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Apple CEO looks to services as device revenues fall

Apple's services division has emerged as its second biggest earner after iPhone sales, as quarterly revenues declined 13%, in line with forecasts

Apple chief executive Tim Cook is looking to the company’s services division as revenue from device sales fell for the first time in 13 years.

Despite warnings from Apple in January 2016, shares fell 8% in after-hours trading in reaction to quarterly revenue of $50.6bn, down 13% compared with the three months ending 26 March the year before. Apple had forecast a decline of between 9% and 14%.

Profit for the quarter was $10.5bn, representing a 23% decline compared with the same period in 2015.

Most significantly, iPhone sales – which account for around 65% of Apple’s revenue – declined for the first time ever, by 16% compared with the same period the year before, while iPad sales were down 19% and Mac sales were down 9%.

Conversely, Apple’s “services” revenue from Apple Care, Apple Pay and Online services rose 20% to around $6bn. After iPhone sales this was the company’s largest driver of revenue. “Other products” revenue from Apple TV, Apple Watch, Beats and accessories rose 30%.

“Our team executed extremely well in the face of strong macroeconomic headwinds,” said Cook, in what is believed to be a reference to the strong US dollar and the struggling economy in China, where iPhone sales fell 26%.

“We are very happy with the continued strong growth in revenue from services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices.” 

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Apple Watch outsells iPhone

Services promise a recurring revenue stream – unlike hardware sales – but analysts say Apple faces an uphill battle in carving out the same position in services that it achieved with hardware, according to Reuters.

The company once again did not reveal sales of the Apple Watch released a year ago, but Cook said the smartwatch had “met expectations” and sold more than the iPhone in its first 12 months, according to the Telegraph.

Apple announced that its board had authorised an increase of $50bn to the company’s programme to return capital to shareholders.

Luca Maestri, Apple’s chief financial officer, said the company had generated strong operating cash flow of $11.6bn in the quarter and returned $10bn to shareholders.

“Thanks to the strength of our business results, we are happy to be announcing today a further increase of the program to $250bn,” he said.

The board has also approved an increase of 10% of the company’s quarterly dividend, and has declared a dividend of $0.57 per share, payable on 12 May 2016.

From the start of its capital return programme in August 2012, Apple said it has returned over $163bn to shareholders, including $117bn in share repurchases.

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It turns out that consumers are not willing to own an infinite number of phones nor tolerate an endless number of annual upgrades. (Nor, one hopes, an endless number of adapters of various sizes.)

With so much worldwide competition, Apple will have to alter its approach to consumers though I'm not sure a harder sales pitch is quite what they had in mind. OTOH, no one is ready ready to write off the company that saw profits of a mere $10.5B in the last quarter.... Yes, that's "profit", yes, that's "billion", and yes all that happened in the "last quarter"....
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