Business

How Android 'switchers,' a cheap iPhone, and the expensive iPad Pro saved Apple

Q3 2016 is probably the most interesting financial quarter Apple has had in a long time, and despite falling hardware sales across the board, Wall Street is happy with the end result. Here's why.

Written by Adrian Kingsley-Hughes, Senior Contributing Editor July 27, 2016 at 6:06 a.m. PT

It's been a long time since Apple has had to scrabble to find the silver lining in its financials -- they're usually so packed with silver linings that there's hardly any clouds in sight -- but yesterday's headline for its earnings report that highlighted how "service revenues" had grown by 19 percent shows just how much things have changed.

Apple's hardware business has hit a particularly rocky patch, with sales of iPhones, iPads, and Macs down year-on-year by between 9 percent and 15 percent, with the iPhone hit hardest, and the iPad coming off best.

The charts show iPhone sales in rapid decline, and iPad and Mac sales that are stagnant.

But Apple still had a strong quarter, and one that on the whole made Wall Street happy.

Here's why:

While the ASP (Average Selling Price) of the iPhone took a pretty big hit, from $641 last quarter to around $595, this is because of strong sales of the lower-priced iPhone SE both in developed and emerging markets, with, according to CEO Cook, "demand outstripped supply throughout the quarter" and the device "opening the door to customers that we [Apple] weren't reaching before."
The ASP for the iPad actually grew, from around the $430 mark where it has been hovering for a few quarters, to $490. As Cook pointed out, Apple had the "best iPad compare in 10 quarters, with revenue growing 7 percent thanks to the rollout of the 9.7-inch iPad Pro."
Android users are switching to iPhone. According to Cook, they, along with first-time buyers, represented "the lion's share of our iPhone sales in the quarter."
Macs sales too, according to Cook, "continues to gain a high percentage of new customers."
Apple's cash on hand has also decreased for the first time in seven quarters, and this is good news because it suggests that the company is finally figuring out how to leverage that $230+ billion stash it's sitting on. Not only did the company spend more on R&D -- $7.5 billion over the past 9 months, compared to $5.8 billion for the first 9 months of 2015 -- but it also made big investments, such as the $1 billion in Chinese car-hailing service Didi. Apple has also been returning more cash to investors.