Today Apple announced their third quarter results for their fiscal year 2016. Much like last quarter, Apple has struggled to maintain the sales pace of the iPhone 6s, compared to the iPhone 6. For the quarter, Apple had revenues of $42.358 billion, which is down 11% from a year ago. Gross margin was $16.106 billion, down from $19.681 billion in Q3 2015, and percentage wise it is 38.0%. Operating income was $10.1 billion, down from $14.1 billion last year, and net income was down almost $3 billion to $7.8 billion. Diluted earnings per share were $1.42, down from $1.85 a year ago. Despite the lower quarter, Apple did beat expectations which has helped their share price in after-hours trading.

Apple Q3 2016 Financial Results (GAAP)
  Q3'2016 Q2'2015 Q3'2015
Revenue (in Billions USD) $42.358 $50.557 $49.605
Gross Margin (in Billions USD) $16.106 $19.921 $19.681
Operating Income (in Billions USD) $10.105 $13.987 $14.473
Net Income (in Billions USD) $7.796 $10.516 $10.677
Margins 38.0% 39.4% 39.7%
Earnings per Share (in USD) $1.42 $1.90 $1.85

Apple announced a dividend of $0.57 per share payable on August 11th to shareholders of record as of August 8th. They also returned over $13 billion during Q3 through share buy-backs and dividends, and they have completed almost $177 billion of their $250 billion capital return program.

iPhone sales are far and away the largest part of the company, and this quarter Apple sold 40.4 million handsets. That is down from the 51.2 million last quarter, and 47.5 million in Q3 2015, meaning iPhone sales were down 15% year-over-year. This resulted in revenue of $24 billion, down 23% from a year ago. It’s certainly a noticeable drop, and it shows just how successful the iPhone 6 was when it launched.

Moving on, iPad sales continued their slow and steady decline. Sales of the tablet were just a hair under ten million for the quarter, which is a drop of 9% year-over-year. Revenue was $4.9 billion, which is up 7%. A year ago, the average selling price of the iPad was $415, but this quarter, average selling price for the iPad rose $85 to $490. Declining sales of the iPad Mini, as well as new sales of the higher priced iPad Pro are certainly the case, but Apple doesn’t break out the numbers for individual models to know just how much each was a factor.

The Mac didn’t fare very well either, with unit sales of 4.25 million, which is down 11% year-over-year. This resulted in revenue of $5.24 billion, down 13%. With basically no Mac refreshes in a long time, they are no longer outperforming the PC market as a whole, which was the case for the last while.

Apple’s “Other Products” includes Apple TV, Apple Watch, Beats, iPods, and accessories, and while none of this is broken down by sub-category, the Other Products as a whole also fell 16% in revenue compared to Q3 2015, with revenues for this quarter of $2.22 billion.

Apple Q3 2016 Device Sales (thousands)
  Q3'2016 Q2'2016 Q3'2015 Seq Change Year/Year Change
iPhone 40,399 51,193 47,534 -21% -15%
iPad 9,950 10,251 10,931 -3% -9%
Mac 4,252 4,034 4,796 +5% -11%

The one segment in which Apple had strong growth was their Services segment. Services grew by 19% compared to Q3 2015, with revenue of $5.976 billion, which is up almost a billion or 19% year-over-year. Q2 2016 revenue was pretty much the same at $5.991 billion, meaning services have once again outpaced both Mac and iPad sales, and now represent the second largest segment at Apple.

Apple Q3 2016 Revenue by Product (billions)
  Q3'2016 Q2'2016 Q3'2015 Revenue for current quarter
iPhone $24.048 $32.857 $31.368 56.8%
iPad $4.876 $4.413 $4.538 11.5%
Mac $5.239 $5.107 $6.030 12.4%
iTunes/Software/Services $5.976 $5.991 $5.028 14.1%
Other Products $2.219 $2.189 $2.641 5.2%

Overall, it’s the second consecutive quarter of revenue loss, and last quarter was the first time that happened since Q1 2003, so Apple is in somewhat unfamiliar territory. Their guidance for next quarter is $45.5 to $47.5 billion, and margins between 37.5% and 38%. That guidance is also for a loss of revenue, since Q4 2015 had the company coming in at $51.5 billion, and 39.9% margins. It will be interesting to see if hardware refreshes in the fall can stop the drop in sales.

Source: Apple Investor Relations

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  • Samus - Wednesday, July 27, 2016 - link

    The issue for Apple is they really nailed it with the iPhone 6. The 6S wasn't compelling enough to upgrade most phones (although it's a great phone) and the iPad Pro is just ridiculously expensive for a mobile OS device. Again, it's cool, but I get why they aren't selling in droves. Then the iPhone SE was launched which are into their higher margin products, the Apple Watch sales slowed to a trickle, and there is still no MacBook Pro refresh to speak of causing people to continue waiting to upgrade.

    All Apple needs to do is launch a phone on par with the Galaxy S7's features (especially water resistance and storage capacity) and update their portfolio with skylake. Dropping prices of the iPad Pro will help sell them, too. If WatchOS 3 helps performance as much as they are saying it will, well, I'll be happier with mine that's for sure. As it is, half the stuff I want to do on the watch is done faster on the phone, including the time it takes to remove it from my pocket and unlock it.

    Apple has just slowed down too much, they were driving themselves hard for years and now they are taking an extended vacation from everything and launching these anomaly products like the new MacBook and the way overpriced Apple TV.
    Reply
  • Klug4Pres - Wednesday, July 27, 2016 - link

    Apple put only 1GB RAM in the iPhone 6, which will ensure a huge upgrade cycle, at least for those who don't care about price. Reply
  • smilingcrow - Wednesday, July 27, 2016 - link

    Apple aren't competing against Windows PCs which is why they are so complacent and use very old hardware. Reply
  • prisonerX - Wednesday, July 27, 2016 - link

    True, but it's Windows PCs' fault. I wish they had better competition. Reply
  • duploxxx - Wednesday, July 27, 2016 - link

    and my stories continues, falling empire.

    people stop buying these over expensive phones, only the wanne bee remain in the end.... even the lower cost iphone did not increase the declining volume.

    pitty that the tablet sales is always going down, if there is a device worth buying from apple its the ipad, although a bit to expensive storage wise...
    Reply
  • damianrobertjones - Wednesday, July 27, 2016 - link

    Capitals? Reply
  • xype - Wednesday, July 27, 2016 - link

    Capitals are for interlektshuals. Reply
  • r3loaded - Wednesday, July 27, 2016 - link

    Goddamit Apple, refresh the Macs already and you'll reverse that 13% fall in revenue. There are literally millions waiting to open their wallet the moment the Macs get updated to Intel's latest and greatest platform. Reply
  • TEAMSWITCHER - Wednesday, July 27, 2016 - link

    This! The Hardware Frustration Level among MacBook Pro/Air users has reached an extreme. With MacOS Sierra due in a couple months, I'm expecting new MacBooks in the same time frame. But then again, I was expecting them at WWDC too. I hope is Apple is polishing these shiny new MacBooks to re-seat themselves at top of the market - with new "Gotta Have It" features that PC makers will ridicule at first and then copy a few cycles down the road. Reply
  • ingwe - Wednesday, July 27, 2016 - link

    Completely agree with the above. I am still using a 2008 Macbook Pro and want to upgrade but I drug my feet a couple of years ago and there just isn't anything compelling to me right now--aka, I want to buy a laptop with the most recent hardware. I really like the Apple ecosystem for my mobile devices despite doing a lot of computing on my Windows desktop. There is no way that they are getting my money though until they release something up to date.

    On a mildly related note: I want a Mac Surface. I use a Surface Pro 4 at work and it just isn't very polished despite it being the fourth generation. Battery life is poor even after optimizing a bunch of the settings (it did improve quite a bit from the out of the box settings) and it is really unstable. I find myself hard restarting it almost everyday.

    Back to the thread, Apple need to update the Mac Pro. The complete abandonment after that design change is inexcusable.
    Reply

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