While the plunge in Twitter share moments ago put those looking forward to AAPL’s earnings on edge, Tim Cook delivered, beating on both the top and bottom line, reporting Q3 revenue of $42.4 billion, which declined 15% but above the $42.1 billion expected as a result of better than expected iPhone sales, with the company selling 40.4 million units in the quarter, down 15% but also above the 39.9 million expected.
Helping the bulls, Apple said demand for the iPhone was getting stronger and that the decline in sales of its flagship device has passed the “low point”
Still, despite the beat Apple reported a decline in sales and profit lower by 27% Y/Y as a result of a 33% plunge in China sales, while forecasting a third straight quarterly revenue drop, dragged down by slowing demand for iPhones amid a lackluster global smartphone market and intensifying competition in China.
The result in a nutshell:
- APPLE 3Q EPS $1.42, GAAP EPS EST. $1.39
- APPLE 3Q REV. $42.4B, EST. $42.1B
- APPLE SOLD 4.25M MACS IN 3Q, EST. 4.4M
- APPLE SOLD 40.4M IPHONES IN 3Q, EST. 39.9M
- APPLE 3Q IPHONE ASP $595.26, EST. ABOUT $606
- APPLE SEES 4Q REV. $45.5B-$47.5B, EST. $45.5B
- APPLE 3Q GREATER CHINA SALES $8.85B, VS $12.5B IN 2Q
- APPLE 3Q AMERICAS SALES $17.96B, VS $19.1B IN 2Q
Key notes:
- Fiscal third-quarter revenue fell 15 percent to $42.4 billion. Analysts had predicted revenue of $42.1 billion. The drop marked the first back-to-back quarterly sales declines since 2002. Revenue from greater China slumped 33 percent.
- IPhone unit sales for the quarter fell 15 percent from a year earlier to 40.4 million. Still, that exceeded the average estimate of 39.9 million.
- Fourth-quarter revenue will be $45.5 billion to $47.5 billion, the Cupertino, California-based company said Tuesday in a statement. On average, analysts projected $45.5 billion. A year earlier, sales were $51.5 billion.
- Gross margin in the period that ends in September will be 37.5 percent to 38 percent.
Apple’s full guidance:
- revenue between $45.5 billion and $47.5 billion: this would represent a third quarterly decline in revenues
- gross margin between 37.5 percent and 38 percent
- operating expenses between $6.05 billion and $6.15 billion
- other income/(expense) of $350 million
- tax rate of 25.5 percent
The Big Picture (via Bloomberg):
With the iPhone accounting for almost two-thirds of sales, Apple has felt the brunt of a slowdown in the global smartphone market. That’s been made worse by deterioration in China, where consumers are choosing cheaper handsets over Apple products – even the low-end iPhone SE introduced earlier this year. Chief Executive Officer Tim Cook has sought to emphasize surging revenue from services, such as the App Store, iCloud storage and Apple Music, as a way of making up for cooling device sales. Yet those businesses still represent just a fraction of revenue compared with the iPhone, which may not be significantly revamped until next year as consumers wait ever longer to upgrade their handsets.
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Luca Maestri, chief financial officer, told the FT that Apple was able to clear more iPhone inventory than it had anticipated and that unit sales fell less than they had done in March, which he said had “turned out to be the low point for our cycle”. “Customer demand for our products was stronger than we had anticipated 90 days ago on a number of fronts.”
Revenues from the iPad also grew for the first time in many quarters, thanks to the higher-priced iPad Pro, although on a unit basis the tablet continued to decline.
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What Tim Cook said in the earnings release:
“We are pleased to report third quarter results that reflect stronger customer demand and business performance than we anticipated at the start of the quarter,” said Tim Cook, Apple’s CEO. “We had a very successful launch of iPhone SE and we’re thrilled by customers’ and developers’ response to software and services we previewed at WWDC in June.”
“Our Services business grew 19 percent year-over-year and App Store revenue was the highest ever, as our installed base continued to grow and transacting customers hit an all-time record,” said Luca Maestri, Apple’s CFO. “We returned over $13 billion to investors through share repurchases and dividends, and we have now completed almost $177 billion of our $250 billion capital return program.”
And the quarter in charts.
Revenue:
Sales breakdown by product:
Sales by Geography:
Gross cash:
And net cash:
Finally, while last quarter the market threw up all over the company’s earnings, this time the kneejerk reaction has been favorable, pushing the stock over 5% higher.
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