Apple Q3 2016 financial results | Apple earnings report: iPhone and Mac sales fall, overall revenue down, but Tim Cook talks up ‘encouraging signs’

Apple announced its financial results for the third quarter of fiscal year 2016 (the three months ended 25 June 2016) on Tuesday 26 July. Here, you’ll find out how many iPhones, iPads, Macs and Watches Apple sold during the past few months, how to listen again to Apple’s earnings call, and what the numbers mean – for you, for Apple’s product portfolio, and for Apple’s corporate health

Apple earnings report Q3 2016: Summary

For Q3 2016, the quarter ended June 2016, Apple reports:

• Quarterly revenue of $42.4 billion, compared to revenue of $49.6 billion in the equivalent quarter a year ago.
• Quarterly net income (profit) of $7.8 billion, or $1.42 per diluted share, compared to profit of $10.7 billion, or $1.85 per diluted share a year ago
• Gross margin of 38 percent, compared to 39.7 percent a year ago
• International sales accounted for 63 percent of the quarter’s revenue.
• Apple’s board of directors has declared a cash dividend of $.57 per share of common stock. The dividend is payable on 11 August.

Not brilliant numbers, in other words, even though (as we’ll see in the next section) Apple predicted this a while ago. And Tim Cook said the results were “way better than we expected from so many different points of view”.

Cook went on to argue that there were “encouraging signs” and offered some explanations for the dip in revenues overall and in many key product areas, including the economic slowdown in China, a key growth market for Apple.

Apple earnings report Q3 2016: Podcast discussion

The UK Tech Weekly Podcast team discuss Apple’s latest financial results – among other things – in their 25th episode, embedded below. The Apple earnings section starts at the 26-minute mark.

The UK Tech Weekly Podcast comes out every Friday. Follow them on Twitter for links to new episodes.

Apple earnings report Q3 2016: How does this compare with Apple’s predictions?

It’s about what was expected. While posting Apple’s Q2 results back in April, Tim Cook offered the following guidance for Q3:

• Revenue between $41 billion and $43 billion
• Gross margin between 37.5 percent and 38 percent
• Operating expenses between $6 billion and $6.1 billion
• Other income (expense) of $300 million
• Tax rate of 25.5 percent

In other words, as Cook pointed out in this quarter’s earnings call, Apple performed near the top of its expectations.

Apple earnings report Q3 2016: How many iPhones did Apple sell?

Apple sold 40.4 million iPhone units in Q3, generating revenue of $24bn. That compares to 47.5 million units in Q3 last year for a revenue of $31.4bn: the iPhone’s performance is down 14.9 percent in terms of unit sales and down 23.6 percent in terms of revenue.

The iPhone is by far the most important and valuable product in Apple’s portfolio, and it’s worrying for Apple shareholders that the meteoric rise in iPhone sales appears to have peaked. Particularly worrying since these lower numbers take into account the launch of a new iPhone (the iPhone SE), while Q3 2015 did not.

But Tim Cook was keen to emphasise that the iPhone SE is doing well, and that customers who are new to the iPhone ecosystem account for a very high proportion of buyers: Apple has added millions of first-time smartphone buyers to its ecosystem, Cook stated. “Switchers accounted for the highest percentage of quarterly iPhone buyers we’ve ever measured,” he said.

Cook added that the active iPhone install base “is up, double digits, year over year”.

Apple earnings report Q3 2016: How many iPads did Apple sell?

iPads sales have looked stagnant in recent years, but Q3 was a little brighter for Apple’s tablet division. Cook called it “our best iPad compare in 10 quarters”.

Apple sold 10 million iPad units in Q3. That’s a drop of 9 percent compared to Q3 2015 – when Apple shifted 10.9 million iPads – but because of the higher unit price of the new iPad Pro, Apple actually made more money this time round. iPad revenue in Q3 was $4.9bn, up 7.4 percent on the $4.5bn made by the iPad department a year ago.

Cook said that roughly half of iPad Pro purchasers are buying them for work, which bodes well for its future as a business device and laptop replacement.

Apple earnings report Q3 2016: How many Macs did Apple sell?

Apple sold 4.3 million Macs in Q3, generating revenue of $5.2bn. That compares unfavourably to 4.8 million units in Q3 last year for a revenue of $6bn.

Apple earnings report Q3 2016: How many Apple Watches did Apple sell?

We don’t know for sure, since Apple continues to fold Apple Watch sales into its Other Products category, which we report on in a later section. (Of course, this does tell us that the absolute maximum revenue Apple can have made from the Apple Watch this quarter is a pretty minor $2.2bn, and that the true figure is presumably considerably lower than this.)

According to research from IDC, Apple sold 1.6 million units of the Apple Watch in Q2 2016, which corresponds to Apple’s fiscal Q3. That would generate revenue of at least $478m, based on the cheapest available model.

Tim Cook put a positive gloss on all this by pointing out that “Apple Watch continues to be the best-selling smartwatch in the world”, but that isn’t saying much right now. The same piece of IDC research cited above suggests the smartwatch market is in a bit of a slump, with shipments down 32 percent year on year.

Apple earnings report Q3 2016: Services

Apple’s Services division, which includes iTunes and the App Store, Apple Pay, and the AppleCare warranty and repairs division, continues to perform well. Services revenue for Q3 2016 was $6bn, up from $5bn a year ago. This is down to a 37 percent revenue jump from the App Store and “strong increases” in Music, iCloud and AppleCare revenue.

Cook said that for the past 12 months, services revenue is up almost $4bn year on year to $23.1bn.

Services earnings pale in comparison with the iPhone, admittedly, but this is still an excellent showing from Apple’s up-and-coming division. Tim Cook boasted that the company expects Services to be the size of a Fortune 100 company next year.

Apple earnings report Q3 2016: Other Products

Apple reported Q3 revenue of $2.2bn for Other Products (which includes the Apple Watch and Apple TV, as well as iPods, mice and keyboards, routers, accessories and the like). That’s a drop of 16 percent compared to Q3 2015, which saw Other Products revenue of $2.6bn.

[Source: Macworld]