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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  • BrokenCrayons - Wednesday, July 27, 2016 - link

    The "other products" category's poor showing is no surprise. I'd hazard a guess at saying the Watch is performing very poorly based on the lack of interest Apple is showing in the platform. That really isn't an accusation directed at Apple citing poor execution, but more representative of the broader market of wearable technology in general. As people abandon their fitbits and Watches in dresser drawers because of their tiny screens, limited use case scenarios, and short battery life, I think you'll see only a few people that are both die hard wristwatch wearers from older generations that didn't grow up with clocks on literally every electronic device all around them that also happen to be goo-gaw device junkies still pine for attempts at modernizing such relics.

    On the phone, tablet, and computer fronts the bottom line is that there's nothing really interesting going on in the industry with respect to technological advancement. Tablets are slowly following netbooks to their eventual demise. Phones have gotten too big to appeal to a lot of people who want to put them into a pocket instead of sticking them in a brick-like case and then carrying them in a holster like some modern replacement of the western movie cowboy's revolver. Meanwhile the PC industry is by-and-large stable with the only blips being new graphics cards that ultimately are still not in the the majority of computers because processor graphics have the market locked down pretty well while consoles have a large chunk of the gaming market. The only other blip is a misguided attempt to exhume VR headsets from their mid-1990's tombs while DX12 is poised to kill off multi-GPU setups that offer reasonable performance (read non-vomit inducing) in VR once and for all by making cost sensitive game developers responsible for baking in support, thus killing that zombie and putting it back in the dead-end tech heap with 3D televisions for another 15-20 years until someone attempts to dig them up again under the assumption that "it'll surely be different this time around now that we have technologies X, Y, & Z" without realizing the fundamentally bad outcomes in most humans that results in sensory conflicts VR creates.
    Reply
  • fanofanand - Wednesday, July 27, 2016 - link

    If the new gen of GPU's isn't enough reason for Apple to update, then nothing will be. DX12 will do the exact opposite of what you claim, DX12 will make multi-GPU setups viable again. I am as surprised as anyone with the stagnation in the MacBook pro lineup, but I am quite certain we will see a refresh this fall. I have never, nor will I ever own anything Apple, but I think your assessment is quite off-base. Reply
  • BrokenCrayons - Wednesday, July 27, 2016 - link

    I honestly don't see how DX12 will help. NV has already thrown in the towel with > 2 GPU setups in the new hardware generation, effectively walking away from supporting such configurations with their new SLI bridge and that alone should clue people in that this sort of thing is being slowly abandoned.

    The other obvious point is that DX12 shifts multi-GPU support responsibility to game developers (or game engine developers anyway). In order to support m-GPU configurations, human labor will be necessary which will drive up production costs. Game development is already a labor-intensive affair with a big chunk of expenses going to paying salaries. With highly cost-sensitive big studios being asked to soak up the price of additional labor to support halo and niche hardware configurations that don't really do much more than pointlessly increase FPS at resolutions the majority don't run, it's going to be difficult for a publisher to authorize the investment to support m-GPU. It boils down to dollars and I just don't see it making cost effective sense. Even the argument that there's a lot of unused iGPUs sitting around doing nothing in computers with discrete graphics doesn't hold a lot of water when the largest segments of computers sold don't even contain a d-GPU which could benefit from iGPU+dGPU DX12 scenarios. Atop that, the majority of those sales are laptops and small form factor machines where adding a discrete graphics chip isn't possible.

    I'm gonna call it now, multi-GPU setups are going the way of the dodo bird. Desktops that are big enough and custom enough to support more than one GPU are already dinosaurs in a mobile computing world. There's just no real future for such things outside of professional rendering farms and whatnot. They certainly don't fit in a pocket or handbag overly well and with tighter integration of components that are cutting into modular expansion capability, PCs are losing the ability to be upgraded at all.
    Reply
  • BrokenCrayons - Wednesday, July 27, 2016 - link

    Replying to my own post...tacky. Still, when's the last time AT even reviewed a standard desktop PC -- something in an ATX case that can actually be upgraded? It looks like there was a workstation given a full review in 2015, but aside from that, complete desktops are a non-entity. Component-level reviews cover desktop hardware, but that market is shrinking as surely as companies like NewEgg now sell kitchen appliances in order to be diversified enough to stay afloat. -- Got a nice waffle iron from them 3 years ago when I bought some RAM for a laptop as a matter of fact.

    Read the writing on the wall. It sucks, but it's been there for a few years already.
    Reply
  • FunBunny2 - Wednesday, July 27, 2016 - link

    -- If the new gen of GPU's isn't enough reason for Apple to update, then nothing will be.

    need a use case for a new gen of GPU. the three driving applications (spreadsheets, word processing, spreadsheets) get by just fine with embedded cpu graphics. games, CAD, and who knows are about the only use cases that need any kind of GPU. not large markets, at least compared to Excel and Word of two decades ago.
    Reply
  • name99 - Wednesday, July 27, 2016 - link

    And how exactly do you get to "lack of interest Apple is showing in the platform"?
    Apple is releasing a massive OS update with WatchOS 3 in September, along with likely new hardware.

    People like you seem utterly oblivious to the way the iPhone launched, under essentially exactly the same circumstances. iPhone 1 had inadequate hardware (no 3G for gods sake, slow, 128MiB RAM), and severe limitations in the OS. It sold poorly (worse than Apple Watch so far). But it mattered because it showed the direction of the future.

    It took two more sub-par iterations (iPhone 3G then iPhone 3GS) before everything really started coming together with the iPhone 4, and even that success wrt design and technology was only reflected in sales with the iPhone 4S.

    Change takes time. One reason to be optimistic about Apple is precisely that they have now calibrated themselves pretty well to this. Apple TV is a great example of REALLY understanding how slow some things would change (and even pre-emptively calling it a "hobby" to get people to shut up about how slow this would be).
    I expect wrist computers (ie Apple Watch) likewise to take around another two, even three, years of hardware that's not quite where we'd like it to be, and likely some flailing around with the visual design of the hardware and the details of the UI before Apple nails it AND the public starts to see the value AND the sorts of social infrastructure changes that really make it valuable (eg widespread Apple Pay, using your watch to identify you for transit and similar tasks).
    And even after the iPhone 4, it still took a few more years to consolidate and improve everything with iOS 7. And, big bang as iOS 7 was, we're still finding plenty of things to fix in later OSs.

    Change takes time!
    Reply
  • FunBunny2 - Thursday, July 28, 2016 - link

    -- I expect wrist computers (ie Apple Watch) likewise to take around another two, even three, years of hardware

    hardware, strictly speaking, isn't the issue. they are:
    1 - form factor is way too small. Dick Tracy was a cartoon
    2 - battery power is determined by physics and chemistry, not cartoonists, and unless/until the science finds a battery chemistry with at least 100% more oomph than today's, then today's processing is what you'll get, forevvehhha
    Reply
  • BrokenCrayons - Thursday, July 28, 2016 - link

    You nailed it.

    The inclusion of gimmick features like physical activity monitoring are just attempts by the manufacturers (Apple and others) to find the "killer app" that will appeal to a large enough audience to make platforms like the Watch sell to a broader audience to which they currently offer no utility. At the moment, they're something akin to a new exercise machine that someone purchases, uses twice, and the forgets about.

    The trouble in developing that utility and finding that killer app is overcoming essentially insurmountable problems in the tiny screen and the physics of current battery technology. E-Ink screens might offset the battery problem, but their refresh rate is too low to offer a visually interesting interface or differentiate the product from a cheap digital watch that just tells the time.

    The bottom line is that the platform is doomed. A few companies are riding a fad wave to drum up some money with limited function hardware (fitbit pops into mind right away -- as does dusty exercise equipment everyone's forgotten after a year) but I don't think any of those companies would be realistic if it were to forecast this sort of thing being enduring in the long run. Their best bet is to cash grab while they can and diversify into related products by using wrist platforms as their company's proverbial first rocket booster stage.

    Apple is different in that its already got a variety of other products and their strategy in approaching watches is different as well. They're trying to continue to give the public the perception the company is innovative in a post-Jobs era where its impossible for Steve to return to save the company from itself again (unless the fine people at Apple have figured out that necromancy thing). Even if the Watch ends up a loss, its probably worth the cost because of the intangible benefit of public perception. That's why I think they're making a dog and pony show of it, but ultimately aren't all-in with the Watch for the long haul.
    Reply
  • ChicagoAdam - Wednesday, July 27, 2016 - link

    Great stat reporting. Very good job of making the data easy to understand - and pretty darn comprehensive. Forbes links to this article making the case that Apple bulls have plenty to worry about as Apple remains in a Growth Stall http://bit.ly/2ahpVAf Reply
  • Hoekie - Wednesday, July 27, 2016 - link

    Remains going down you mean. There's no growth for 2 quarters. That's the news. And nothing new on the horizon. Just refreshes. Reply

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