Apple’s shares opened down 7% at the start of trading on Wednesday following the company’s first revenue decline in over a decade and gained back only a little as the day went on.
The shares opened at $95.98 and made small gains throughout the morning; the hit initially knocked nearly $50bn off Apple’s market capitalization.
“This too shall pass,” said Tim Cook in a call with analysts after the firm’s dismal results were announced Tuesday evening.
The company reported a nearly 13% fall in quarterly sales against the same period the previous year. The resulting income – $50.6bn, compared to $58bn – marked the first time revenue at the world’s most valuable publicly traded company had declined in 13 years.
The iPhone accounts for nearly two-thirds of Apple’s revenue and the company sold 16% fewer iPhones than it did during the same period in 2015, and made 18% less money from them. Much of the falloff was attributable to the struggling Chinese economy.
The steep one-day drop has not knocked Apple off its perch as the world’s most valuable company. The second-wealthiest company in the world, Alphabet, formerly Google, lost more than 5% after similar underperformance on its own results report last week, in what is shaping up to be one of the worst seasons for quarterly results in recent memory.
Cook and Apple CFO Luca Maestri had to reckon with tough questions about the state of its operations in China, previously a robust growth market for the iPhone and now a place where the price barrier for top-of-the-line technology is too high and the yuan has declined on average against the dollar for several months.
Piper Jaffray analyst Gene Munster released a report late Tuesday titled Something’s wrong in China, saying that he expected Apple’s financial struggles to continue until the iPhone 7 is released late this year.
“Overall we see few bright spots in the March report and June guide,” he wrote, referring to Apple’s public financial projections, “but continue to expect the iPhone 7 cycle will result in a return to growth in [December 2016].” The “June guide” is the part of Apple’s March report predicting the financial report for the current quarter, which will end in June.
Munster said that while the iPhone numbers were “a disappointment”, he thought that beyond the iPhone 7, Apple could shift emphasis to products currently in development: the company will increase research and development spending by 21% to more than $10bn, he predicted.
Apple has acknowledged that there is indeed worse to come in the immediate future: the firm predicts its revenue will be down again, coming in at between $41bn and $43bn. In the same period in 2015, Apple made $49.6bn.
Indeed, Apple’s recent good fortune has depended heavily on the popularity of the company’s products in China: Shira Ovide writes at Bloomberg that for the fiscal year that ended in September, Chinese contribution to its bottom line grew at rates of at least 70% every quarter for a year.
That growth is at an end; even Cook could find few bright spots in the Chinese market when questioned by analysts, and he indicated the company was looking for growth elsewhere.
“India is where China was seven to 10 years ago,” Cook said.
This article was written by Sam Thielman in New York, for theguardian.com on Wednesday 27th April 2016 20.36 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010
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