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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  • Hoekie - Wednesday, July 27, 2016 - link

    Apple users are not tech savy. Most don't care.
  • nikon133 - Wednesday, July 27, 2016 - link

    I hear you. My SP4, although better machine on paper, was performing not as well as SP3. My problem was with touch screen completely stopping to respond to touch, every 2-3 days on average... and crashing/restarting GPU driver. At least GPU would restart itself... for touch screen, the only way was connecting keyboard and rebooting it, or, if keyboard is not handy, doing hard reset (power + volume up).

    Eventually, I have called Surface support and asked if it is worth sending it back. There are a lot of unconfirmed stories on the web about Skylake platform, basically pointing to Intel's hardware/firmware/drivers... so I told support I'd rather not send it back if replacement is going to do the same. Support came back with a bit vague "it could be both software or/and hardware", asked me to try once more clean OS image and latest drivers/firmware update... which I have done already, but I did it again. Touch froze the following day. MS has sent me forward replacement, so fingers crossed... working fine after 2 days, and it looks to me touch is, in general, a bit more reliable. With old SP4, I had this scenario - sometimes, touching link in browser would give visual confirmation - link changes colour etc - but it would not be followed with action. Since replacement, when touch is registered, action always follows - so far.

    I'm wondering if earlier batches of SP4 maybe had some factory fault, be it in manufacturing process or in faulty components... something that was fixed later on but MS is still not too keen to recall all the early SP4s and replace/fix them. Considering that I gave them option to blame it on drivers and avoid replacement, they were quite generous in my case, even sent me forward replacement. As if they knew something they are not (yet?) talking about :)
  • FunBunny2 - Wednesday, July 27, 2016 - link

    -- with new "Gotta Have It" features that PC makers will ridicule at first and then copy a few cycles down the road

    back when Apple used "better" cpu(s) than X86, that was surely possible. running the same cpu as the PC limits them to the capability of said cpu. that some folks are willing to pay way more for a PC with "Apple" on the tag, may just be coming to an end.
  • Daniel Egger - Wednesday, July 27, 2016 - link

    Please Apple take my money for a MacBook Pro that actually deserves the Suffix "Pro" again. Make it big, make it screamingly fast, add a terrific dGPU, don't forget the good old Ethernet socket and figure out a way to replace the fscking mirror screen...

    Until then I'll happily save my money and continue using my 2011 MBP...
  • TEAMSWITCHER - Wednesday, July 27, 2016 - link

    "...good old Ethernet socket..." Your living in the past.
  • ingwe - Wednesday, July 27, 2016 - link

    Yeah that was my reaction as well. I like having an Ethernet port, but really it doesn't seem like they have a place on a laptop. If you are going to use it that much, use an adapter.
  • nikon133 - Sunday, July 31, 2016 - link

    You can fit "expanding" Lan ports on thin laptops. Not ultrabooks, but reasonably thin business machines, like new Elitebooks 840 and Travelmates P645s... among others.

    USB-Lan adapters work fine, too. Especially for devices deprived of any decent number of USB ports, like Surface Pro... where USB hub with lan port can be real lifesaver. But as long as laptop has more than 2 USB ports, I'd rather go for native lan port than another adapter to worry about.
  • jase240 - Wednesday, July 27, 2016 - link

    There are less Apple haters now then there was previously. More and more people actually own Apple products.

    Although the sales seem lower, that's mostly due to a maturing market. Considering the fact that most iPhone users will not need an upgrade just yet, and any Mac 2011 or later is actually fast by todays standards if you add an SSD.

    Also to note, the iPhone SE release is another sign of a maturing market. Most users that can afford a 6 or 6s are satisfied and will not upgrade until a 7 or 7S. The iPhone SE was really only targeted at Asia sales, 4S users, budget users and new iPhone users.
  • Hoekie - Wednesday, July 27, 2016 - link

    I think Apple is already doing a great job themselves. They don't need extra help. It seems Desktop/AIO/Laptop is in Microsoft's ballpark and Google takes the phone and stale tablets part.
    China was down 30% in iPhone sales, so a market with proper growth potentials is gone. It's all, but slowly, downhill for Apple from now on. That's not hating, but being realistic.
  • FunBunny2 - Wednesday, July 27, 2016 - link

    -- More and more people actually own Apple products.

    not actual computers, at least on a "growth" basis. read the filings.

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