Apple’s Q3 in charts and commentary

Note: This story has not been updated for several years.

Apple continued its grin-and-bear-it slog though a brutal year of quarterly financial results Tuesday, thanks to the incredible success of the iPhone 6 raising the bar so high that every single year-over-year comparison is destined to look tiny. Apple will probably keep taking its lumps for a quarter or two, but the numbers—$42.4 billion in revenue, $7.8 billion in profit—are pretty much in line with Apple’s business in the year before the iPhone 6. It suggests that Apple will probably continue to have miserable year-over-year comparisons for a couple of quarters, but then things may start to even out.

The third fiscal quarter is traditionally Apple’s worst, and this quarter slid from the previous sequential quarter. Compared to the year-ago quarter, revenue was down $7.2 billion. Take fiscal 2015 out of the equation and look at the previous Q3 revenue totals: $35B, $35.3B, $37.4B. Yep, that was one spectacular 2015 Apple had, and it looks more like a spectacular outlier with every passing day.

Apple’s revenue guidance for next quarter is roughly $46B, the slight sequential bump upward that Apple usually sees in the back-to-school quarter. It’ll still be down year-over-year from last year’s $51.5B fourth quarter, though, so Apple will take its lumps. Wall Street has adapted to Apple’s numbers, though—Apple’s stock price was actually up in after-hours trading, because Apple beat its previous guidance. (Wall Street does not look at the numbers the same way regular people do.)

Average selling prices

Some funny things happened in terms of the average selling price of Apple products. The iPhone ASP went way down, probably because Apple had too large an inventory of iPhone 6S models and was aggressively dealing to get them out the door. Also, the iPhone SE—whose influence was really first felt in this quarter—comes with a much lower price than the iPhone 6S and 6S Plus, thereby pulling the product line’s ASP down.

Then there’s the Mac, which has largely been left to rot with the exception of a speed-bump update to the MacBook. Mac ASPs are down again, and I’ve got to think it’s because the MacBook is the only new and relevant Mac, and therefore it’s dragging down the overall price. It may also be that high-end Mac buyers are well educated in the ways of Apple product cycles and recognize that the current line is stale and there must be new Macs on the way at some point, and therefore are deferring purchases of pricey systems. That’s smart, if true.

And finally, there’s the iPad’s average selling price, which is fairly dramatically up. The iPad Pro, most specifically the 9.7-inch model, is undoubtedly the responsible party there. At $100 more than the iPad Air 2, it seems to have entered the product mix and improved the iPad’s revenue. So much, in fact, that while iPad sales were still down year-over-year (though by an increasingly small amount), iPad revenues were up for the first time in 10 quarters.

Mac takes a slide

The Mac being stale is undeniable. Apple seems to have decided to skip a generation of Intel processors with the expectation that the next generation would be better (it might be) and available for a slew of updates (it apparently wasn’t). You can’t blame the Mac sales slowdown on the success of the iPhone 6; in fact, the last two quarters of Mac sales are the worst in three years. Apple will tell you that the Mac is fighting to stay flat in a PC industry that’s way down, and that’s true. Still, the Mac was showing growth for a long time there—and now it’s not.

Services, you say?

Hey, remember six months ago when Apple started making a big deal about how great its services business was, and how much growth the company was seeing in that area? When you start to suspect that all of your other product lines are going to show year-over-year declines for the next year, it’s probably a smart idea to pump up the area that shows continuous growth. And by golly, look at services… up, up, up it goes. Up above the Mac and the iPad, in fact. Up to the point that Apple pointed out on its call with analysts that next year the Services line will be as large as a Fortune 100 company.

Ouch, China

Tim Cook remains bullish on China, but the economic conditions there have stopped Apple’s rapid growth. Cook says that the installed base of iPhones in China has grown 34 percent in the last year alone, and that China Mobile says there are more iPhone users on their network than any other brand. But the growth in China has been a roller-coaster ride, and right now the roller-coaster is plunging and everyone’s stomachs are a little queasy.

Still, it’s clear that Apple understands the size and potential of the Chinese market. A few quarters of volatility aren’t going to change that.

More on iPhone

There’s no much else to say: iPhone had a great 2015 and 2016 just can’t match it. But this “disappointing” iPhone quarter was still the second-best third quarter of iPhone sales in history. Even coming off of the colossal highs of 2015, the iPhone continues to sell better than it did in 2014 or before, which makes me more bullish on the theory that the iPhone 6 was an outlier, not the popping of the iPhone balloon.

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By Jason Snell