Apple's 9-year iPhone juggernaut stops with first sales decline (updated)

Catering International & Services SA

27/04/2016 01:29

(Adds details on cell phone replacement rate, analyst comment) 
    By Julia Love and Anya George Tharakan 
    April 26 (Reuters) - Apple Inc  AAPL.O  on Tuesday posted 
its first-ever decline in iPhone sales and its first revenue 
drop in 13 years as the company credited with inventing the 
smartphone struggles with an increasingly saturated market. 
    The company's sales dropped by more than a quarter in China, 
its most important market after the United States, and it also 
forecast another disappointing quarter for global revenues. 
    Its shares fell about 8 percent, dropping below $100 for the 
first time since February. A hike in Apple's share buyback and  
dividend as well as bumper revenue from services failed to 
mollify investors. 
    Apple's results followed disappointing quarterly reports 
from Microsoft Corp MSFT.O  and Google-owner Alphabet Inc 
 GOOGL.O , and microblog Twitter  TWTR.N  also on Tuesday 
reported results that missed expectations. 
    Apple said it sold 51.2 million iPhones in its second fiscal 
quarter, down from 61.2 million in the same quarter a year ago 
but above analysts' estimates of about 50 million devices.  
    While Apple executives had predicted iPhone sales would 
decline this quarter, they must reassure investors that the drop 
 represents a momentary roadblock, rather than a permanent shift 
for the product that fueled its meteoric rise. 
    After years of blockbuster sales, many investors fear the 
iPhone has reached saturation, spelling the end for Apple's 
exponential growth. 
    "Apple needs to come up with a radical new innovation or 
product rather than just the current incremental improvements to 
existing products. This is the only way in which it will 
reinvigorate sales growth," said Neil Saunders, chief executive 
of research firm Conlumino. 
    Apple Chief Financial Officer Luca Maestri told Reuters that 
the success of the iPhone 6 a year earlier had set a difficult 
bar to beat in the second quarter. "The iPhone 6 is an anomaly," 
he said.  
    But Chief Executive Tim Cook told analysts that the 
smartphone market was not growing, reinforcing wider concerns of 
saturation.  
    Cook also conceded that the iPhone 6S was driving customers 
to replace phones at a much lower rate than the 6. "I don't mean 
just a hair lower; it's a lot lower," he said. "If we'd had the 
same rate on 6S as 6, it would be time for a huge party." 
    He pointed to the services division, which includes Apple 
Music and the App Store, as a bright spot. Its revenue grew 20 
percent to $6 billion and surpassed iMac and iPad sales. 
    Cook also hinted that Apple had more gadgets to come.     
"The future of Apple is very bright," he said. "Our product 
pipeline has amazing innovations in store."  
    Earnings of $1.90 per share fell short of the average 
analyst estimate of $2 per share, according to Thomson Reuters 
I/B/E/S. Revenue of $50.56 billion missed expectations of $51.97 
billion.  
    Apple forecast third-quarter revenue of $41 billion to $43 
billion, short of the Wall Street consensus of $47.3 billion.  
    Apple also said it was raising its capital return program by 
$50 billion through a $35 billion increase in its share buyback 
authorization and a 10 percent rise in the quarterly dividend. 
     
    iPHONE SE DEMAND STRONG 
    In March, Apple released the iPhone SE, a smaller, 
4-inch-screen phone featuring much of the company's latest 
technology. Although sales of the phone were not captured in the 
second quarter, the device is off to a strong start, 
particularly in emerging markets, Maestri said.  
    "The situation right now around the world is that we are 
supply-constrained," he said. "The demand has been very, very 
strong."  
    Although Apple's revenue in Greater China fell 26 percent 
from the year-ago quarter, Maestri stressed that the company was 
"extremely optimistic" about China. "We continue to make a lot 
of investment there," he said. 
    Cook said that mainland China sales were down only 7 percent 
in constant currency, attributing much of the Greater China drop 
to Hong Kong, where strength in the local dollar, which is 
pegged to U.S. currency, deterred tourist shopping.  
    The company did not comment on prospects for its iBooks 
Stores and iTunes Movie service, which were shut down last week 
in China.  urn:newsml:reuters.com:*:nL3N17P1U7 
    The drop in after-hours shares wipes out roughly $46 billion 
in market capitalization, roughly the value of heavy equipment 
maker Caterpillar Inc  CAT.N .  
    In reaction to Apple's results, shares of its suppliers 
Skyworks Solutions  SWKS.O , Qorvo  QRVO.O , Broadcom  AVGO.O  
and NXP Semiconductors  NXPI.O  all fell 2 percent or more on 
Tuesday. 
 
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BREAKINGVIEWS-Apple can juice peaking iPhone sales with services 
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 (Reporting by Julia Love in San Francisco and Anya George 
Tharakan in Bengaluru; additional reporting by Noel Randewich 
and Rodrigo Campos; additional writing by Peter Henderson; 
Editing by Cynthia Osterman) 
 ((anyageorge.tharakan@thomsonreuters.com; within U.S. 
+1-646-223-8780; outside U.S. +91 80 6749 7118;; Reuters 
Messaging: Reuters Messaging: 
anyageorge.tharakan.thomsonreuters.com@reuters.net)) 
 
Keywords: APPLE RESULTS/