includes Apple Music, iTunes and the App Store,
where revenue grew 24% from a year earlier. Apple Music revenue
rose 22%, Mr. Cook said, calling services "our huge highlight in
the quarter."
Apple faces multiple challenges as it looks to augment the
success of the iPhone. Sales of Macintosh computers, for which
Apple is expected to introduce new models later this week, fell 17%
from a year earlier. IPad sales, which have fallen in recent years,
were flat. Sales of Apple's "other products" category, which
include the Apple Watch, fell 22% from a year earlier. And Apple's
secretive automotive project has yet to produce results.
Still, Apple remains the most profitable U.S. company, with net
income of $45.7 billion for the fiscal year it just ended. The
company reported holding $237.6 billion in cash and investments, up
from $231.5 billion three months earlier.
It also may be benefiting from rival Samsung Electronics Co.'s
decision to cancel its Galaxy Note 7 smartphone after a series of
battery fires and overheating incidents.
Asked in an interview how Samsung's problems influenced Apple's
outlook, Mr. Cook said, "We've had a large number of Android
switchers that are looking for better experiences. We want to offer
anybody who would like to come over a great experience."
In after-hours trading, Apple shares fell 2.8%, after rallying
more than 20% over the past three months amid growing optimism
about the iPhone 7 and Samsung's travails.
Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co.,
said investors may have been disappointed that Apple's projections
for the current quarter weren't even more bullish.
Mr. Cybart, the independent analyst, said the revenue projection
for the current quarter implies that Apple expects iPhone unit
sales to increase more than 5% from a year earlier, when the iPhone
6S was its newest model.
Apple is running out of large untapped markets where it could
reproduce its breakneck success in China in recent years. Sales in
greater China, which includes Hong Kong and Taiwan, declined 30% to
$8.8 billion in the most-recent quarter. In the same quarter a year
earlier, Apple sales to the region grew 99%.
UBS Securities LLC says 80% to 90% of China's potential high-end
smartphone buyers already have a phone.
Mr. Cook hopes India, where iPhone sales grew by more than 50%
during the most recent year, will prove to be another giant
market.
"We still believe we're just kind of scratching the surface
there," he said. Apple includes India in its Asia Pacific region,
which reported $2.7 billion in sales, roughly even with a year
earlier.
Write to Robert McMillan at Robert.Mcmillan@wsj.com
(END) Dow Jones Newswires
October 26, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Aug 2024 to Sep 2024
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Sep 2023 to Sep 2024