Yesterday was another reporting season but a lot of analysts were particularly watching Apple perhaps because there was a report in December that suggested that 2015 could be the year that iPhone sales could peak.
Apple released it earnings report and you can see a copy of it here.
So what happened yesterday?
First it’s not all bad news for Apple but in line with expectations, Apple’s 13 years of continuous quarterly revenue growth came to an end yesterday. Revenue dropped 13 per cent as iPhone sales fell. The second quarter revenue of $50.6b/10tr Naira/5tr KES was down $58b/11tr Naira/5.5tr KES in the same period last year. Net Income was down to $10.5b as the company forecasts that the third quarter sales will drop even further to $41b-$43b when compared to $49b last year. Another key point to note is that 51.2 million iPhones were sold within the same period which also represents a 16% drop from the same period last year and at the time of the report from Apple yesterday, their shares had dropped by about 7%. Rival smartphone makers who popularly use Google’s Android are gradually eroding Apple’s dominance even in the United States where nearly half of the smartphones sold are iPhones. This comes as these competitions offer more affordable alternatives to Apple’s products. This may have prompted Apple to drop the cost of their latest product iPhone SE.
The results besides the fierce competition from competitors was also as a result of the slower growth in China as seen in the chart above. Apple has a very huge market there and is considered Apple’s second most important region.
The Apple CEO has described the results as a pause and not a permanent change. The new iPhones went on sale late in March to have any major impact on the quarterly results.
Apple shifts focus
As devices (iPhone and iPad) post disappointing results, Apple sees a ray of hope in services from iTunes to the App store. “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 CEO Tim Cook. Apple Music streaming service now has 13 million paying customers up from 11 million in February. Spotify which is Apple Music’s main competition now has about 30 million customers even though the Apple’s streaming service is less than a year old since it was launched last year June. Revenue from Apple’s service now stands at $5.99b/1.1tr Naira/550b KES which represents a 20 per cent year on year increase. “Apple Pay is growing at a tremendous rate,” said Tim Cook. With this, Services represent Apple’s second largest revenue source just behind the iPhoe but above the Mac and iPad.
Impact of Legal fight with the government
Apple was embroiled in a legal battle with the FBI over unlocking an iPhone 5c that belonged to an alleged terrorist. The FBI eventually succeeded without Apple’s help after paying about a million dollars to acquire the software to do this. The FBI agreed though that it was still very difficult to break into newer iPhone models. This could have implications on the overall security of Apple’s products which have been deemed practically impenetrable until now. We are yet to see the impact of this on the overall sales of Apple products. In any case, it took the FBI what a private citizen may not be able to afford to break into the device.
Apple has over a billion active devices. I guess analysts will closely monitor the quarter 3 results and when they are out, we’ll bring it to you.