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 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.
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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.
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.
(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)
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