Apple Reports Q3 2016 Earnings of $7.8B on $42.4B in Revenue

Apple today announced financial results for the third fiscal quarter (second calendar quarter) of 2016. For the quarter, Apple posted revenue of $42.4 billion and net quarterly profit of $7.8 billion, or $1.42 per diluted share, compared to revenue of $49.6 billion and net quarterly profit of $10.7 billion, or $1.85 per diluted share, in the year-ago quarter. As expected, the results represent the second consecutive year-over-year declines in quarterly revenue and iPhone sales.

Gross margin for the quarter was 38 percent compared to 39.7 percent in the year-ago quarter, with international sales accounting for 63 percent of revenue. Apple also declared a quarterly dividend payment of $0.57 per share, payable on August 11 to shareholders of record as of August 8. The company currently holds $231.5 billion in cash and marketable securities, partially offset by $68.9 billion in long-term debt.

Screen Shot 2016-07-26 at 4.37.01 PM
Apple sold 40.4 million iPhones during the quarter, down from 47.5 million a year earlier, while Mac sales were 4.25 million units, down from from 4.8 million units in the year-ago quarter. iPad sales were also down once again, falling to 9.95 million from 10.9 million.

“We are pleased to report third quarter results that reflect stronger customer demand and business performance than we anticipated at the start of the quarter,” said Tim Cook, Apple’s CEO. “We had a very successful launch of iPhone SE and we’re thrilled by customers’ and developers’ response to software and services we previewed at WWDC in June.”

Apple's guidance for the fourth quarter of fiscal 2016 includes expected revenue of $45.5–47.5 billion and gross margin between 37.5 and 38 percent.

Screen Shot 2016-07-26 at 4.37.08 PM
Apple will provide live streaming of its fiscal Q3 2016 financial results conference call at 2:00 PM Pacific, and MacRumors will update this story with coverage of the conference call highlights.

Conference Call and Q&A Highlights are available in reverse chronological order after the jump.

3:02 pm: Apple's earnings call has concluded.

3:02 pm: Cook: We think of the new Apple TV as the foundation for what we can do in the space. I don't want to be more precise than that. Don't look at what's there today and think we've done what we want to do. We've built a foundation that we think we can do something bigger off of.

3:01 pm: Question asked about Apple TV and the broader streaming TV/content ecosystem.

3:01 pm: Maestri: iPhone SE has downward impact on iPhone ASP of course. Slightly dilutes company margins, but impact is not particularly large.

2:59 pm: Maestri: iPhone SE is doing exactly what it intended. We are seeing a higher rate of new-to-iPhone customers, which is obviously very important to us, as we bring new people into the iOS ecosystem. We see a higher rate of previous iPhone owners who really prefer the 4-inch phone factor. We have not seen clear evidence of cannibalization from iPhone 6s/6s Plus. What is much more relevant to us is the opportunity to bring more people into the iOS ecosystem.

2:57 pm: Cook: R&D growth rates are still very large on a year-over-year basis. Products that are in R&D … there is quite a bit of investment in products and services that are not currently shipping or derivations of what is currently shipping. I don't want to talk about the exact split of it, but you can look at the growth rate and conclude there is a lot we're doing beyond current products.

2:56 pm: Q: From an R&D growth perspective, how much is related to existing products and services versus what is coming next?

2:55 pm: (Side note: Cook actually called them Pokémans).

2:54 pm: Cook asked about Pokémon GO, says it is a testament to what can come from innovative apps. He says that AR can be really great. Apple continues to invest a lot in AR for the long run. Great things for customers. Great commercial opportunity. The number one thing is to make sure our products work well with other developers' kind of products like Pokémon.

2:52 pm: Cook: Apple's revenue tends to peak following product launches in China. There's a higher high and a lower low in China compared to other markets. What we are doing is innovating like crazy and delivering our best smartphone to our customers there. If we do a really good job of that, which we will, I'm confident we will do well there.

2:51 pm: Cook: iTunes Movies and iBooks Store shutdowns in China are not a revenue-related matter, as they were earning less than $1 million in revenue when operational in China. Apple is working very closely with government agencies to make those services available in China again in the future. Apple is optimistic.
2:50 pm: Q: Tim, can you give us your perspective on getting services back up running in China and regaining market share in the country?

2:50 pm: Cook: iPhone demand is made up of upgraders, switchers, and new-to-smartphone customers. Smartphone penetration is 42% at end of quarter, quite of bit of room there. Mostly in emerging markets. Apple has had reasonable business success in emerging markets. On switcher side, we really like what we're seeing. As the iPhone becomes more essential to customers' day-to-day lives, we think people will put more and more focus on what they're buying. The thing that Apple does best is provide a killer user experience that is integrated across the line. I also think the deployment of AI technology is something we will excel at because of our focus on user experience. So, I like that. From an upgrade point of view, there are plusses and minuses as I see it. A plus is that more and more people have already joined upgrade programs. Some of these programs, such as ours, replace the smartphone every single year. Some carriers have similar programs where the iPhone is changed up every year -- some others are 18, 24, or 30 months. Today, there are obviously a lot more people on those programs than ever before. The minus side is that … the lack of a subsidy can be a shock for people, particularly in the U.S., who were used to paying $199 before and now pay full price with a reduced cost of service.

2:46 pm: Q: How is the iPhone Upgrade Program doing? Is Apple thinking about ways to sell the iPhone and more of its products on a monthly type subscription basis, perhaps in a bundled basis?

2:44 pm: Maestri answering question related to sell-through/channel inventory reductions: "Apple reduced channel inventory on not only iPhone, but many other products … Even with sell-through adjustments, guidance for Q4 is still in line with the past."

2:41 pm: Cook questioned about the future, and the iPhone 7 being only an incremental upgrade, and refuses to comment on iPhones that have not been announced. He instead reiterates about the large number of switchers and new platform updates coming in the fall like iOS 10 and macOS Sierra. Cook also really likes what he has seen with the iPhone SE, says the cheaper phone is opening doors to customers Apple wasn't reaching before. Also satisfies customers who were looking for a refreshed 4-inch smartphone.

2:38 pm: Maestri talks about how Apple is dealing with a stronger U.S. dollar environment, and hedges appropriately. Apple feels that its gross margin of 37.5 to 38 percent gross margin, despite these FX headwinds, speaks favorably to the company's hard work recently.

2:37 pm: Q: Luca, as it relates to gross margin, the guidance is very similar to the past 5 years for June vs. September quarters … But there is something else/an added factor impacting the guidance?

2:35 pm: Cook: We're really proud of the developer community. Developers are earning a lot more money writing for iOS than for other platforms. We now have over 2 million apps in the App Store and we are more focused these days on discovery and other things to bring more great apps to the service. There are so many out there. Apple TV, CarPlay, HomeKit, and other services are providing users with a seamless experience.

2:34 pm: Q: I wanted to ask you about your platform strategy…

2:33 pm: Cook: We are not going to get into products or product transitions. We did see encouraging signs from last quarter, with double-digit growth in markets like Japan, Brazil, Russia, and Canada. We're also very happy with our switcher rate -- the highest ever we've ever recorded. Highest absolute number of switchers ever over the past 9 months. We think services will continue to grow very briskly.

2:32 pm: Q: What can you tell us about the timing of the new iPhone model? Where is the strength coming from in the September quarter?

2:31 pm: Cook: On the commodities side, and for the September quarter, we see NAND being pretty much in balance, while DRAM and LCDs and other commodities remain in an oversupply situation. Overall commodity prices we expect to decline.

2:30 pm: Maestri: Flat to slightly down sequentially. On the positive side, we will have leverage, as we are guiding towards a sequential increase in revenue. We expect to have a positive mix as we get into the September quarter.

2:30 pm: Q: Luca, can you talk about gross margins? Commodity pricing?

2:29 pm: Cook: We're constantly looking on the outside for great talent and great intellectual property. We have been buying companies on average every 3 to 4 weeks. We continue to do that. We think we've made some really great choices there. In terms of the investment in Didi, it was an unusual investment in that, you know, we don't have a long history of doing a lot of these, but we've done these. We invested in ARM. From a Didi point of view, we see it as (1) as great financial investment, (2) strategic things the companies can partner on over time, and (3) Apple can learn a lot more about the Chinese market through Didi.

2:28 pm: Q: Tim, can you talk about your thoughts on investments? You made the Didi investment this quarter. Acquisitions. Where are you putting your investment dollars from an acquisition/equity standpoint?

2:27 pm: Q&A session beginning.

2:26 pm: Maestri: Apple expects revenue to be between $45.5 billion and $47.5 billion in Q4 2016, compared to $51.5 billion in Q4 2015.

2:25 pm: Maestri: Apple returned $13 billion to shareholders last quarter.

2:25 pm: Maestri: Apple has $231.5 billion in cash plus marketable securities. $1.4 billion decrease.

2:23 pm: Maestri: Among U.S. consumers planning to purchase a tablet in the next 6 months, 63% plan to purchase an iPad. iPad Pro is the top device that those customers intend to purchase.

2:22 pm: Maestri: We faced a very difficult quarter with Macs compared to the year-ago quarter, when we launched a new MacBook Pro and iMac.

2:20 pm: Maestri: Services now account for 11% of Apple's overall revenue, up from 8% in the year-ago period.

2:20 pm: Maestri: We set a new record for customers transacting on the iTunes Store. Average amount spent per customer was the highest ever measured.

2:19 pm: Maestri: iPhone continues to show momentum in business market. 75% of prospective corporate buyers intend to buy iPhone in September quarter.

2:19 pm: Maestri: iPhone SE rollout concurrent with iPhone channel inventory reduction resulted in lower iPhone ASP of $595. Apple expects iPhone ASP to improve in Q4 2016.

2:18 pm: Maestri: $10.6 billion cash flow. iPhone channel inventory reduced by 4 million units. Sell-through down by 8%.

2:17 pm: Apple CFO Luca Maestri is now talking.

2:17 pm: Cook says Apple has incredible products in the pipeline and is very bullish about the company's future.

2:16 pm: Cook: 3 out of 4 contactless payments made with Apple Pay. More than 11 million contactless locations/points of sale in all participating Apple Pay countries. Apple Pay is now live in 9 markets, including 6 out of Apple's top 10 markets.

2:13 pm: Cook: We have focused our AI efforts on features that best enhance the customer experience. For example, machine learning enables Siri to learn words and the intent behind them, and can then deliver smarter, more accurate responses.

2:13 pm: Cook is reflecting on new features that customers can look forward to this fall with iOS 10, macOS Sierra, watchOS 3, and tvOS 10, such as improvements to Siri, Messages, and Continuity.

2:11 pm: Cook: India is one of our fastest growing markets. iPhone sales in India up 51% year-over-year in the first three quarters of this year. Cook confirms Apple's plans to open retail stores in the country in the future.

2:10 pm: Cook talks about currency headwinds affecting revenue earnings in Greater China region, such as the stronger Hong Kong dollar.

2:09 pm: Cook: iPhone install base in China has grown by 34% over the past year.

2:08 pm: Cook reflects on Apple Watch's top customer satisfaction rating among smartwatches awarded by JD Power. He does not comment on any specific sales.

2:07 pm: Cook: Our survey shows that half of iPad Pro purchasers are buying them for work. Ultimate upgrade for existing iPad users. Ultimate replacement device for customers switching from PCs.

2:07 pm: Cook: We expect our services category to be the size of a Fortune 100 company by next year.

2:06 pm: Cook: App Store revenue up 37% to an all-time high.

2:06 pm: Cook: Switchers from Android and other platforms accounted for the highest percentage of iPhone buyers than ever before.

2:05 pm: Cook: iPhone SE is popular in both developed and emerging markets. Sales to new-to-iPhone customers are greater than in previous years.

2:05 pm: Cook says iPhone SE demand outstripped supply through the entire June quarter.

2:04 pm: Apple reduced channel inventory by $3.6 billion. Sell-through was markedly greater than sell-in.

2:04 pm: Cook says that today's report reflects several encouraging signs that Apple did not expect even 90 days ago.

2:02 pm: Apple CEO Tim Cook will speak first, followed by CFO Luca Maestri.

2:02 pm: Apple's earning call is beginning.

1:47 pm: iPhone average selling price (ASP) declined to $595 from $642 last quarter, due in large part to the iPhone SE. On the flip side, iPad ASP rose to $490 from $430 due to the higher priced 9.7-inch iPad Pro compared to the previous iPad Air 2.

Top Rated Comments

(View all)
Avatar
55 months ago

I can't believe they are managing to still sell these macs.. the people that are buying them are buying them purely for image or their mac recently broke and needed a replacement. No-one is buying these for the tech. It's old.

Most consumers do not follow Intel's updates. They just want a mac.
Score: 20 Votes (Like | Disagree)
Avatar
55 months ago

Grammar is falling faster, apparently.

You do realize I'm foreign, right?
Score: 20 Votes (Like | Disagree)
Avatar
55 months ago
I can't believe they are managing to still sell these macs.. the people that are buying them are buying them purely for image or their mac recently broke and needed a replacement. No-one is buying these for the tech. It's old.
Score: 19 Votes (Like | Disagree)
Avatar
55 months ago
Apple missed a big opportunity for iPad Pro 9.7. The price is just too high. I have had one and loved it, but many friends of mine just get turned off by the high price.
Score: 17 Votes (Like | Disagree)
Avatar
55 months ago
It's no rocket science - ship new Macs and the people will buy them.
Score: 12 Votes (Like | Disagree)
Avatar
55 months ago
Modern business culture is insane. "If you're not improving quarter over quarter, you're failing."

Shareholders aren't satisfied by just making money; they're only satisfied by making more money every quarter. It's a depressing and unsustainable position.
Score: 11 Votes (Like | Disagree)

Top Stories

iPhone 12 Pro in Graphite and iPhone 12 in Blue Shown Off in Unboxing Videos

Monday October 19, 2020 8:20 am PDT by
While the iPhone 12 Pro does not launch until Friday, we now have an early unboxing video of the device courtesy of Twitter account DuanRui, providing a closer look at the shiny new flat-edge design and sleek Graphite color option. Ben Geskin re-uploaded the unboxing video to YouTube, which we've embedded below: Geskin has also uploaded an unboxing video of the iPhone 12 in Blue: ...

New Photos Offer Better Look at iPhone 12 Color Options

Tuesday October 20, 2020 2:34 am PDT by
As we wait for the iPhone 12 review embargo to lift later today, more pictures are circulating of the devices in real-world lighting conditions, providing a better look at the different colors available. Leaker DuanRui has shared images on Twitter of the iPhone 12 in white, black, blue, green, and (PRODUCT)RED. The black and white colors are similar to the iPhone 11 colors, but the other...

Kuo: iPhone 12 Pro Demand Higher Than Expected

Sunday October 18, 2020 10:39 pm PDT by
TF International Securities analyst Ming-Chi Kuo released a research note this morning detailing what he's seen with the volume of iPhone 12 and iPhone 12 Pro pre-orders in the first weekend of sales. Kuo had previously indicated that Apple's estimated shipment allocations for the new iPhone models placed the iPhone 12 at the top with 40-45% of inventory allocation (up from 15-20%). However, ...

Apple Releases iPadOS and iOS 14.1 With Multiple Bug Fixes Ahead of iPhone 12 Launch

Tuesday October 20, 2020 10:06 am PDT by
Apple today released iOS and iPadOS 14.1, the first major updates to the iOS and iPadOS 14 operating system updates that were released in September. iOS and iPadOS 14.1 come a week after Apple released the golden master versions of the updates to developers. The iOS 14.1 update can be downloaded for free and it is available on all eligible devices over-the-air in the Settings app. To access...

Hands-On With Apple's MagSafe Charger for iPhone 12

Monday October 19, 2020 11:54 am PDT by
Alongside the new iPhone 12 models, Apple introduced a MagSafe charger that attaches to the back of the iPhones using magnets embedded both in the charger and in the iPhone. It allows for speedier charging and paves the way for a portless iPhone in the future. MagSafe chargers are shipping out and are in some Apple retail locations now, and we picked one up to check it out. Subscribe to the ...

Watch: iPhone 12 and iPhone 12 Pro Unboxing Videos and First Impressions

Tuesday October 20, 2020 6:05 am PDT by
Apple's embargo has lifted for iPhone 12 and iPhone 12 Pro reviews. In addition to our detailed review roundups for each device, we've rounded up over a dozen unboxing videos and first impressions below. iPhone 12 in Blue on left and iPhone 12 Pro in Pacific Blue on right via Engadget Key new features of the iPhone 12 and iPhone 12 Pro include a flat-edge design, 5G support, a much faster A14 ...

Some Apple Watch SE Owners Experiencing Issues With Overheating [Updated]

Monday October 19, 2020 11:38 am PDT by
There may be an issue with the new Apple Watch SE, which some users have found is overheating after a few hours of usage. Several Apple Watch SE owners in South Korea have run into problems, as noted in a Reddit post chronicling the complaints. There have been six reports from Apple Watch SE owners in South Korea who have had their Apple Watches get hot and malfunction, with a yellow spot...

Gold Version of iPhone 12 Pro Apparently Has a More Fingerprint Resistant Stainless Steel Frame

Tuesday October 20, 2020 11:56 am PDT by
iPhone 12 Pro reviews hit the web today, and one of the more interesting tidbits came from TechCrunch's Matthew Panzarino, who revealed that the Gold version of the device apparently has a more fingerprint resistant coating applied to the stainless steel frame. From his review:Most of the iPhone 12 Pro finishes still use a physical vapor deposition process for edge coating. But the new gold...

iPhone 12 Pro Max Has Smaller 3,687 mAh Battery According to Regulatory Filing

Tuesday October 20, 2020 8:48 pm PDT by
Apple's new iPhone 12 Pro Max is equipped with a 3,687 mAh battery, which is around 7% less capacity than the 3,969 mAh battery in the iPhone 11 Pro Max, according to a regulatory filing published by TENAA, the Chinese equivalent of the FCC. The regulatory filing, spotted by MacRumors, also lists the iPhone 12 Pro Max with 6GB of RAM as seen in benchmark results last week. Apple has filed ...

Hands-On With Apple's iPhone 12 and 12 Pro MagSafe Cases

Tuesday October 20, 2020 1:33 pm PDT by
Apple's iPhone 12 and 12 Pro are launching this Friday, and ahead of that release date, Apple is shipping out various accessories like the MagSafe charger and MagSafe cases. Yesterday we took a look at the MagSafe charger, and today our MagSafe case came in the mail, so we thought we'd take another look at the charger to see how it works with the case and just how strong the case magnets are. S ...