Apple Earnings Fall on IPhone Slump
July 26 2016 - 5:00PM
Dow Jones News
By Daisuke Wakabayashi
Apple Inc. said its quarterly profit fell 27% as the company
grappled with the first prolonged slump in iPhone sales since the
product was introduced in 2007.
Revenue fell for a second straight quarter, along with sales of
its flagship smartphone, which is awaiting an expected refresh in
September. Its current models have failed to meet the booming sales
of its first batch of large-screen iPhones, sapped by sluggish
growth in the smartphone market, cooling demand in China and
customers holding on to handsets for longer periods because of
changes in carrier contracts.
Apple said net income was $7.8 billion in the fiscal third
quarter that ended June 25, down from $10.68 billion in the
year-ago period. Earnings per share fell to $1.42 from $1.85.
Revenue declined 14.6% to $42.36 billion from $49.6 billion a year
earlier.
Analysts polled by Thomson Reuters estimated that Apple would
post earnings of $1.38 a share on revenue of $42.1 billion.
Apple's iPhone doldrums comes as Chinese rival Huawei
Technologies Co. gains ground in the global smartphone market,
increasing the competitive threat for Apple and Samsung Electronics
Co. Richard Yu, Huawei's head of consumer products, on Tuesday
expressed confidence it would reach its target to ship 140 million
smartphones this year, up 30% increase from 2015. Huawei said it
shipped 60.6 million smartphones in the six months through June, up
25% from a year earlier.
After breaking an eight-year run of growing iPhone sales in the
three months through March, Apple followed with another decline in
the June quarter. The company said it sold 40.4 million units of
iPhone during the three-month period, compared with sales of 47.5
million units a year earlier.
Apple's iPhone sales came in slightly above analysts' estimates
of 40 million iPhones during the March quarter, according to 30
analysts polled by FactSet.
In an interview, Apple Chief Executive Tim Cook said iPhone
demand was better than what the sales figures showed, because it
reduced inventory of the smartphone by more than four million units
in its retail channels. He said he also was encouraged by iPad
revenue returning to growth for the first time in 10 quarters and
the continued strong growth in revenue for Apple's services.
"There are a number of encouraging signs in the results," Mr.
Cook told The Wall Street Journal. "This last quarter was
surprising because it was better than we expected from so many
different points of view, not just one thing."
Apple had a boost in sales from the March 31 introduction of the
small iPhone SE, a less expensive model with a four-inch display.
However, the lower price for the iPhone SE dragged on Apple's gross
margins, a closely watched measure of profitability reflecting the
percentage of revenue that remains after manufacturing costs. The
iPhone SE starts at $399 without a two-year contract, compared with
$649 for the iPhone 6S. The lower price pushed down the average
selling price of all iPhones to $595 in the quarter from $662 a
year earlier.
Apple said its gross margin was 38% in the latest quarter, in
line with its estimated range of 37.5% to 38%. For the current
quarter ending in September, Apple said it expects a gross margin
of between 37.5% and 38%. It anticipates revenue coming in between
$45.5 billion and $47.5 billion, which would mark another decline
from last year. Analysts estimated revenue of $45.7 billion for the
September quarter with a gross margin of $38.4%.
Apple is at a critical juncture in its history. Revenue fell for
a second straight quarter after a 13-year run of growth. While it
remains the most valuable company in the world by market
capitalization and generates more profits than any company around,
its main hardware products -- the iPhone, iPad and Mac -- are in
decline, its new products aren't successful enough yet to pick up
the slack, and there are concerns that it has lost its innovative
touch.
At the same time, Apple faces many aggressive competitors in
China -- including Huawei -- where the government is taking a more
critical view toward the company. In Europe, the company is facing
a tax probe that may result in a tax bill in the billions, and it
has publicly clashed with the U.S. government over its stance on
privacy.
As iPhone revenues slow, sales of Apple's other products haven't
compensated for the shortfall. Apple said iPad sales fell for a
10th-straight quarter, although revenue increased because of its
pricier iPad Pro. Apple said it sold 9.95 million iPads during the
quarter, down 9%.
The decrease in revenue also reflected a slowdown in sales
growth in China, where sales had been prospering. Sales to Greater
China, which includes Hong Kong and Taiwan, fell 33% to $8.85
billion. In the same quarter a year earlier, Apple's Greater China
sales rose 112%.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
(END) Dow Jones Newswires
July 26, 2016 16:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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