Apple sales plunge in China, but global profit rises


(Inside Retail Philippines | 3 May 2017)

Apple sales and profit grew globally in the second quarter – despite iPhone sales being down $7 billion on the same quarter two years ago.

Total revenue grew by 4.5 percent to $52.9 billion and net income by 4.9 percent, leaving Apple sitting on cash reserves of a staggering $250 billion. International sales accounted for 65 per cent of revenue.

But in greater China, sales of $10.7 billion were down 34 percent on the first quarter and 14 percent year-on-year. Sales in Japan were $4.49 billion, up 4 percent year-on-year, but down 22 percent quarter-on-quarter. Global sales fell 22 percent against the first quarter.

Neil Saunders, MD, of GlobalData Retail, cautions that while the quarterly results look reasonable, they are less impressive set against a very weak prior year performance.

“Over the same period in 2016, total revenue plunged by 12.8 percent, and net income slumped by almost 23 per cent. In essence, this means that Apple is still a long way behind where it was two years ago – $5.1 billion behind in revenue and $2.5 billion behind in net income, to be precise.”

Saunders says Apple has only partially emerged from the slump that hit it over the last fiscal year.

“In our view, the company’s mature product lineup and an absence of any significant new devices mean it has struggled to regain all of the lost ground. Some devices, like iPads, are now firmly in decline and cannot be relied upon to drive future growth. Indeed, iPads were the only category this quarter to post a year-on-year revenue decline; while takings compared to two years ago are down by just over $1.5 billion.”

But while Apple has an absence of big-hitting devices to drive new sales, it does not mean that all parts of its business are in stasis. Sales of ‘other products’ which includes items like AirPods and Apple Watch posted a 31 percent increase in revenue over the prior year.

“The service side of the business, which includes revenue from digital content and subscriptions, is a much more significant contributor – which is why the 18 percent uplift in revenue is particularly pleasing. That service revenue is now nearly double that of iPad revenue – two years ago it was almost $500 million smaller – highlights that this is a genuine growth engine for the business,” says Saunders.

“We are particularly encouraged by the fact that service revenue is nowhere near as cyclical as product revenue. Moreover, there is a great deal more scope to grow this side of the business over the years ahead. While we do not see revenues from the division eclipsing product sales anytime soon, we do believe that it could become Apple’s largest sales contributor over the next 10 or so years.”

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