With its stock up 27% since the start of the year, Apple (AAPL) didn't have much margin for error with its fiscal second quarter (March quarter) earnings report. Unless the company cleanly beat estimates and issued third quarter sales guidance that was at least in-line with expectations, a selloff was likely. And it wasn't able to do that.
However, outside of the challenges Apple reported seeing in China, its numbers were pretty healthy, with iPhone demand looking healthy in many markets and some smaller businesses looking stronger than expected.
Apple reported March quarter revenue of $52.9 billion (up 5% annually) and EPS of $2.10 (up 10%). The latter beat a $2.02 consensus analyst estimate, but the former slightly missed a $53.04 billion consensus.
In addition, June quarter revenue guidance of $43.5 billion to $45.5 billion (implies 5% growth at the midpoint) fell short of a $45.63 billion consensus. CEO Tim Cook stated on the earnings call that Apple thinks "earlier and much more frequent reports about future iPhones" are weighing on sales. Considering how much has been reported about the iPhone 8 and the feature improvements it's set to deliver, the rumor mill could very well be having a larger-than-usual impact on iPhone sales this year.
Regardless, with a high bar having been set, shares fell 1.8% in after-hours trading to $144.80. Some iPhone/iPad suppliers are also lower. Audio codec chip supplier Cirrus Logic (CRUS) , which reports on Wednesday and gets a solid majority of its revenue from Apple, fell 2.6%. RF chip suppliers Skyworks (SWKS) and Qorvo (QRVO) respectively fell 1.6% and 1.2%.
As has been its custom in recent years, Apple used its March quarter report to announce fresh capital returns: Its buyback authorization has been hiked by $35 billion to $210 billion, and the quarterly dividend has been hiked by $0.06 per share to $0.63 per share (1.7% forward yield). Overall, Apple expects to return $89 billion to shareholders over the next eight quarters.
Buybacks have long been boosting Apple's EPS by lowering its share count. Diluted shares outstanding were down about 5% annually in the March quarter to 5.26 billion. Capital raises used to pay for buybacks and dividends have also been inflating Apple's debt and commercial paper balance, which stood at $98.5 billion at quarter's end. Its cash balance stood at $256.8 billion, 93% of which is outside the U.S.
iPhone revenue rose 1% annually to $33.2 billion (63% of total revenue), with unit sales dropping 1% to 50.8 million. The latter figure fell short of a 52.3 million consensus. Depressed U.S. smartphone upgrade rates weighed on sales, as did a 1.2 million-unit iPhone channel inventory reduction (greater than last year's 400,000). And forex headwinds contributed to an iPhone average selling price (ASP) of $655, up by $13 annually thanks to strong iPhone 7-Plus demand but slightly below a $658 consensus and $40 below what was reported for the December quarter (a seasonally strong one for ASPs due to September iPhone launches).
But soft Chinese demand was easily the largest iPhone headwind: Apple's "Greater China" revenue fell 14% to $10.7 billion (20% of total revenue), even though the company reported 20% Mac growth and "extremely strong" services revenue growth in the region. While currency pressures -- responsible for a third of the Greater China sales decline seen over the last six months -- are a factor, it still looks as if (as indicated by prior estimates) the iPhone has been losing share to local Android OEMs Huawei, Oppo and Vivo. On the call, Cook admitted that while the iPhone 7-Plus did well in China, the same didn't hold for some "previous generation" iPhones.