Apple posts surprise dip
in iPhone sales, shares fall
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[May 03, 2017]
By Anya George Tharakan and Stephen Nellis
Inc reported a surprise fall in iPhone sales for its second quarter on
Tuesday, indicating that customers may have held back purchases in
anticipation of the 10th-anniversary edition of the company's most
important product later this year.
Under pressure from shareholders to hand over more of its $250
billion-plus hoard of cash and investments, Apple boosted its capital
return program by $50 billion, increased its share repurchase
authorization by $35 billion and raised its quarterly dividend by 10.5
Investors were unmoved, sending shares of the world's most valuable
listed company down 1.9 percent at $144.65 in after-hours trading.
Apple sold 50.76 million iPhones in its fiscal second quarter ended
April 1, down from 51.19 million a year earlier.
Analysts on average had estimated iPhone sales of 52.27 million,
according to financial data and analytics firm FactSet.
Apple Chief Financial Officer Luca Maestri argued the decline was not as
bad as it looked, given the peculiarities of how phone sales are
The company reports what are called "sell-in" figures for the iPhone, a
measure of how many units it sells to retailers, rather than
"sell-through" figures, which measure how many phones are actually sold
Maestri said the company reduced the volume of inventory going through
its retail channel by about 1.2 million units in the quarter, meaning
the company sold about 52 million phones to customers on a sell-through
Despite the dip in unit sales, iPhone revenues rose 1.2 percent in the
quarter, helped by a higher average selling price.
Expectations are building ahead of Apple's 10th-anniversary iPhone range
this fall, with investors hoping that the launch would help bolster
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.
"There is a general softening in phone demand to contend with as well as
expectations of a big upgrade, all of which softens the blow of this
quarter's miss," said James McQuivey, a Forrester Research analyst. "If
we see Apple downplaying expectations before the next upgrade cycle, it
might mean that the company isn't confident it will beat those
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Members of the media film the new iPhone 7 at an Apple store in
Beijing, China, September 16, 2016. REUTERS/Thomas Peter/File Photo
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.
For the second quarter, the company's net income rose to $11.03 billion,
or $2.10 per share, compared with $10.52 billion, or $1.90 per share, a
Analysts on average had expected $2.02 per share, according to Thomson
Revenue rose 4.6 percent to $52.90 billion in the quarter, compared with
analysts' average estimate of $53.02 billion.
A 17.5 percent jump in the company's services business - which includes
the App Store, Apple Music, Apple Pay and iCloud - to $7.04 billion,
"We are particularly encouraged by the fact that service revenue is
nowhere near as cyclical as product revenue," Neil Saunders, Managing
Director of GlobalData Retail, wrote in a note to clients.
Apple's revenue from the Greater China region fell 14.1 percent to
$10.73 billion in the quarter, as cheaper rivals in the region chipped
away at sales.
Maestri said that sales of Macs and the company's services were strong
in China during the March quarter. “The performance we’re seeing in
China should get better going forward this year,” he said.
Apple's gross margin hit 38.9 percent, slightly ahead of analysts'
average expectation of 38.7 percent, despite higher prices for memory
chips. The company said it expects gross margins next quarter between
37.5 percent and 38.5 percent, versus analysts' expectation of 38.3
percent, according to FactSet.
“NAND and DRAM (memory chips) are under pressure right now in terms of
some price pressure. We saw that in the March quarter and expect that to
continue into the June quarter, but for all the other commodities, we
see prices declining,” Maestri said.
(Reporting by Anya George Tharakan in Bengaluru and Stephen Nellis in
San Francisco; Editing by Sriraj Kalluvila and Bill Rigby)
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