Apple shares fell by 7% in after-hours trading as it reported its first revenue decline in 13 years, and the first-ever decline in unit sales of the iPhone.
Apple reported revenues of $50.6bn for the first three months of the year, down 13% from the year before (down 9% in constant currency), with earnings per share falling by 18% to $1.90. Both figures were well below analysts' expectations.
Apple sold nearly 51.2 million iPhones in the period, down 10m from the year before. The decline in unit sales was widely anticipated, and reflected very tough comparatives due to the record launch of the iPhone 6 a year before. However, the average selling price for each iPhone sold fell well below expectations, down 7% to $642; as more consumers opted for older, lower priced handsets such as the iPhone 5s.
Sales in Greater China were particularly weak, with revenues down 26% to $12.5bn due to a drop off in tourism in Hong Kong. Revenues from mainland China fell 11%, partly because of a difficult comparison with the year before when sales jumped 81%.
Apple also issued a downbeat outlook for the current quarter, forecasting revenues of $41bn-$43bn compared to the $47bn expected by analysts.
On a more positive note, services revenues rose by 20%, to nearly $6bn, including 35% growth in App Store revenues. Raising the proportion of service revenues is a key part of the group's strategy, since this is a nice recurring income stream which can help offset the lumpiness of iPhone sales. This is now the second-largest revenue generating category.
Apple ended the quarter with over $150 billion of net cash, 90% of which resides outside of the United States. This strong net cash position, combined with its prodigious cash flows, enabled Apple to expand its share repurchase programme by $35bn to $175bn. The Company also increased its quarterly dividend by 10% to $0.57/share.
Overall though, this is a weak quarter from Apple and will fuel concerns that the company's historic period of growth has come to an end. On a conference call, Apple chief executive Tim Cook rejected these suggestions; attributing the slowdown in the smartphone market to temporary economic weakness.
The upcoming launch of the iPhone 7 will be keenly awaited, since this will be crucial in driving a return to growth. In the long run, the group continues to see many opportunities ahead, particularly in emerging markets, where smart phone penetration remains significantly below that in the developed world.
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