Apple: Is the Best over?

By : |April 27, 2016 0

Apple knew it was coming. The tech titan had predicted its fortune in January only. Tuesday saw an official stamp on the predictions. Apple Inc. posted its first quarterly decline in revenue in 13 years, ending a historic run for the world’s most valuable company and stoking questions about whether its best days are behind it.

In an increasingly saturated market, the company’s sales dropped by more than a quarter in China, its most important market after the United States, and it also forecast another disappointing quarter for global revenues.

Its shares fell about 8 percent, dropping below $100 for the first time since February. A hike in Apple’s share buyback and dividend, as well as bumper revenue from services, failed to mollify investors.

Apple’s results were in tandem with other disappointing quarterly reports from tech giants like Microsoft Corp, Google-owner Alphabet Inc, and microblog Twitter who also reported results on Tuesday that missed expectations.

Apple said it sold 51.2 million iPhones in its second fiscal quarter, down from 61.2 million in the same quarter a year ago but above analysts’ estimates of about 50 million devices.As iPhone revenue slows, sales of Apple’s other products haven’t compensated for the shortfall. iPad sales fell for a ninth-straight quarter. Apple said it sold 10.25 million iPad’s during the quarter, down 19 percent. Its newest product, the Watch, generated $6 billion in sales in its first year, by some analysts. However, that barely registers on the company’s annual revenue of $233 billion.

While Apple executives had predicted iPhone sales would decline this quarter, they must reassure investors that the drop represents a momentary roadblock, rather than a permanent shift for the product that fueled its meteoric rise.

After years of blockbuster sales, many investors fear the iPhone has reached saturation, spelling the end for Apple’s exponential growth. “Apple needs to come up with a radical new innovation or product rather than just the current incremental improvements to existing products. This is the only way in which it will reinvigorate sales growth,” says Neil Saunders, chief executive of research firm Conlumino.

But for all of the concerns about Apple’s growth, the company still generated profits in the March quarter that are expected to exceed the combined earnings of technology peers Alphabet​ Inc., Facebook Inc., and Inc.

In an interview with The Wall Street Journal, Mr. Cook said it was “a challenging quarter,” but he dismissed concerns that Apple was in decline. He attributed the slump to short-term factors such as the strong dollar, difficult economic conditions, and difficult comparisons for iPhone sales.

“It’s a tough bar to hurdle, but it doesn’t change the future. The future is very bright,” he said.

Cook also conceded that the iPhone 6S was driving customers to replace phones at a much lower rate than the 6. “I don’t mean just a hair lower; it’s a lot lower,” he said. “If we’d had the same rate on 6S as 6, it would be time for a huge party.”

To find new areas of growth, Apple is pushing into new, but uncertain markets, including electric vehicles and augmented reality. Apple is also expanding its services business linked to the strength of the iPhone. Apple said services revenue, including its App Store and Apple Pay, rose 20 percent to $5.99 billion. It said its streaming music service now has 13 million subscribers, up from 11 million in January.

Apple forecast third-quarter revenue of $41 billion to $43 billion, short of the analysts’ consensus of $47.3 billion.

Apple also said it was raising its capital return program by $50 billion through a $35 billion increase in its share buyback authorization and a 10 percent rise in the quarterly dividend.

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