Apple has just released its earnings report for the second quarter of fiscal 2017, which runs from the beginning of January to the end of March. So far, Apple is back to modest growth in 2017: iPhone unit sales are down just a little, and iPad sales continue their precipitous slide. But iPhone revenue is actually up, and the Mac, the Services division, and the Other Products divisions all posted solid growth.
Apple made $11 billion in profit and $52.9 billion in revenue, compared to $10.5 billion in profit and $50.6 billion in revenue in Q2 of 2016. The company’s gross margin was 38.9 percent. These results were toward the upper end of Apple’s guidance for the quarter, which predicted revenue between $51.5 billion and $53.5 billion and a profit margin between 38 and 39 percent.
The company predicts that it will make between $43.5 and $45.5 billion in the third quarter of fiscal 2017, with profit margins between 37.5 and 38.5 percent. These numbers compare favorably to the $42.4 billion the company made in Q3 of 2016, though they’re still well below the $49.6 billion that Apple made in Q3 of 2015.
The most instructive chart this time around is the one that breaks revenue down by territory. Apple is essentially meeting or beating its stellar 2015 revenue in every one of its major markets aside from China. Revenue is down $1.76 billion from 2016 and $6.09 billion from 2015, making what was once a big growth market for Apple a bit of a drag on its year-over-year growth.
The iPhone broke about even this quarter. Unit sales fell from 51.2 million phones to 50.8 million phones. While that isn’t great, it’s basically a rounding error; meanwhile, revenue actually grew from $32.9 billion last year to $33.3 billion this year, indicating that when people are buying iPhones, they’re going for slightly more expensive configurations.
The iPad continues its double-digit decline, with unit sales falling 13 percent year-over-year and revenue falling by 11.8 percent. This marks three straight years of decline for Apple’s tablet, despite the introduction of multiple new models across all screen sizes and the introduction of the iPad Pro. The $329 iPad, Apple’s only truly new product introduced in Q2, was only around for a couple of weeks in the quarter, so it’s possible that we’ll see sales rebound in Q3 as it drives people to upgrade. Even if those sales rebound, though, unit-sales growth may come at the expense of revenue.
During the earnings call, Apple CFO Luca Maestri said that iPad sales grew in the US and revenue was up worldwide for 9.7-inch-and-larger iPads. This suggests that the continued drop in sales is coming from Apple’s international markets and from the decline of small-screened tablets as phones grow larger.
The Mac continues to do well—unit sales are up by 4.2 percent and revenue is up by 14.3 percent, suggesting that the more expensive MacBook Pros introduced in late 2016 are still selling fairly well. All the rest of the computers in the lineup are a year or more older at this point, but that doesn’t seem to be damaging these numbers too much.
The “other products” category is maybe the most frustrating to comment on. It lumps together everything from the Apple TV to the Apple Watch to Beats headphones to iPods to cables and accessories. Explaining why this diverse group grows or shrinks from year to year is challenging. Its strength in Q2 of 2017 is probably being driven in part by the $159 AirPods. This was their first full quarter of availability, and they continue to be backordered (as of this writing, you’ll be waiting six weeks if you order a pair from Apple today). AirPods are also doing well in customer satisfaction surveys.
Finally, revenue from services like iCloud, Apple Music, and the App and iTunes Stores continues to be a bright spot, as it was all through 2016. Overall Apple revenue is up by just over $1 billion compared to 2016, or 17.5 percent, and it’s up by $2 billion compared to 2015. As Apple’s userbase continues to grow and the company continues to offer more services, expect this number to continue growing as well.