Slowing iPhone sales derail Apple's second quarter; outlook tough

Apple sold fewer iPhones than Wall Street expected, signaling the end to more than a dozen years' worth of revenue growth.
Written by Zack Whittaker, Contributor on

Apple has posted a decline in quarterly revenue for the first time in more than a decade, thanks to lower-than-expected sales of its flagship iPhone.

It wasn't all that surprising given the company's fiscal first quarter saw just 1 percent growth year-over-year in iPhone revenue, where the company sees the bulk of its revenue. The company also warned of tough times ahead amid economic "softness" in China, Apple's second largest region after North America.

This round, iPhone sales were down by 19 percent year-over-year, which had a significant negative effect on its performance during the three-month period.

iPhone sales are expected to do better towards the end of the calendar year -- its fiscal first quarter -- thanks to holiday sales.

For now, here's what you need to know.

The Cupertino, Calif.-based technology giant reported a fiscal second-quarter earnings of $10.5 billion, or $1.90 cents a share (statement). The company made $50.6 billion in revenue.

Wall Street was expecting earnings of $2.00 per share on revenue on $51.97 billion.

That's a pretty big miss for Apple in both earnings and revenue.

Here's the breakdown for the quarter:

  • iPhones: 51.1 million, down 16 percent on the year-ago quarter
  • iPads: 10.2 million, down 19 percent on the year-ago quarter
  • Macs: 4.0 million, down from 12 percnet in the year-ago quarter
  • Services (which includes iTunes and Apple Pay): $5.9 billion, up 20 percent on the previous quarter
  • Other products (accessories and Apple Watch are included, but not broken out separately): $2.1 billion, up 30 percent on the previous quarter

Chief executive Tim Cook said the company did well, given the "strong macroeconomic headwinds" it experienced during the quarter.

"We are very happy with the continued strong growth in revenue from Services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices," said Cook.

On the follow-up call with media and analysts, Cook noted that the new iPhone SE was not included as part of the company's quarterly revenue.

Apple chief financial officer Luca Maestri said the drop in iPhones sales during the quarter was a "particularly challenging comparison to the record quarter a year ago when iPhone six grew 40 percent as we entered last March quarter."

"Also this year we reduced channel inventory by 450,000 units while we increased the inventory by 1 million units a year ago," he said

The company increased its quarterly dividend by 10 percent, and declared a payout of 57 cents per share for the second quarter.

Apple said for its current third quarter that it expects revenue between $41 billion and $43 billion, far below expectations.

Wall Street was expecting revenue on $47.32 billion. The company's stock ($AAPL) stock was down slightly at market close, and down more than 5 percent in after-hours trading.

(Image: Apple)
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