Apple Q2 Revenue Falls 13% Marking First Sales Decline Since 2003
"They've done a near heroic job trying to adjust to the loss of subsidies and increased viable lower cost competitors, but their inability to either extend the iPad's run or create a replacement hit with the Apple Watch caught up with them this quarter." Chris Antlitz, a telecom analyst at Technology Business Research, Inc., agreed. "Apple's venerable business has stalled and entered decline," he told eWEEK. "The iPhone business (the underlying driver of the company’s success in past years) has tapped out." What the company is now trying to do, he argues, is to manage "its highly profitable stable of products and services and enticing shareholders to stick around with enhanced shareholder returns in the way of more share buybacks and higher dividends." That puts Apple in an envious financial position, wrote Antlitz, "but its biggest challenge is how to add multi-billion dollar businesses to its already huge franchise to continue revenue and earnings growth. The answer is it won't be easy and the pressure is on more than ever to get it right in TV, connected car, and other new growth initiatives."Charles King, principal analyst at Pund-IT, said Apple's lower-than-expected Q2 results "likely disappointed many," but the company did offset some of its iPhone sales drops with about $1 billion higher revenue for services compared to a year ago. "Looking ahead, Tim Cook and other Apple executives need to clarify their vision for the company and how they will cope with saturated smartphone markets and faltering iPad sales," wrote King. "The Apple Watch isn't going to take up the slack, and it seems unlikely that sales of existing products will return to their historical form. Add in projected lower margins for Q3, partly due to focusing on lower cost products like the iPhone SE and the pressure on Cook and company will likely continue into the second half of the year." However, this is still Apple, which has a long history of being a sales juggernaut, wrote King. "These issues aside, Apple remains a massively successful and profitable enterprise which is likely why investors' reactions in after-hours trading have reflected muted disappointment rather than a scramble for the exits." Avi Greengart, an analyst with Current Analysis, shared this view. The company "still sold over 50 million iPhones this quarter and made $10 billion dollars. That's Apple's version of a really bad quarter," he wrote. "Apple has built a rich, sticky ecosystem around the iPhone, which bodes well for the future—whether [that means] more services, more iPhones, iPads, Apple Watches, Apple TVs or future products," wrote Greengart. "Apple clearly believes in its future—and is hoping to blunt the impact of fairly negative quarterly numbers" through stock buybacks. As part of its Q2 earnings report, Apple announced that it will buy back $175 billion of Apple stock, up from $140 billion in buybacks it announced last year. In addition, its board approved a 10 percent increase in Apple's quarterly dividend and has declared a dividend of $.57 per share, payable on May 12. The company provided guidance for its upcoming fiscal 2016 third quarter, estimating revenue between $41 billion and $43 billion and a gross margin between 37.5 percent and 38 percent.
Whatever else Apple does, he wrote, the company still has an iPhone problem. "Everyone in the world who likes and can afford an iPhone has an iPhone and Apple is also competing against the secondary market for refurbished products. These are both headwinds that will make it challenging for the company to continue to grow its iPhone business going forward."