Shareholders were not happy with Apple’s performance this quarter, as the company reported a drop in iPhone sales from 51.19 million last year to 50.76 million units sold this quarter, which ended on April 1. On average, analysts were estimating sales to go up to 52.27 million.

Even though Apple enforced significant measures to keep the investors happy by increasing its capital return program by $50 billion, raised its quarterly dividend by 10.5 percent and increased its share repurchase authorization by $35 billion, shares plummeted 1.9% at $144.65 in after-hours trading.

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The company has reported an unforeseen dip in iPhone sales for its second quarter on May 2, most likely in anticipation of its 10th-anniversary launch later this year. The new flagship is set to enter the market in September, with customers holding off on purchasing until the new product has arrived.

Given the fact that phone sales are calculated in a unique and rather peculiar way however, the decline might not have been as severe as it seemed. The dip in sales is calculated through what are called “sell-in” figures for the iPhone, which is the number of phones the company delivers to its retailers, and not the actual number of units that are sold to the consumers, which is a “sell-through” figure.

Apple’s Chief Financial Officer, Luca Maestri, reported that the company has reduced the total number and volume of inventory passing through its retail distributors by 1.2 million units this quarter, resulting in 52 million iPhones reaching the customers via the “sell-through” variable.

Contrary to the threatening dip in shares, the company managed to increase iPhone sales revenue by 1.2% this quarter by inflating the average selling price.

The anniversary

Apple is set to launch its new set of flagships, lead by the iPhone 8 Plus later this year in September, with investors predicting a boost in sales with the unveiling of the new products.

The famous iPhone turns 10 this year, with efforts to bring a new and unique product to the world coming to fruition at the anniversary event. Apple is known for launching its products at the onset of fall, responding to the massive increase in consumer demand during the holiday season.

Details and specifications of the new flagship have leaked numerous times online, with some of its most innovative features coming in the form of a curved display, wireless charging, a USB-c port and 3-D facial recognition software. The well-known artificial intelligence sidekick, Siri, is also expected to be present, as well as a more powerful 2,700mAh battery and 3GB of RAM with the addition of the new A11 processor chip, remarkably faster than the previous A10 chipset.

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James McQuivey, a Forrester Research analyst has stated that there is a natural decrease in smartphone demand in expectation of this major upgrade, and if the company is softening the expectations before the new upgrade, it might very well mean that Apple is unsure of its ability to surpass these projections.
According to Thomson Reuters, analysts were expecting Apple to gross total revenue of $45.60 billion this quarter, while the company projects average revenue between $43.5 billion and $45.5 billion. On average, the company is expected to sell 42.31 million iPhones this quarter.

Apple’s shares rose to $2.10 per share, resulting in a total net income of $11.03 billion, as opposed to the previous year, when shares topped out at $1.90 per share, resulting in $10.52 billion worth of income. The expected share price was supposed to top out at $2.02 per share, according to analysts.
The company’s revenue also increased by 4.6% to $52.90 billion this quarter, with a $7.04 billion jump in Apple’s subsidiary services – the App Store, Apple Music, iCloud and Apple Play. The average estimate, however, was set at $53.02 billion.

Apple feels encouraged by the fact that its services revenue is not nearly as cyclical as its product revenue, as stated by Neil Saunders, Managing Director of GlobalData Retail. However, it’s important to note that the company’s revenue has been severely impacted in the Greater China market with its cheaper contenders “stealing away” a portion of its product sales, resulting in a 14.1% decrease to only $10.73 billion in revenue.

Nevertheless, Luca Maestri stays optimistic for the future, stating that the company’s services are selling strong in the China region and that the witnessed performance should increase even more this year. The company has surpassed the analysts’ expectations, hitting a gross margin of 38.9%, as opposed to the projected 38.7%, and in spite of the increased price of its memory chips.

Apple is expecting a gross margin between 37.5% and 38.5% in the next quarter, as opposed to analysts’ expectations of 38.3%. Although Apple’s memory chips are to remain at a steady price, Luca Maestri sees the price of all other commodities declining in the June quarter.

Posted by Howard Bell

Howard has been writing about technology for quite some time now, especially if you count his diary entries where he laments the pressing programming issues hiding behind the painfully obvious lack of the long blocks in Tetris (also known as the ‘stupid game is cheating’ bug). He has since refined his approach, trying to take a slightly more impartial and a bit more informative voice, but still finds inspiration in the ways that different devices can annoy him to wit’s end.