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.

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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, iPad, iPhone, Smartphones, Tablets

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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