Apple Q3 Revenue Down 15% As iPhone Sales Drop Again

Apple’s third-quarter revenue and net income fell for the second consecutive quarter as the iPhone maker reported $42.36 billion in revenue, down 15 percent from $49.6 billion a year earlier, and $7.8 billion in net income, a drop from $10.7 billion.

Apple’s year-over-year declines in revenue and net income for two straight quarters contrast with the company’s prior string of 13 years of quarterly revenue reports without a decline, dating back to 2003. Bringing that streak to a halt, the company reported revenue of $50.6 billion in the second quarter ended in April, 13 percent lower than the $58 billion the company posted a year prior.

The company’s third-quarter revenue of $42.36 billion did, however, beat the $42.1 billion estimates of an average of 36 analysts surveyed by Thomson Reuters.

Third-quarter earnings per basic share came in at $1.43, down from $1.86 per share in 2015.

Apple results

Hitting the company’s revenue and net income hard were a 15 percent drop in global iPhone sales to 40.4 million units in the quarter, down from 47.5 million in the third quarter of 2015. Sales of iPads dropped 9 percent to 9.95 million from 10.9 million a year ago, while Mac sales fell by 11 percent to 4.3 million from 4.8 one year ago.

Apple’s revenue from U.S. sales fell 11 percent in the quarter to $18 billion from $20.2 billion one year ago, while its revenue in China dropped 33 percent to $8.8 billion from $13.2 billion in the third quarter of 2015.

Tim Cook, Apple’s CEO, didn’t let the lower revenue and net income figures get in the way of his optimism.

“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,” he said in a statement. “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 [Apple’s Worldwide Developers Conference] in June.”

In two bright spots, Luca Maestri, Apple’s chief financial officer, said in a statement that the company’s services business grew by 19 percent year-over-year in the quarter and that its App Store revenue “was the highest ever, as our installed base continued to grow and transacting customers hit an all-time record.”

iPhone decline

The decline in iPhone sales that began in the second quarter had its roots in the first quarter of the year, when Apple sold 74.7 million iPhones, which was essentially flat from the 74.5 million sold in the same quarter a year earlier. In the fiscal first quarter, Apple’s revenue was riding high at $75.9 billion, a new Apple record at the time.

The company’s first-quarter net income was $18.4 billion, which set another quarterly record, up from $18 billion in the same period a year earlier. Earnings rose to $3.28 per diluted share, up from $3.06 in the same quarter in January 2015.

But in this year’s fiscal second quarter, iPhone sales fell 18 percent to 51.2 million units from 61.2 million in the same quarter in 2015. The second-quarter iPhone sales were also down sharply—by 32 percent—from the 74.78 million in the first quarter of 2016. In dollars, iPhone sales dropped to $32.9 billion in the second quarter, down 18 percent from $40.3 billion a year prior.

Analysts View

Jack E. Gold, principal analyst at J. Gold Associates, told eWEEK that part of the problem for Apple is that “iPhones continue to slide based on maturing markets not updating as soon as in previous years and a ‘saturation effect’ of fewer new customers.”

That has a large impact on Apple since the company brings in about two-thirds or more of its revenues from iPhone sales, said Gold, so “declines are particularly troubling there.”

The company did have some good news from the 19 percent revenue increase from services, “but given the relatively low percentage of the total revenues, this hardly makes up for the slump in phone sales,” he added.

The company’s “overall margins were hurt by more sales of lower cost units [iPhone SE], reflecting a general trend in the markets, and a trouble spot for Apple trying to be a premium supplier with high margins.”

Originally published on eWeek

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