The Apple paradox continues.
The company dropped its fiscal third quarter earnings today, and the news was not good—at least in the weird world of Apple's astronomical numbers. The company saw sales and quarterly revenue drop, the second consecutive decline in both metrics. "Consecutive decline" is never a phrase investors want to hear. But if it's Apple, still the most valuable company in the world, any talk of decline seems grim compared to the past glory of record profits.
The iPhone remains Apple’s primary money-maker, accounting for about two-thirds of its revenue. But Apple is grappling with slowing global demand for smartphones, as well as a cooling desire for iPhone in China. Apple hasn’t released a significantly different phone since introducing the iPhone 6 and 6 Plus nearly two years ago. The two handsets saw truly saw massive sales, but more and more US customers appear content with keeping handsets longer. Yes, some fairly good demand for the iPhone SE helped to pad sales this quarter. But while Apple waits to see if its presumed iPhone refresh in September spurs fresh new interest—and new sales—the company is contending with a sobering reality, at least for a company still awash in billions.
Apple reported $7.8 billion in profit last quarter, or $1.42 per share, beating analysts’ expectations of $1.39. But that's still down 27 percent from the $10.6 billion it made in the same period a year ago. Revenue, meanwhile, declined 15 percent to a little more than $42.3 billion compared to $49.6 billion a year ago—still within the expectations of Apple and analysts.
One (small) bright spot might be iPads. Apple sold almost 10 million tablets, about 1 million more than expected, marking the first year-on-year revenue growth for the product in 10 quarters. One caveat: Apple CEO Tim Cook credited higher iPad sales to the iPad Pro, which wasn’t available last year.
Meanwhile, Apple has pushed hard to make services a meaningful part of its business. As iPhone sales have slowed, Apple has focused on the App Store, iTunes, streaming-music subscriptions, and mobile payments. It seems to be working, if modestly. Apple’s software and services generated $6 billion in revenue, up 19 percent compared to the same quarter a year ago. That makes it one area that’s still growing, but it's still only a fraction of the company’s overall business.
If Apple's expanding strategy works, that figure could grow. Cook said he was optimistic about longterm opportunities for growth—especially in India and China, where the company made an ambitious bet on a sector not in its traditional domain. In May, Apple recently invested $1 billion in the Chinese ridesharing company Didi Chuxing, raising the possibility that Apple may start competing on services well beyond apps, music, and movies. "It was an unusual investment; we don’t have a long history of doing these," Cook said on an earnings call with reporters. "We think that we’ll learn a lot from that business and the Chinese market even beyond what we currently know."
With rumors swirling that Apple may try making cars its next big business, such intelligence could come in handy.
