Apple Inc. posted its first quarterly revenue drop in more than a decade on Tuesday and forecast another decline in the current period, dragged down by waning demand for the iPhone.
Sales in the third quarter, which ends in June, will be $41 billion to $43 billion, the Cupertino, Calif.-based company said Tuesday in a statement. On average, analysts estimated revenue of $47.4 billion, according to a Bloomberg survey. Second-quarter sales slid 13 percent and iPhone shipments fell 16 percent.
Apple said its fiscal second-quarter profit was $10.52 billion, or $1.90 per share.
"The number that is declining is the number of people that are upgrading," Chief Financial Officer Luca Maestri said. "Last year we had a very strong iPhone upgrade cycle."
With the introduction of a new iPhone model still months away, Apple investors are trying to gauge whether lackluster sales of the device, the company's biggest revenue generator, reflect a broader slowdown in the market for high-end smartphones -- or just the pause before another upgrade frenzy. Forecasts from suppliers such as Qualcomm Inc. and Taiwan Semiconductor Manufacturing Co. have suggested demand is cooling, and researcher Gartner Inc. predicts that global smartphone sales growth will slow to 7 percent this year, the weakest rate in the industry's history.
"It's a tapering in demand," Shannon Cross, a Millburn, N.J.-based analyst at Cross Research Group, said before the earnings report. "There are all these levers going on with reduced subsidies, changes in the cellphone plans, so the question becomes how do consumers globally react to these shifts, and we're going to see that in the next few quarters."
The company also said it will increase its share-repurchase program to $175 billion, from the $140 billion announced last year. Apple will increase its quarterly dividend, as it did a year ago, to 57 cents a share from 52 cents.
Concerns about decelerating smartphone demand have contributed to an almost 20 percent decline in Apple shares in the past 12 months. The stock fell less than 1 percent to $104.35 at Tuesday's close in New York. That gave Apple a market capitalization of about $579 billion -- still the world's largest company by that measure.
Results were released after the U.S. market close. Shares fell as much as 5.4 percent in extended trading.
In the second quarter, which ended in March, revenue fell to $50.6 billion from $58 billion a year earlier, Apple said. That compared with the average analyst estimate of $52 billion. Net income declined to $10.5 billion.
IPhone sales in the period fell to 51.2 million from 61.2 million a year earlier. Analysts on average predicted the company would sell 50.7 million iPhones in the recent quarter, according to a Bloomberg survey.
The quarterly report is Apple's first since a high-profile legal skirmish with the U.S. government over data privacy, encryption and law enforcement. The U.S. dropped two separate demands that the company help it break passcodes to get data from the iPhones used by a drug dealer in New York and a shooter in a December terrorist attack in San Bernardino, Calif. Apple fought both orders, saying that helping the government would jeopardize security for hundreds of millions of users and the cases could pose a dangerous precedent for law enforcement agencies' access to encrypted iPhone data. The Department of Justice had argued it only wanted access to specific phones in limited instances, and abandoned the two cases after finding alternate methods for unlocking the phones in question.
As iPhone sales slow, Apple investors are increasingly asking what might fuel the company's next growth spurt. A number of possibilities have surfaced: virtual reality gear, a self-driving car or a live television service, for example. Yet Apple's secretive approach to development makes it hard to predict when, in what form, or even if any of these innovations will someday surface.
Though a new version of the flagship iPhone probably won't be unveiled until the fall, the company has been adding to its product line. In March, the company rolled out the new iPhone SE, partially seen as a move to bolster sales in emerging economies such as India and China. Yet analysts cautioned that the smaller phone, starting at $399 in the U.S., could risk cannibalizing sales of the more expensive flagship 6-series handsets, and may reduce the average price at which Apple sells its phones.
To help make up for dwindling growth in smartphones in the shorter term, Apple has been trying to bolster its services business, which includes its iCloud storage platform, Apple Music and the App Store. Not only is the profit margin wider on these offerings, buying them usually commits customers to subscription services that generate stable recurring revenue streams over months or years.
Business on 04/27/2016