Apple Earnings: iPhone Sales Up, iPad Sales Down

Apple Earnings: iPhone Sales Up, iPad Sales Down

Investors getting restless as Apple squeaks by expectations

Apple on Wednesday announced a profit of $10.2 billion on record quarterly revenues of $45.6 billion for the quarter ending March 31, thanks largely to better-than-expected iPhone sales. But the firm attempted to deflect bad news about its iPad—sales were well below those of the same quarter last year—and other disappointments by announcing a stock split and other investor-related changes.

"We're very proud of our quarterly results, especially our strong iPhone sales and record revenue from services," Apple CEO Tim Cook is credited with saying in a prepared statement. "We're eagerly looking forward to introducing more new products and services that only Apple could bring to market."

So, too, is the rest of the world. The last time Apple introduced a truly new product was about 4 years ago when the firm launched the iPad. But that product line is unexpectedly not following the same sales trajectory of the iPod and iPhone products that preceded it. In fact, after leveling off and losing market share in recent quarters, unit sales of iPad are now down year over year. Apple sold 16.4 million iPads in the quarter, a 16 percent shortfall from the 19.5 million units it sold in the year ago quarter.

Sales of Apple's iPhone were stronger than seems possible, given how far the devices have fallen behind the competition. Apple sold 43.7 million iPhones in the quarter, up 17 percent from the 37.4 million it sold in the year ago quarter. But the firm explained the bump in a post-earnings conference call, noting that many were low-cost iPhone 4S models—first introduced in 2011—sold in China, Vietnam and other price-conscious markets. As a result, the average selling price (ASP) of iPhone dropped by an alarming $40 in the quarter.

Mac sales were basically flat at 4.1 million units while the iPod, which hasn't been refreshed since 2012, again continued its downward trend, dropping 51 percent to just 2.8 million units.

What really worries investors, of course, is that Apple's once-heady growth trajectory has slowed to a trickle. And with the iPad suddenly floundering and no exciting new product categories expected to fill the void, it seems like all Apple can do is continue to evolve its existing products and settle into a calmer—but still financially impressive—era of normalcy. Apple has yet to release a truly new product under current CEO Tim Cook, whose calm but slow-moving style stands in sharp contrast to his mercurial predecessor, Steve Jobs.

To ease investor concerns, Apple announced a 7-for-1 stock split. And it will buyback more stock than previously announced and will raise its quarterly dividends.

“We generated $13.5 billion in cash flow from operations and returned almost $21 billion in cash to shareholders through dividends and share repurchases during the March quarter," Apple CFO Peter Oppenheimer reported. "That brings cumulative payments under our capital return program to $66 billion." Angela Ahrendts will replace Mr. Oppenheimer as CFO "next week," Apple said.

Tim Cook made some interesting comments in the post-earnings conference call.

He noted that Apple TV sales have surpassed 20 million units, which was arguably the most surprising news in the call. He had previously noted that Apple TV was no longer a "hobby" but a well-established product in its own right. It has clearly outsold any other dedicated living room set top boxes, which include competitors from Roku, Amazon, and other companies.

Mr. Cook also alternatively praised and jabbed at Microsoft for its Office for iPad release. "Office is still a very key franchise in the enterprise, in particular, and I think having it on the iPad is good," Mr. Cook noted. "If it had been done earlier, it would have been better for Microsoft, frankly." Office for iPad has proven a smash hit for Microsoft, with 12 million downloads in the first week alone. Two of the three Office for iPad apps, Word and Excel, are still in the top 10 download list, while the third, PowerPoint, sits at number 11.

Cook said that Apple has purchased 24 companies in the past 18 months. "That shows we're on the prowl," he said. "We look for companies that have great people and great technology and that fit culturally and we don't have a rule that says we can't spend a lot or whatever."

Cook also noted that there are now over 800 million iTunes accounts. He described that figure as "a staggering number." Revenue from iTunes was up 9 percent to $2.6 billion, Apple noted, and generated 85 percent more revenue than did Google Play in the quarter.

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