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What's losing steam at Apple? Pretty much everything

Cook: Hey, we thought it was going to be even worse

Apple is trying to put the best face on another bad quarter by saying it has exceeded its own meager expectations.

The Cupertino giant had previously warned that its revenues would be down, and Apple execs boasted that they at least were at the high end of those lowered expectations.

For Apple's fiscal 2016 Q3, ended June 25:

  • Revenues of $42.4bn marked a 15 per cent decline from the $49.6bn reported a year ago.
  • Net income of $7.8bn was down 27 per cent from $10.7bn in Q3 2015.
  • Shipments of new iPhones hit 40.4 million units, down 15 per cent. iPhone revenues of $24b were down 23 per cent on the year. This despite CEO Tim Cook declaring the iPhone SE a "very successful" launch where demand outpaced supply.
  • Mac revenues of $5.24bn were down 13 per cent, and shipments were down 11 per cent at 4.25 million units.
  • The iPad continued its downward slide in shipments with 9.95 million units, a 9 per cent drop in revenue. However, sales of higher-cost tablets led to revenues of $4.88bn, a 7 per cent gain on last year.
  • The "other products" category reported revenues of $2.2bn, down 16 per cent on the year. This category includes the Apple Watch and AppleTV.
  • Services revenue of $5.97bn was a 19 per cent gain on last year's quarter.
  • China revenues fell 33 per cent – a particularly poor region for Apple last quarter. In the Americas revenue was down 11 per cent, while revenue in Europe fell 7 per cent.

While analysts wondered if Apple's recent $1bn investment in Chinese dial-a-ride service Didi foreshadowed a push into the car space, CEO Tim Cook was quick to note that Apple has plenty of other reasons to work with the company.

"We think there are some strategic things the companies can do over time," Cook said on a conference call. "And we think we can learn a lot about that business and the Chinese market beyond what we already know."

Cook side-stepped questions about the upcoming iPhone refresh Apple is widely believed to be planning to announce in September, but noted that the company sees the business phone market in particular picking up for the iPhone in the coming months.

Though Apple would almost certainly get a boost from the release of a new iPhone, Bernstein senior analyst Toni Sacconaghi believes that the next phone may not be the major update some are expecting.

"We believe that iPhone replacement cycle/upgrade rate is like an accordion around new product cycles and that this impact will be more profound now given a larger installed base and slower growth from a more mature smartphone market," Sacconaghi wrote.

"While Apple has historically revamped its flagship iPhone every 2 years, iPhone 7 will likely only see incremental improvements, perhaps upsetting the 2-year cycles to which we have been accustomed."

Cook, however, doesn't share those sentiments. The Apple boss told analysts he expects the iPhone to turn things around in the coming months and years.

"I am very optimistic about the future because I see so many signs that are positive," Cook said. "I see an install base that has gotten incredibly large, I see a switcher rate that is the highest ever, I see the smartphone itself, lead by iPhone, becoming more instrumental in people's lives."

Going into the Q4 period, Apple hopes that it will see revenues rebound into the $45.5-$47.7bn range. That mark would be up sequentially, but would still be down from the $51.5bn in revenues Apple took last year. ®

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