Wednesday, 26 October 2016


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In San Francisco, shoppers waited last month for the release of the iPhone 7 and 7 Plus. The company says the iPhone 7 Plus has been especially popular. CreditMichael Short/Bloomberg
SAN FRANCISCO — Apple predicts that strong sales of its new iPhones will soon pull the company out of a yearlong slump.
And the misfortunes of its archrival, Samsung, probably deserve a bit of the credit.
On Tuesday, Apple said it expects sales to start growing again in the upcoming holiday quarter, driven largely by consumer purchases of the new iPhone 7 and iPhone 7 Plus, which went on sale in September.
The new iPhones hit the market with remarkably good timing. This month, Samsung was forced to recall its Galaxy Note 7, the South Korean company’s answer to the iPhone, because the devices were catching fire. That vaporized Apple’s toughest competition for the most profitable part of the smartphone market.
“There’s more demand we can supply right now,” Apple’s chief financial officer, Luca Maestri, said in an interview. Interest in the iPhone 7 Plus, Apple’s largest model and the most direct rival to Samsung’s Galaxy Note 7, is so intense that Apple said production could still lag demand even by December.
If the company’s forecast is accurate, it will mark a turnaround from what has been a disappointing year for the Silicon Valley giant. In April, Apple announced that sales in the first three calendar months of 2016 shrank for the first time in 13 years.
The poor performance continued through the quarter that ended on Sept. 24, the company reported on Tuesday. For the most recent three-month period, Apple said, revenue fell 9 percent to $46.9 billion. Net income fell 19 percent to $9 billion.
One bright spot for Apple was the accelerating growth of its services businesses — essentially its cut of iPhone app sales as well as subscriptions to Apple Music and other services such as cloud storage. Revenue from services was up 24 percent as the company squeezed more value from the billion or so Apple devices that it estimates are in active use.
“The next big product is the App Store,” said Ben Schachter, an analyst with Macquarie Research, who sees services as an underappreciated part of Apple’s business.
Mr. Maestri said that revenue from Apple Music, the company’s streaming service, grew 22 percent in the quarter and more than offset the decline in music downloads from the iTunes store.
Based primarily on the robust demand for the iPhone 7, Apple raised its financial projections for the quarter that will end in December, when crucial holiday sales occur. The company said it expects revenue of $76 billion to $78 billion, compared to $75.9 billion in the same quarter last year.
China, a key market for Apple where sales have fallen sharply, appears to be stabilizing. In the September quarter, sales in greater China were about flat compared to the June quarter. Sales were still down 30 percent compared to the previous year, but Apple’s chief executive, Timothy D. Cook, said he was optimistic about an improvement.
“We are very bullish on China,” he said. “There might be a new normal there, but the new normal is a good growth rate.”
Apple shares were down about 2.6 percent in after-hours trading.
While phones account for the majority of Apple’s business, its Mac laptop and desktop personal computers remain significant contributors to the company’s bottom line. On Thursday, Apple is expected to announce several major updates to its Mac lineup, including the first major overhaul of its MacBook Pro laptop in four years.
Kevin Walkush, a portfolio manager at the Jensen Quality Growth Fund, said that Apple’s phones are gradually becoming commoditized, yielding lower profit margins. Services, which are far more profitable, will drive the company’s future growth.
“Apps and services have higher margins,” said Mr. Walkush, whose mutual fund has been building its stake in Apple stock. “It makes it more annuity-like.”
Mr. Cook got a bit prickly when asked about artificial intelligence technology found in devices made by competitors like Amazon’s Echo and Google ’s Home. Those gadgets rely on amassing a large amount of information about users to deliver personalized information.
He said Apple could deliver similar personalized services through its Siri technology without compromising privacy.
“It’s a false trade-off that people want you to believe, that you have to give up privacy to have A.I. to do something for you. We don’t believe that,” Mr. Cook said.
As for new areas of focus for the company, he said Apple remains very interested in television content. “I think it’s a great opportunity for us both from a creation point of view and an ownership point of view,” Mr. Cook said.

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