Big news last week, Apple reported it’s first decline in revenue in 13 years. A drop from $58B last year to $50.6B this year – analysts were expecting $52B. So what happened and why does it matter?
1. iPhone – Apple’s Core Growth Engine – slows
The iPhone makes up a substantial slice of Apple’s earnings – to quote TechCrunch it is ‘Apple’s main growth driver’. Sales of iPhones were slightly above analysts expectation of US$50.7M; but still below last years sales. In Q2 ’15 iPhone sales were US$61.2 Million. Reasons for the decline have been unclear – people have said it’s softness in China, iPhone saturation or better, cheaper competition.
2. iPad Picks Up and Mac’s continue to be a Blip
The analysts didn’t see this one coming. They thought Apple would sell 9.4 million iPads, and Apple sold 10.3 million units. Sounds good…but not as good as last year. Q2 ’16 saw a -19% on last year.
Apple sold 4 million Macs, -12% year-on-year, and below analysts expectations of 4.6 million.
3. Services is the Winner:
Interesting news as we see experiences being valued over physical product more and more by the consumer. This is true in Apple’s case, their services revenue jumped 20% (US$6B) and they announced they now have 13 million paid subscribers to Apple Music. Added to that App Store revenue was up 35%.
4. The China Dilemma
Speaking of softness in China…Apple has been pinning a lot of hopes on the country. This quarter saw a 26% decrease in revenue from Greater China (US$12.49B).
In fact the day after results were announced, notorious activist investor Carl Icahn, ditched all of his Apple shares. Icahn owned 45.8 million Apple shares at the end of last year… he said China’s economic slowdown and worries about how China could become more prohibitive in doing business triggered his decision to exit his position entirely.
5. A Softening Future
It’s no surprise that on these numbers Apple posted guidance of US$41-43B for Q3 ’16. This contrasts to last years Q3 which brought in revenue of US$49.6B. Let’s add some more perspective to this – analysts were expecting that number to be more like US$47.4B for Q3’16. That’s a fair downgrade.
For all the slow down Apple still has a $233 Billon pile of cash.
What this really means is that Apple needs to find new ways to grow…beyond the iPhone and potentially China.