Everything you need to know about Apple’s huge second-quarter miss

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Everything you need to know about Apple’s huge second-quarter miss

Okay folks, this is the big one. Last year the company brought in revenue of $58 billion — and it showed its first decline in 13 years by posting revenue of $50.6 billion for the second quarter this year, missing analyst expectations on its revenue and guidance by quite a bit.

We’re parsing through all the details right now — here’s everything you need to know about Apple’s earnings report.

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Apple's revenue drops for the first time in 13 years

Last quarter, Apple stunned the tech world by forecasting revenue that would signal a decline in sales for the first time in recent memory. And now it lived up to that. Apple said it brought in $50.6 billion in revenue, compared to $58 billion in the quarter a year ago. It also said it brought in earnings of $1.90 per share.

Analysts were expecting revenue of $52 billion and earnings of $2 per share.

Timopthy A. Clary/AFP/Getty Images

2/13

The iPhone beats expectations — but only barely

iPhone sales numbers were the most critical part of the company’s earnings release — it’s Apple’s main growth driver, even among the rest of its products. Last quarter, Apple fell just under what industry watchers were expecting, but this quarter it was able to slightly beat what analysts were expecting to see.

So, in total, it was a surprisingly good quarter in terms of expectations, but it was Apple’s first down quarter year-over-year in recent memory.

Analysts were expecting 50.7 million in iPhone sales.

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But iPhone sales are down significantly from the year ago

Still, it’s significantly down from iPhone sales in Q2 2015 of 61.2 million. Apple executives on the earnings call said it was a difficult comparison to the quarter a year ago — yet it still represents a significant moment in the company’s existence as it shows that its core growth engine has started to significantly slow.

There are a lot of potential reasons for this: softness in China, smartphones hitting a saturation point, and competition from cheaper smartphones. But either way, it’s putting a lot of pressure on Apple’s core business.

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Apple's stock tanks

As a result of all this, Apple shares are down more than 8 percent in extended trading. Investors are punishing the company for showing that it is no longer able to continue to grow at the significant rate that it used to be able to since it started releasing the iPhone and its later designs. Even with all the new products it’s released, investors are still questioning Apple’s ability to continue to grow.

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5/13

Greater China drops off a cliff

China has been one of the most important growth areas for the company. But questions are looming as to whether the iPhone has hit a saturation point in a market that may be less accepting of Apple’s expensive phone amid cheaper competition. The company said it brought in $12.49 billion in revenue from Greater China, down 26 percent from the year-ago quarter.

(Photo by Justin Sullivan/Getty Images)

6/13

Apple once again posts weak guidance numbers

So, turning to guidance — Apple says it expects somewhere between $41 billion and $43 billion in revenue for the third quarter. This is important for the company because, once again, it represents a down quarter from the previous year. The company in the third quarter last year recorded revenue of $49.6 billion — so it appears that Apple’s growth engine continues to slow. Analysts were expecting Apple to forecast $47.4 billion in revenue for Q3 2016.

Getty images/Stephen Lam

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The iPad shows surprise strength

Here’s another surprise boost to Apple: the iPad. Analysts were expecting 9.4 million in sales, but the company said it sold 10.3 million units. There are questions as to whether the iPad has hit a saturation point, and Apple has had to find new ways to innovate — such as launching the Pencil — in order to drive additional iPad sales. So far so good, it seems.

Still, iPad unit sales are down 19 percent for the second quarter year over year.

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The Mac fails to deliver

But the Mac showed some significant weakness compared to what analysts were expecting. The company sold 4 million Macs, down 12 percent year-over-year, while analysts were hoping to see that the company would sell 4.6 million units. The Mac is largely a blip on Apple’s radar, but it still represents a southbound turn for its desktop and laptop lineup, despite refreshes like the new MacBook.

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9/13

Apple's "other products" also drops quarter-over-quarter

Other products also showed weakness, bringing in $2.12 billion, compared to $4.4 billion last quarter. That’s still up from $1.7 billion in the year ago.

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Apple services revenue continues to grow, Apple Music hits 13 million subscribers

Apple services revenue jumped 20 percent to $6 billion in the second quarter this year, Apple CEO Tim Cook said. Apple Music recently hit 13 million paying subscriptions, and App Store revenue was up 35 percent year-over-year, Cook said.

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Apple amasses an even greater cash pile

Apple now has a phenomenal $233 billion cash pile. We’re not making this up — Apple’s cash pile has continued to grow at a record pace, and once again it has shown that it can continue to print money even as its growth engine slows.

12/13

Apple plans to return more capital to investors

Apple said it authorized a big increase to the company’s program of returning capital to shareholders — boosting it by $50 billion, meaning it’ll spend $250 billion by March 2018. This is definitely a move that will appease investors looking to extract value from their positions in Apple, but it’s still not enough to keep investors satisfied.

Photo by Justin Sullivan/Getty Images

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What all this means

All this, taken together, represents a huge miss for Apple. This is a company that has shown Wall Street time and time again that it is one of the strongest growth drivers in the world. And now, for the first time in 13 years, Apple is showing that its growth engine is slowing down.

Wall Street rewards profitability, it rewards companies when they beat expectations. But for massive companies like Apple, growth is everything — and Apple is showing that it just isn’t growing any more for the time being. So all Apple’s new products and search for new innovations for its existing ones all make new sense: people are buying fewer phones, fewer tablets than they used to, and Apple needs to find new ways to continue to grow.

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