A decade of solid, ground-breaking growth has ended for Apple with the tech giant forecasting a slide in sales this quarter off the back of a lacklustre performance in the three months to December where management blamed the strong dollar for the weak performance and not a lack of gee-whizz new models and ideas.
In fact the first quarter report from Apple wasn’t just lacklustre, it was ugly in places (especially iPad sales). But what stood out was the weak guidance for the three months to March.
Apple told the market it now expects revenue for the current quarter to fall to between $US50 billion and $US53 billion. That would be a notable decline from $US58 billion for the March quarter of last year.
While the stronger dollar currency translation impact will be a big factor, so will weak unit sales,
iPhones sales are slowing in its mature markets (Peak iPhone, anyone?), especially the US where there are no currency problems. iPads are weak and rapidly becoming the day before’s product. The big question for investors is whether this is enough to help the market, or kick it lower? The latter seems to be the reaction we saw in Asia today.
The shares jumped 3% in after hours trading in the US on the first data from the December quarter results, but then lost all that and fell by around half a per cent in as investors realised the report was not uplifting enough.
While Apple reported net income of $US18.36 billion for the December quarter (the company’s first), that was up just 1.9% from the December quarter of 2014, on revenues of $US75.87 billion, up just 1.7%.
Apple says it sold 74.78 million iPhones, a little under the reduced analyst forecasts of 75 million, and just 0.4% ahead of the 74.5 million sold in the same quarter of 2014, which wasn’t convincing. But sales of other products were a terrible story. Apple sold 16.1 million iPads, down sharply (24.7%) from the 21 million units a year earlier.
The Apple Watch was a reluctant seller, so far as we know. Apple is still not releasing separate details of its sales. It is included the other products group which also includes Apple TV, Beats earphones and other products, iPods. Sales in this group jumped 42.7%, but analysts said that because a new version of Apple TV was released last October and sales of Beats products which do well at Christmas.
Apple CEO, Tim Cook had a ready explanation for the weak performance – the stronger greenback.
He blamed currency swings, particularly the strength of the US currency, for more than $US5 billion in lost sales in the December quarter. Apple said the 10% slide in the euro last year caused the most damage.
Apple is not alone because so many US companies are hurting from the impact of the stronger dollar (350 US companies have complained in recent months about the impact of the stronger currency according to the FT). The company claimed that stripping out the currency effects, revenues would have been up 8% to $US80.8 billion.
A worrying points from the report were: While Apple’s sales in China rose a solid 14% year-over-year to $US18.37 billion, both Japan and the Americas saw sales fall – Americas down 4%. The currency translation effect can be blamed, but iPhone sales have stalled and it generated more than $US51 billion of sales in the quarter.
Analysts say the key this quarter and until September when the new iPhone is due for release, is to keep sales momentum happening in phones. Could we see Apple trying to keep momentum up by starting to offer bonuses to buyers and resellers (which would be a break through)? If there’s a hint of that, the news will tell us that Apple management is not liking what it is seeing.
The December quarterly report could end up as being one of the most important quarterly reports for Apple and represent a peak for revenues and earnings.
Still ‘poor little Apple’ still ended up with $US216 billion in cash at the end of the quarter (no complaints about foreign currency impacts there) from $US205 billion at the end of September quarter.
