Apple’s sales dip again

apple-logoTech giant Apple Inc. has reported a surprise fall in iPhone sales for the second quarter, indicating customers held back purchases in anticipation of the 10th-anniversary edition launch of the company’s most important product.

Apple, which is set to release a new phone later this year, stated it sold 50.76 million in the first three months of 2017, down one per cent from the 51.19 million from the previous corresponding period.

The California-based firm boosted its capital return program by $50 billion (A$66 billion), increasing its share repurchase authorisation by $35 billion and raising its quarterly dividend by 10.5 per cent.

Analysts on average had estimated iPhone sales of 52.27 million, according to financial data and analytics firm FactSet.

Expectations are building ahead of Apple’s 10th-anniversary iPhone range this autumn, with investors hoping that the launch would help bolster sales.

Apple typically launches its new iPhones in September.

A big jump in sales usually follows in the holiday quarter, before demand tapers over the next few quarters as customers hold back ahead of the next launch.

Apple’s 10th-anniversary iPhone range might sport features such as wireless charging, 3-D facial recognition and a curved display.

The company forecast total revenue of between $43.5 billion and $45.5 billion for the current quarter, while analysts on average were expecting $45.60 billion, according to Thomson Reuters I/B/E/S.

Analysts on average expect the company to sell 42.31 million iPhones in the current quarter, according to FactSet.

The company’s net income rose to $11.03 billion, or $2.10 per share, in the second quarter, from $10.52 billion, or $1.90 per share, a year earlier.

Analysts on average had expected $2.02 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 4.6 per cent to $52.90 billion in the quarter, compared with analysts’ average estimate of $53.02 billion.

A 17.5 per cent jump in the company’s services business – which includes the App Store, Apple Pay and iCloud – to $7.04 billion boosted revenue.

Neil Saunders, managing director of GlobalData Retail, said Apple’s results look reasonable.

“The company appears to be on a firm growth trajectory,” Saunders said.

“However, when set against the very weak prior year performance, the increases are somewhat less impressive.”

Over the same period in 2016, the company’s total revenue plunged by 12.8 per cent, and net income slumped by almost 23 per cent.

“In essence, this means that Apple is still a long way behind where it was two years ago – $5.1 billion behind in revenue and $2.5 billion behind in net income, to be precise,” Saunders stated. “Notably, for iPhones, Apple took $7 billion less in this quarter than it did in the same period in 2015.”

Saunders said they highlight these facts not to be unduly harsh to Apple, but to indicate that the company has only partially emerged from the slump that hit it over the last fiscal year.

“In our view, the company’s mature product line-up and an absence of any significant new devices mean it has struggled to regain all of the lost ground,” he said. “Some devices, like iPads, are now firmly in decline and cannot be relied upon to drive future growth. Indeed, iPads were the only category this quarter to post a year-on-year revenue decline; while takings compared to two years ago are down by just over $1.5 billion.”

While Apple has an absence of big-hitting devices to drive new sales, it does not mean that all parts of its business are in stasis. Indeed, sales of ‘other products’ which includes items like AirPods and Apple Watch posted a 31 per cent increase in revenue over the prior year.

The service side of the business, which includes revenue from digital content and subscriptions, is a much more significant contributor – which is why the 18 per cent uplift in revenue is particularly pleasing, Saunders noted. He added that service revenue is now nearly double that of iPad revenue – two years ago it was almost half a billion dollars smaller – highlights that this is a genuine growth engine for the business.

“While we would not suggest that Apple blindly follows in the footsteps of its competitors, we do believe it needs to think much more widely about the technology needs of today’s consumers and come up with innovative solutions and devices to fulfill those demands,” Saunders said.

“Ultimately, Apple remains in a very good position. The company’s uber-strong balance sheet, its technological and design expertise, and its extensive user base give it advantages that other firms can only dream of. However, it needs to start leveraging these much more effectively if it is to remain in pole position over the years ahead.”

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