Apple live blog: Cook and Co. to address Q2 decline on earnings call
SAN FRANCISCO— Despite iPhone sales of 51 million that largely met analyst expectations, Apple posted FY Q2 earnings and revenue that missed on both revenue and earnings per share Tuesday.
The company posted quarterly revenue of $50.6 billion and quarterly net income of $10.5 billion, or $1.90 per diluted share, short of analyst predictions of $52 billion and EPS of $2, according to analysts polled by S&P Global Market Intelligence.
Apple shares (AAPL) closed down 0.7% at $104.35 but plummeted 7% in after-hours trading.
Apple's poor results highlight diminished iPhone demand
Those 51 million iPhones represent a 16% decline over the same quarter a year ago, and mark the first year-over-year drop since the trendsetting smartphone debuted in 2007.
Here's what Apple CEO Tim Cook and his leadership team have to say about the quarter on the company's earnings call:
3:00 p.m. Pacific Time
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2:58 p.m. Pacific Time
Q: Are upgrade cycles lengthening?
Cook: "It depends on what you compare it to. If you compare it to 5S, the rate today is slightly high, more people upgrading, in terms of the rate, but if you compare to 6 you'd arrive at the opposite conclusion. So it depends on your reference point. So we want to be clear about what we're seeing."
2:55 p.m. Pacific Time
Q: Are services a primary driver of earnings going forward or just a supporter of the high margin hardware.
Cook: "We want to have a great customer experience, so any services that help that are great. In doing so, we have developed a very large and profitable business in the services area. We felt in the last quarter that we should pull back the curtain so investors could see the services business and see the scale and growth of it. The value of it was just shy of $10 billion, so it's huge. So it's important we spell that out."
2:51 p.m. Pacific Time
Q: Can you talk about greater China growth?
Cook: "The vast majority of the weakness in the greater China region sits in Hong Kong. We think it's because the HK dollar is pegged to the US dollar, which has driven down tourism and other things there over a year ago. But in mainland China, we're down 11%, though only down 7% on constant currency basis. Keep in mind that we're down on a comp a year ago on a comp that was up 81%. I think China is not weak as has been talked about. I see it as maybe not giving us the wind at our backs as before but it's a lot more stable than the common view of it."
He says Apple owned 7 stores, to hit 35, and five more this coming quarter to hit 40. Also looking at LTE adoption there growing. "We just ask people to look underneath the numbers before concluding anything."
2:47 p.m. Pacific Time
Q: Why aren't we going to see better iPhone sales in the next quarter given the SE's introduction?
Cook: "The iPhone SE, we're thrilled with the response we've seen on it. It is clear there is demand that's much beyond what we thought." He adds that he's glad to be attracting new to iPhone consumers, and feels, again, that switchers are "very important to us in every geography."
2:42 p.m. Pacific Time
Q: Appreciate the optimism about iPhone growth, but with market penetration huge can you talk more about India to grow sales there, maybe stores there?
Cook: "I think there's still good business in the developed markets, and it's our job to come up with products people desire and get more Android switchers. On India, well each country has a different story. But the thing that has held us back there is the LTE rollout which just begins there this year. With good networks coming on there that'll unleash the power and capability of the iPhone in the way a 2G network would not do."
"Second issue is building the channel out," Cook says. Carriers sell no phones, "so it's out in retail which is many many small shops. We've been working there for a couple of years, and I'm encouraged by the results we're seeing there. It's already the third largest smartphone market in the world, and because they're primarily low-end phones the market potential hasn't been as great there. India is where China was 7 to 8 years ago."
2:34 p.m. Pacific Time
Q: Gene Munster of Piper Jaffray asks about aspirational iPhone market share and actual market share and using price to close that gap, are there forthcoming iPhone models that might help with that?
Cook: "The SE is attracting two types of customers, who want latest tech in a more compact package, and there are more than we thought in that category. And those who want an iPhone but couldn't afford the entry price (before). We're excited where this can take us. I think we'll be happy with new to iPhone customers, but we're currently supply constrained. But it's great to see the overwhelming demand for it."
2:32 p.m. Pacific Time
Q: Smartphone market is maturing, so what is Apple's plan?
Cook: I think that the market as you know is currently no growing, however, my view of that is that's an overhang of the macroeconomic environment, and we're optimistic this too shall pass, and the market and particularly us will grow again."
Cook then mentions again the "extraordinary cycle" experienced with debut of the iPhone 6. He also says "switchers have set a record, the largest we've seen in any six month period." On emerging markets, "we grew in India by 56%," so Apple will focus there.
With iPhone SE, "we've seen ability to attract more customers into the platform with a product at a new price point with the latest technology." He adds that "we're very excited about what's in our pipeline."
2:28 p.m. Pacific Time
Heading into the questions portion of the earnings call now.
2:27 p.m. Pacific Time
Maestri: Quarterly divided increase 52 to 57 per share, up about 10%, effective with the next dividend. So far $12 billion made in revenue dividend payments.
Moves to June quarter guidance: Revenue of between $41 billion and $43 billion, "which is a year over year decline as we lap strong June quarter last year due to iPhone upgrade purchases." Also impacting revenue is the strong dollar, he says.
Shortfall this quarter due to a variety of factors, including iPhone SE (which isn't counted) and estimates for Mac.
2:21 p.m. Pacific Time
Apple Watch expanded to 60 countries now, Maestri says. Also, making "great progress with enterprise initiatives," gives examples of banks and hospitals on-boarding customer/patient information.
2:19 p.m. Pacific Time
Maestri on Mac: Apple sold 4 million, a decline of 12%. "We believe we gained marketshare," pointing to Russia, Korea, Singapore and UAE which experienced double-digit growth.
2:17 p.m. Pacific Time
Luca Maestri, CFO, now on the call. China down 11%, "keep in mind we were up against a year ago compare when we grew 81% there." iPhone sales down 16%, particularly challenging comparison he says.
He says iPhone's entry into business markets is growing; 78% of corporate buyers plan to purchase iPhones according to one survey.
2:14 p.m. Pacific Time
Cook: "We are forging ahead with important investments ...we made 15 acquisitions in last four quarters ... creating value for shareholders by developing great products will always be our top priority."
2:12 p.m. Pacific Time
Cook breezes through recycling, privacy and inclusion in one sentence, no other details.
2:10 p.m. Pacific Time
Apple Watch "met our expectations in the quarter." Expecting 40% of unit sell-through in the holiday quarter, much like with iPod in the past. "We are really excited about the first year and we believe it has an exciting future ahead."
iPhone SE - no sales reflected in the quarterly results. "Demand has been very strong and exceeds supply," Cook says.
2:08 p.m. Pacific Time
Apple Pay is expanding, following launch of China and Singapore. Growing "five times the transaction volume of a year ago and a million users per week." 2.5 million locations in the US "and more coming soon." Turning to the Mac: "Overall the Mac continues to attract a large percentage of new customers, over half of buyers were new to the Mac, or in China 80% of customers were purchasing Mac for the first time."
2:06 p.m. Pacific Time
Switchers from Android: Cooks says Apple added more in the first half of this year than in any six month period. Also, iPhone "is still attracting millions in emerging markets." Up 56% in India from a year ago.
2:02 p.m. Pacific Time
Tim Cook is on the line; "today we're reporting the results of a challenging quarter." Mentions headwinds that include currency weakness in international markets. Added Android switchers and new to Mac customers. The 51 million iPhones were down from a year ago. Customers who upgrade, switch from Android, and those who are new smartphone buyers: "As we look at all there, we see a business that is healthy and strong." Upgrade rate first half of the year is slightly higher than iPhone 5 but slower than iPhone 6.
2 p.m. Pacific Time
The call is starting now.
Follow USA TODAY tech reporter Marco della Cava on Twitter: @marcodellacava