iPhone Sales To Blame For Apple Earnings Tumble - InformationWeek
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4/27/2016
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iPhone Sales To Blame For Apple Earnings Tumble

Apple experienced its first quarterly decline in 13 years due to a slowdown in iPhone sales, which fell for the first time in the smartphone's history.

10 iPhone, iPad Apps For Data Nerds
10 iPhone, iPad Apps For Data Nerds
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Apple failed to meet analysts' expectations for its second fiscal quarter of 2016. During its April 26 earnings call, the company reported $50.6 billion in revenue and $10.5 billion in net income, or $1.90 per share.

These numbers mark a significant 13% decline from the same quarter a year ago, when Apple generated $58 billion in revenue, $13.6 billion in net income, and $2.33 per share.

Analysts had expected Apple to report revenue of $51.97 billion and $2 per share during its most recent quarter, Reuters reported. Today, Cupertino announced its first year-over-year decline in 13 years and caused share prices to fall about 8%.

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Much of the decline was related to an overall downturn in iPhone demand. Apple sold 51.2 million iPhones this quarter, a 16% decline from 61.2 million units sold during Q2 2015. This marks the first drop in iPhone sales since the product line was launched in 2007.

Apple CFO Luca Maestri noted it's tough to compare this year's numbers with those from last year, when the iPhone 6 caused sales to skyrocket. He also mentioned the strong US dollar has affected sales in international markets, and the average iPhone price fell to $642, from $659 during the same quarter last year.

This quarter's numbers did not include sales of the iPhone SE, which started shipping on March 31. CEO Tim Cook noted the demand for the iPhone SE is strong, to the point Apple is supply constrained at this time, but it's unclear whether the smaller iPhone will cause a turnaround in sales.

Apple's second-strongest revenue generator was its services business, which was largely driven by sales in the App Store. Services brought in $6 billion during Q2, marking a 20% increase year-over-year.

The remaining hardware in Apple's lineup could not compensate for the iPhone slowdown. iPad sales hit 10.3 million, down from 12.6 million during Q2 2015. The company sold 4 million Macs during Q2, a decline from 4.6 million last year.

Prior to today's release, Apple was expected to report its first quarterly sales drop in more than 10 years. Industry analysts anticipated Cupertino would announce $52 billion in revenue, which would have marked a 10% year-over-year decline.

The predicted reason behind Apple's revenue drop was lower demand for iPhone. In a research note published ahead of the earnings call, KGI Securities analyst Ming-Chi Kuo stated iPhone shipments would hit 190 million units at worst, and 205 million at best, during 2016.

(Image: Billnoll/iStockPhoto)

(Image: Billnoll/iStockPhoto)

Both of Kuo's predicted scenarios fall short of analysts' expected total of 210 million to 230 million units shipped for the year.

Apple is quietly responding to the slowdown by cutting back on hiring workers. Over the last several weeks, the company has reportedly cut all of its contract recruiters, VentureBeat wrote, citing sources close to the matter. Some full-time recruiters have also been laid off.

"You always need to have something new coming out to justify hiring," the source said. Given that Apple is also reportedly cutting back on smartphone production, it doesn't seem as though the trend is poised to turn around in the near future.

Smartphone innovation will be critical to Apple's financial performance over the next year. The iPhone 7 could be a catalyst for positive change or fail to meet consumer expectations, which would put Apple in greater competition with an increasingly saturated market.

Apple's outlook for its fiscal third quarter is not optimistic. Cupertino expects it will generate between $41 billion and $43 billion in revenue. Wall Street estimates predicted $47.3 billion for the upcoming quarter.

Kelly Sheridan is the Staff Editor at Dark Reading, where she focuses on cybersecurity news and analysis. She is a business technology journalist who previously reported for InformationWeek, where she covered Microsoft, and Insurance & Technology, where she covered financial ... View Full Bio

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TerryB
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TerryB,
User Rank: Ninja
4/29/2016 | 2:39:39 PM
Re: Coincidence or the end to contracts
My recommendation was $300 (and I participate in program also, meaning would affect me too) but HR and our President decided on $500. Their logic was they want these people to have phone for work (with our Corp email pushed to it) so they wanted to cover more of cost. My logic was people are going have a phone anyway so encourage them to be as frugal as possible. Plus I expect prices to plummet very quickly, which of course is just my opinion after watching things like desktop/tablet market.

I hear you on prices, it was unbelievable to see true price of these phones. On my AT&T portal, once they started showing price/installments, the newest iPhone (16GB) was $830 and a 16GB Galaxy S6 was $585. Cheapest phone they had listed was a Kyocera in the $375 range. It was eye opener.
impactnow
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impactnow,
User Rank: Author
4/29/2016 | 2:03:05 PM
Re: Coincidence or the end to contracts
Many companies aren't being as generous with the stipend for a phone. There appears to be no ceiling on the price of phones but as more and more people have to buy them even their brand loyalty may be questioned. I was personally appalled at the price of phones the las time I went shopping. It's getting hard to get a phone at even the $500 mark without going to last year's model.
TerryB
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TerryB,
User Rank: Ninja
4/29/2016 | 1:00:56 PM
Re: Coincidence or the end to contracts
@vnewman, you may have a point, brand loyalty is hard to peg sometimes. But I just saw on another article on this site where Apple phones only 15% of market anyway. They may keep that loyal 15% but have to bring prices inline to expand that.

At our biz unit, we just went BYOD versus me managing everything thru Corp AT&T contract. What I've observed is people who were getting Samsung Galaxy or iPhone when I was getting subsidized $199 or $299 price are now buying all kinds of different things when buying the phone is their responsibility. Our policy is to kick in $500 towards a phone every 2-3 years (if they need phone), the rest on them. $500 doesn't cover either Galaxy or iPhone now (I expect that to change rapidly), people are buying other types of Android phones under that price point.

Much like computer market, I expect the hardware to become commodity and the o/s to drive the allegiance. Will be interesting to see this play out.
vnewman2
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vnewman2,
User Rank: Ninja
4/29/2016 | 12:07:33 PM
Re: Coincidence or the end to contracts
@TerryB - I hear you, but Samsung doesn't have the cachet that Apple still has and many people won't be swayed by the cheaper price point.  With Apple products, there's this feeling that something great is about to come - something different, something revolutionary - people hate to miss out on things like that, especially with technology.  If you make the switch, you risk losing out.
vnewman2
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vnewman2,
User Rank: Ninja
4/29/2016 | 11:58:32 AM
Re: Coincidence or the end to contracts
I feel like investors are overreacting to this news.  You can't really make a fair comparison between Q2 a year ago when Apple was offering 2 products with distinct features.  And the S-series releases typically don't perform as well historically either.  Now if the iPhone 7 bombs, then I think people have a reason to worry.  This is premature in my eyes.  
impactnow
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impactnow,
User Rank: Author
4/28/2016 | 5:59:32 PM
Re: Coincidence or the end to contracts
The end of discounted phones and contracts is going to hit the phone manufacturers hard. I see lots of old iPhones in use when the upgrade time comes and the $600 price tag becomes a reality many will think twice.
TerryB
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TerryB,
User Rank: Ninja
4/28/2016 | 1:02:15 PM
Re: Coincidence or the end to contracts
Agreed. Let's see how many people really love their Apple phone now that they know it is $200 more than, say, a Samsung Galaxy.

If this market doesn't start behaving exactly like the PC and tablet market then there is not enough competition or collusion is going on. Apple better get used to this.
impactnow
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impactnow,
User Rank: Author
4/27/2016 | 5:11:26 PM
Coincidence or the end to contracts
I don't think this is a surprise since wireless providers stopped offering discounted phone and increased their prices they are strangling consumers with $600 phones and $100 a month contracts. Other phone manufacturers will surely see the same impact from the premium phone pricing.
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