Apple released its latest earnings Tuesday, and while the Cupertino, Calif.-based company once again put up an impressive quarter, there was one red flag that got people talking.
Sales of the company’s hugely popular iPhone grew just 1 percent year-over-year, marking the devices slowest growth ever and setting tongues wagging about the future of the iPhone.
Everett Rosenfeld of CNBC had the earnings news:
Apple reported fiscal first quarter earnings that beat analyst estimates, but came in below expectations on revenue, iPhone sales and more.
The company said it saw quarterly earnings of $3.28 per share on $75.9 billion in revenue. Analysts had expected Apple to report earnings of about $3.23 a share on $76.54 billion in revenue, according to a consensus estimate from Thomson Reuters.
Apple CEO Tim Cook described the quarter to CNBC as a period in which there were “a lot of great things happening in a turbulent environment.”
Apple shares did not immediately move much on the news, but then shifted to a more than 1 percent slide in after-hours trading.
The company also reported that it sold 74.8 million iPhones in the quarter, missing expectations of about 75.46 million, according to StreetAccount.
Apple’s most recent iPhone model, the 6S, has been viewed by many analysts as boasting too incremental an improvement over prior iterations to warrant an upgrade — even for those who regularly trade in for the newest model. In fact, Cook said on the company’s earnings call that he expects iPhone unit sales to decline in the fiscal-year second quarter.
Cook told CNBC that while the second quarter will be the iPhone’s toughest comparison, “the year will get better as we move forward.”
Mac and iPad sales also came in weaker than expected. The tablets saw 16.1 million units in the quarter, compared to an expected 17.93 million, and Macs recorded 5.3 million compared to estimates of 5.8 million.
Still, Apple highlighted its earnings success in its quarterly report. The revenue of $75.9 billion compares to $74.6 billion in the year-ago period. Cook said the company would have seen a growth rate of 8 percent in constant currency — instead of 2 percent.
Katie Benner of The New York Times described the one big limitation in Apple’s earnings call, slowing iPhone sales:
Apple on Tuesday reported results for its fiscal first quarter that showed iPhone sales rose less than 1 percent from a year earlier, the slowest year-over-year growth rate ever for the device, which accounts for about two-thirds of the company’s revenue. Apple also issued a sales forecast that signaled that the sluggishness would continue, with the company projecting its first revenue decline in more than a decade.
The results and guidance reflect how Apple, under its chief executive, Timothy D. Cook, is grappling with becoming a maturing tech company and is now entering a period of slow growth. While Apple once delivered high double-digit revenue gains on the back of soaring sales of the iPhone and other devices, that has decelerated as the iPhone has begun saturating the market and the company has not introduced a new blockbuster device.
The performances raise questions about what Apple will do to satisfy investors who want growth and consumers who want new, cutting-edge technology. Some investors are already treating Apple more like a value stock than a growth stock, associating the company with predictable business results and a reliable dividend rather than runaway revenue growth.
In a conference call with analysts on Tuesday, Mr. Cook said that the slowdown at Apple was indicative of greater global economic and financial market uncertainty.
“We’re seeing extreme conditions, unlike anything we’ve experienced before, just about everywhere we look,” Mr. Cook said, calling the global macroeconomic environment “challenging.”
Anthony Mirhaydari of Moneywatch explained how the weakening of Apple’s iPhone sales has a greater impact than an earnings miss:
Something more is clearly needed, and not just for Apple shareholders. The company’s fading fortunes will touch just about everyone.
For one, the company’s $555 billion market capitalization means that pretty much every IRA and 401(k) account features Apple as its single largest stock holding. It’s the main component of the S&P 500 (at 3.3 percent) and the Nasdaq 100 (at 11.1 percent). Alphabet, parent company of Google, isn’t far behind with a market cap just shy of $500 billion.
And Apple is a big part of the Dow Jones industrials index as well (at 4.1 percent), although because the Dow is a price-weighted index, Goldman Sachs claims the top spot with a share price near $155 and a 7.1 percent weighting.
Where Apple goes, the overall market tends to follow. In fact, the S&P 500 SPDRs and Apple have maintained a 73 percent statistical correlation over the past five years. That means 73 percent of the movement in the overall stock market follows the moves in Apple.
The dimming of the excitement over smartphones also has negative consequences for everything from Apple’s physical component suppliers to app and game developers and the guy in your local mall replacing cracked phone screens. As the growth in the number of new customers experiencing mobile computing power in their pocket slows from exponential to something far less exciting, so too will the fortunes of these ecosystem companies.
Shares of component suppliers like Cirrus Logic, Skyworks Solutions and Avago Technologies have been slammed over the past month after Nikkei Asian Review reported Apple would cut production of its iPhone 6 by nearly a third in 2016’s first quarter, meaning fewer orders and lower revenues.
