Apple Q2: iPhone blasts expectations, makes up for iPad decline

Apple Q2: iPhone blasts expectations, makes up for iPad decline

Summary: Apple's iPhone sales did far better than expected, despite a three-month period in the company's history in which nothing happened.

(Image: CNET/CBS Interactive)

Apple's cash-cow iPhone unit blasted analyst expectations, making up for one of the quietest three-month periods in the company's recent history.

Apple reported on Wednesday fiscal second-quarter income of $10.22 billion on earnings of $11.62 per share (statement). Revenue was $45.6 billion, way past its outlook from its January earnings.

Wall Street was expecting Apple to report earnings of $10.17 per share on revenue of $43.55 billion.

In the three-months ending March 29, the company sold 43.7 million iPhones, up from the 37.4 million estimated by Wall Street.

But the technology giant's iPad line-up plummeted. iPads remain one of Apple's main business-focused drivers, particularly bring-your-own-device (BYOD) users who buy the tablet for work and home. 

iPad sales were 16.35 million, compared to 19.2 million expected by Wall Street.

Apple also announced a massive bump in its share buyback and dividend program. In a statement, the company said it would also offer a seven-for-one split, meaning every shareholder will receive six additional shares for every share held so far. Since August 2012, the company said it has spent $66 billion in cash on its capital return program.

Apple shareholders will also get a dividend of $3.29 per share, up by about 8 percent on previous quarters.

By the numbers:

  • iPhones: 43.7 million sold, up from 37.4 million from the same period a year ago. Analysts were expecting 38.8 million according to average estimates. 

  • iPads: 16.35 million sold, down from 19.4 million from the same period a year ago. Analysts were expecting 19.2 million according to average estimates. 

  • Macs: 4.1 million sold, up from 3.9 million from the same period a year ago. Analysts were expecting 4 million according to average estimates. 

  • iTunes, Software & Services: $4.57 billion in revenue, up from $4.1 billion from the same period a year ago. Analysts were expecting $4.55 billion according to average estimates. 

It's little surprise that sales are down sequentially on its first quarter, which is typically its busiest period with the December holiday season. Apple's sales often go down in its second and third quarters, ahead of anticipated device releases towards the end of the year.

But the larger than expected decline in iPad sales will be a worry for Apple, which remains the market leader in the tablet space — though at this rate of decline, it might not be long before rivals begin to catch up.

Apple chief executive Tim Cook said late last year to keep an eye out on 2014 for new products and services. But so far, Apple hasn't issued a single new product, with the exception of iOS 7.1, a minor iterative update to its mobile platform. 

We'll find out more on the next software versions, including OS X 10.10 and iOS 8 at the end of this fiscal quarter in June at the company's Worldwide Developer's Conference (WWDC).

In other news, former Burberry chief executive Angela Ahrendts will be joining Apple's executive team at the end of April, Cook confirmed on a follow-up earnings call.

Apple said for its fiscal third quarter outlook, it's expecting to bring in between $36 billion and $38 billion in revenue, in line with Wall Street, which was expecting $37.87 billion.

Apple's stock closed down 1.3 percent on the Nasdaq in New York at market close on Wednesday. In after-hours trading, shares were at the time of writing up by more than 8 percent.

Screen Shot 2014-04-23 at 4.52.29 PM
(Image: Google Finance)

Topics: Apple, iOS, iPhone, iPad, Smartphones, Tablets

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  • Sad news for lots of people.

    Those who were expecting a drop in iPhone sales proving that Apple is in decline as well as Mac sales hoping Apple too would be affected by the PC downturn. About all they have to hang their hat on is the lower iPad sales which apparently Apple was not surprised nor worried by.
    • News

      Sssshhh! Don't try to use logic on the trolls. It only confuses and angers them.
    • I wouldn't say "they are not surprised at the drop"

      "But the larger than expected decline in iPad sales will be a worry for Apple"

      They apparently estimated something higher, so I would imagine that they were surprised as the quarter drew to a close and they missed those estimates.

      Also, the 7 for 1 stock split they're talking about is a way to get investor interest back, which would mean they are worried about future investment going forward.

      It's still good news for Apple, but also worrying as they never had these worries a couple of years ago, where everything sold more then any previous quarter, and investors where buying stock no matter what the price.
      • I don't know how it works but I saw this comment.

        "iPad sales at high end of Apple expecatations, low for analysts."

        All due to channel inventory which is over my head.
      • ...and the share buyback programme

        Also to generate investor interest. I suspect it will rise above $100 even after the split.
      • Not based on channel inventory.

        Based on that alone, it proves you don't know what your fingers are a tap tap tapping away.
      • It's not Apple's first stock split.

        And honestly, at over $500 per share, not all THAT many people can afford to buy it. I really don't see anything to worry about.

        Secondly, as rfoto states, it was the ANALYSTS' expectations that were undercut, not Apple's when it comes to iPad sales.
    • Yeah. I am getting a little tired of everyone

      using the Wallstreet estimates instead of the company estimates as their barometer.
  • Real news is MSFT earnings...

    This is nothing compared to the MSFT announcement. WP 8.1 is a game changer. I know people will say Office is now out on the iPad, but it just FEELS different and it is not suitable for high powered CIOs like myself. My rep and I will be getting ready for tomorrow's blowout earnings call by heading to Daniel's Broiler early in the day.
    Mike Cox
    • Why troll

      I mean really
    • I don't expect "blowout earnings" by Microsoft.

      Not yet, anyway. The new CEO hasn't been in office long enough to have made a significant difference. It takes at least two quarters to have a visible difference.
  • iPad Pro

    They really need an iPad that runs finder and all the standard Desktop apps. Otherwise iPad is just a toy, and will struggle moving forward.
    • Call it

      The macPad. I think the 'i' branding is responsible for why a lot of people look down on Apple products as 'toys'. Mac though, still gets creative professional attention (rightfully or not) so they should capitalize on that.
      luke mayson
    • That concept failed for over a decade, Colbtron.

      It's clear that the 'Finder' concept is fading, whether you look at Windows or OS X. Windows has twice made jarring changes that have both times hurt their market because of the extent of those changes. Meanwhile, OS X makes incremental changes that lead more easily to an all-new concept which will likely be a melding of iOS and OS X within the next few years. The actual 'windows' concept is going to fade as each application will offer its own sub-panel on an overall desktop. Look for integration of apps and capabilities rather than continued segregation.
  • Strange

    This is the strangest phenomenon indeed. Of all the offering at Apple, the iPhone has to be the least attractive. It is an overpriced, way too narrow screened phone. The Android phones can easily handle tasks better. I just don't get it. Why to people pay so much to get less? Why cling to contracts when they cost you more in the long run? The iPhone doesn't have an easy changeable battery, and memory to pop in.

    What I would like to see is the Mac Mini with the same price, but with SSD for storage as standard for small SSD and larger SSD for $699. iMacs with 21.5" starting at $999 with 7200 spin HD and $1099 with an SSD.
    • The answer

      "My friend has one and he loves it". Peoples anecdotal experience is that iPhones are consistently good, and Android has performance issues.

      Neither of those things are statistically true, but that IS what you hear people say, and if you repeat something often enough it starts to sound true.
      luke mayson
    • Because people don't want to deal with Android.

      It is the Windows 95 of the mobile world in all the bad ways and many people are smart enough to stay clear of it.

      Yes, I have a Nexus. No, I don't like using Android on the Nexus.
    • Not so strange as you think

      Things aren't what they seem. The raw sales numbers never actually tell the whole story. So Apple's sells 43.7 million more phones! Hurray! That's nice on paper and great for the bean counters...but once you start looking who's actually buying these devices...and you compare that with Android and even Windows Phone...things don't look quite so good anymore.

      Android sales and Windows Phone sales are mostly now driven by a large number of first time smartphone buyers located all over the world that are continuously entering the market each year. That is no longer the case with the iPhone. Apple now gets their year on year sales 'records' and all those big profits from folks and enterprises who already own iPhones and are just replacing their old ones. In other words,they've got more iPhones sold and the numbers look impressive on paper as usual, but when the dust settles they don't actually have that many more iPhone users as a result of it. Apple's installed base isn't substantially increased by iPhone sales anymore. And it's getting worse each year. All they're really accomplishing now is getting iPhone users to upgrade more often to bolster their sales figures. That's the purpose of all the old device processing options going on in their stores these days. But Android phone sales do substantially increase the Android installed base and so do Windows Phone sales outside the US market...because they're attracting the first timers. Those two platforms are actually the ones fueling the growth of smartphone usage around the world while iPhone sales are now only fueling the use of the latest gadget by established iPhone users. That's why I don't laugh when I see Windows Phone selling 10 million devices per might seem puny on paper these days to the totally clueless observer...but I know that selling 10 million devices a quarter to new people is not the same thing as selling another 10 million devices to the same old upgraders.
      • This post is mostly false.

        With no facts to back up the mass rambling.
        • That what this forum is about

          Think Red sox vs Yankees. Facts? Why let facts get in the way of an argument on ZDNET.