After many records, Apple has a complicated fiscal second quarter of 2016; check out the highlights

After many records, Apple has a complicated fiscal second quarter of 2016; check out the highlights

Apple yesterday released the financial results for the fiscal second quarter 2016 and, after 13 years of records and more records, the company has seen its main numbers decline in a way it is not used to.

The company had a drop in revenue ($ 50.6 billion in FQ2 2016 vs. $ 58 billion in FQ2 2015), in profit ($ 10.5 billion vs. $ 13.6 billion), in sales of iPhones (51, 2 million units vs. 61.2 million), iPads (10.3 million vs. 12.6 million), Macs (4 million vs. 4.5 million), among others; however, the company saw a significant increase in revenue from services ($ 6 billion vs. $ 5 billion) and other products ($ 2.2 billion vs. $ 1.6 billion).

As always, Tim Cook (CEO) and Luca Maestri (CFO) attended an audio conference to explain and talk a little more about the details of these last three financial months of Ma. Before that, however, Cook gave an interview to Wall Street Journal (closed matter for subscribers) and “explained” the reason for the drop in sales of iPhones (the company's most important product today).

According to him, it was a challenging quarter due to the comparison with sales of iPhones in the second quarter of 2015, when demand for the iPhone 6/6 Plus was growing. The demand for the now old device was so great in 2015 that it prompted some consumers to upgrade earlier than normal, potentially undermining interest in a new switch to 6s.

But returning to the conference itself, here are our highlights of what was commented:

General comments

  • Cook said that, despite the fall, it was a very well executed quarter by the company if we take into account the adverse conditions of the market (appreciation of the dollar, some markets in crisis, etc.).
  • The user base, which has already exceeded 1 billion iOS devices, continues to grow at a very strong pace.
  • There were 15 acquisitions of companies in the last 4 quarters.
  • Maestri commented that, again, the quarter was hurt by the strong appreciation of the dollar; in what they call "constant currency", the company's revenue would have fallen "only" 9% instead of 13%.
  • The capital return program has now been expanded again for the next four quarters, reaching a total of $ 250 billion.
  • Dividend payments also increased for the fourth time, from $ 0.52 to $ 0.57 (almost 10% increase); coming to pay $ 12 billion a year, Apple is currently one of the largest dividend payers in the world.
  • Ma now has $ 232.9 billion in cash / negotiable securities; of these, $ 15.5 billion is in the USA.
  • The company ended the quarter with $ 72 billion in long-term debt and returned $ 10 billion to its investors.

iPhone

  • The number of people migrating from Android to the iPhone remains large, according to the CEO.
  • Cook said sales of iPhones 6s / 6s Plus from upgrades, migrations and new users are quite healthy (in the case of upgrades, at a rate slightly above that of the iPhone 5s and below that of the iPhone 6/6 Plus).
  • The loyalty of iPhones users remains very high, at 95% the highest of all devices on the market.
  • The migration rate (users of other mobile platforms for the iPhone) in this first fiscal semester of 2016 is the highest ever seen by Apple.
  • Sales of the iPhone SE did not enter this quarter, but demand is very strong (exceeding supply); according to Cook, it is a strategic device to attract new consumers.
  • The iPhone ASP was $ 642, compared to $ 659 a year ago; this is the result of the attractiveness of the most affordable models (iPhone 6/6 Plus and now SE).
  • The trend is that, with the distance from the launch of the iPhone 6s and the arrival of the SE, this average price drops even more.
  • The sale of iPhones grew 56% in India, a market where the company is investing more and more mainly in distribution channels.

iPad

  • Cook was always a guy who bet heavily on the iPad. And, according to him, the response to the 9.7-inch iPad Pro is being very good; in the next quarter, Apple expects the best comparative result of the past two years for the tablet.
  • According to Apple, it now holds 72% of the corporate tablet market in the U.S.
  • Speaking of corporate, the level of user satisfaction in the segment is 94%; there is also an intention to purchase new iPads for the next quarter of 71%.
  • The satisfaction level of home users using the iPad Air 2 is 97%.
  • 59% of people planning to buy a new tablet are planning to buy an iPad, a number three times higher than the second place in the survey.

Mac

  • Even as Mac sales drop, there are many new users embarking on the Mac / OS X experience for the first time; on average, we are talking about a 50% rate of new users in some countries, like China, the index goes up to 80% stratospheric.
  • As the computer market as a whole continues to fall, even with weaker sales Apple won market share.

Services

  • Service revenues were the highest ever seen by Apple, at $ 6 billion (20% more than in FQ2 2015).
  • The App Store broke a record this quarter, with 35% more revenue.
  • According to Maestri, the App Store generated 90% more revenue than Google Play if we compare the same period.
  • A new record was set for average user spending on the App Store.
  • Apple Music now has 13 million paid subscribers (regardless of who is still in the three-month trial period); as a result, Ma (Apple Music + iTunes (Music) Store) music revenue has reached an inflection point after many quarters of decline.
  • Regardless of the sales of new devices, having an installed base with more than 1 billion users is highly healthy for the company's recurring paid services (Apple Music, iCloud storage, movie rentals, etc.).
  • Apple Pay generated a payment flow 5 times greater than a year ago; there are now more than 10 million wireless payment terminals that accept Apple Pay worldwide, with 2.5 million of them in the USA.
  • Apple's mobile payment service earns 1 million new users per week.

Other products

  • Apple Watch sales hit expectations in the quarter; nevertheless, the company believes that there is a certain seasonality similar to the iPod, which generated 40% of sales in the Christmas quarter.
  • The company made a point of mentioning that the sales of the watch, in its first year of life, were higher than those of the iPhone. We highlight this information in this article, but pointing out that the comparison there is very fair.
  • Cook is excited about the device's first year and very hopeful about its future.
  • The level of satisfaction of users of the watch is 94%.
  • Apple Watch is currently available in 60 countries.

Future

  • For the next quarter, Apple estimates revenue of $ 41-43 billion, a further drop due to the difficult annual comparison (last performance in 2015) and a complicated macroeconomic condition.
  • Apple also estimates a gross margin of between 37.5% and 38%.

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Below, some interesting graphs that summarize Apple's second fiscal quarter of 2016:

Graph of revenue by category - Apple's second fiscal quarter 2016

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Graph of revenue by region - Apple's second fiscal quarter 2016

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Revenue graph - Apple's second fiscal quarter 2016

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Chart with sales of iPhones - Second fiscal quarter of Apple 2016

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Chart with iPad sales - Apple's second fiscal quarter 2016

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Mac sales chart - Apple's second fiscal quarter 2016

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Service revenue graph - Apple's second fiscal quarter 2016

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Other Product Revenue Graph - Apple's Second Fiscal Quarter 2016

(via MacRumors, AppleInsider, MacStories)