Apple: iPhone sales sluggish, unveils buyback weapon
Apple (AAPL.O) announced its fiscal second-quarter earnings report for the 2024 fiscal year (ending in March 2024) after the U.S. stock market closed on the early morning of May 3, 2024 Beijing time.
1. Overall Performance: Revenue & Gross Margin in Line with Market Expectations. In this quarter, Apple achieved revenue of $90.8 billion, a year-on-year decrease of 4.3%, in line with market expectations ($90.3 billion). The decline in revenue was mainly due to the decline in iPhone and hardware business. Apple's gross margin was 46.6%, an increase of 2.3 percentage points year-on-year, in line with market expectations (46.6%). The software gross margin has been maintained at over 70% for 11 consecutive quarters.
2. iPhone: Insufficient Demand, Intensified Competition. While the global smartphone market saw single-digit growth in shipments this quarter, Apple's iPhone business experienced a decline. Dolphin estimates that Apple's smartphone business experienced a situation of simultaneous decline in volume and price this quarter, mainly due to intensified industry competition and insufficient demand for iPhone products.
3. Other Hardware Besides iPhone: Only Mac Grew, Others Declined Significantly. The Mac business was the only hardware business that significantly exceeded expectations this quarter, while iPad, wearables, and other hardware businesses all experienced significant declines. Insufficient end demand directly affected the performance of the company's hardware business.
4. Software Services: Reaching New Highs. Software services generated revenue of $23.9 billion this quarter, slightly better than market expectations ($23.28 billion). Both revenue and gross margin of the software business reached new highs this quarter. Software services remain the most stable part of the company, with continuous business growth. Even with a significant decline in hardware, the company's software business still achieved double-digit growth.
Dolphin's Viewpoint:
Overall, Apple's earnings report this time is basically in line with market expectations. Both revenue and gross margin declined, but were close to market expectations. The company's software business maintained growth, while the decline mainly came from the drag of the hardware business. Due to insufficient demand, the company's hardware business saw only a double-digit decline this quarter, which is also in line with market expectations.
From this earnings report, Dolphin believes that Apple still faces significant pressure in its operations, especially in the iPhone business that accounts for 50% of the company's revenue. Compared to the current market situation, while global smartphone shipments saw single-digit growth this quarter, Apple's iPhone business experienced a decline, mainly due to competition from Huawei and Android manufacturersOf course, this financial report also has some positive news. The company will authorize an additional $110 billion share repurchase, setting a new record in the company's history. Share repurchases can boost market confidence in the short term, while medium to long-term investments still focus on the company's business performance. Although the continued growth of the software business can provide some support to the company, the weak performance of the hardware business will still affect market confidence. Only the continuous shipment of hardware business can provide entry protection for the software side.
For a detailed analysis of Apple's financial report, see below:
I. Overall Performance: Revenue & Gross Margin, Meeting Market Expectations
1.1 Revenue: In the second quarter of the 2024 fiscal year (1Q24), Apple achieved revenue of $90.8 billion, a year-on-year decrease of 4.3%, in line with market expectations ($90.3 billion). The decline in revenue this quarter was mainly due to the decline in iPhone and hardware business, with significant declines in Greater China, Japan, and the Asia-Pacific region.
From the perspectives of hardware and software:
① Apple's hardware business growth rate this quarter was -9.5%. Although the Mac business showed some recovery this quarter, other hardware businesses experienced varying degrees of decline;
② Apple's software business this quarter still grew by 14.2%, maintaining double-digit growth. The software business has a certain risk resistance. Even in the case of relatively low hardware revenue, software services have been maintaining a growth trend.
Looking at different regions: This quarter, Apple's revenue declined significantly in Greater China, Japan, and the Asia-Pacific region, with only a slight increase in Europe. This is mainly due to insufficient market demand and intensified competition. Specifically, the Americas region is Apple's largest source of revenue, with a 1.4% decline this quarter; while revenue in Greater China plummeted by 8.1%.
1.2 Gross Margin: In the second quarter of the 2024 fiscal year (1Q24), Apple's gross margin was 46.6%, an increase of 2.3 percentage points year-on-year, in line with market expectations (46.6%). The company's gross margin continued to rise this quarter, mainly driven by the growth of the software business.**Dolphin Jun analyzes the software and hardware gross profit margins separately:
Apple's software gross profit margin in this quarter continued to rise to 74.6%, reaching a new high, which is the main source of the company's gross margin improvement this quarter. The hardware gross profit margin this quarter fell to 36.6%, mainly affected by insufficient demand for some products.
1.3 Operating Profit: In the second quarter of the 2024 fiscal year (1Q24), Apple's operating profit was $27.9 billion, a 1.5% year-on-year decrease. The decline in Apple's operating profit this quarter is mainly due to the decrease in revenue.
This quarter, Apple's operating expense ratio was 15.8%, a 1.4 percentage point increase year-on-year. Both sales and research and development expenses of the company increased year-on-year this quarter.
iPhone: Insufficient Demand, Intensified Competition
In the second quarter of the 2024 fiscal year, iPhone business revenue was $46 billion, a 10.5% year-on-year decrease, in line with market expectations ($45.74 billion). This quarter, while the global smartphone market's shipment volume grew by a single-digit percentage year-on-year, the company's mobile phone business performance declined, reflecting intensified market competition and insufficient demand for iPhones.
Dolphin Jun analyzes the main reasons for the decline in iPhone business this quarter from the perspective of quantity and price relationship:
1) iPhone Shipment Volume: According to IDC data, the global smartphone market grew by 7.7% year-on-year in the first quarter of 2024. Apple's shipment volume growth this quarter was around -9.2%, showing a significantly weaker performance compared to the overall market;
2) iPhone Average Selling Price: Combining iPhone business revenue and shipment volume calculations, the average selling price of iPhones this quarter was around $917, a 1.3% year-on-year decrease. With the release of new models, the average selling price of iPhones increased slightly this quarterHowever, due to the competitive impact in Greater China and other regions, it directly affected the product sales performance, thereby affecting the average selling price of the products.
3. Other Hardware Except iPhone: Only Mac Grew, Others Declined Significantly
3.1 Mac Business
In the second quarter of the 2024 fiscal year, Mac business revenue was $7.5 billion, a year-on-year growth of 3.9%, a significant outperformance in the hardware business compared to market expectations ($6.79 billion).
According to IDC's report, global PC shipments grew by 4.9% this quarter, while Apple's shipments rose by 17% year-on-year this quarter. Dolphin Jun speculates that the average selling price of the company's Mac in this quarter has declined.
3.2 iPad Business
In the second quarter of the 2024 fiscal year, iPad business revenue was $5.6 billion, a year-on-year decline of 16.7%, below market consensus ($5.91 billion). The overall downstream demand for iPad business is weak, leading to continued low revenue for this business, with quarterly revenue falling below $6 billion for the first time.
3.3 Other Hardware such as Wearables
In the second quarter of the 2024 fiscal year, revenue from other hardware such as wearables was $7.9 billion, a year-on-year decline of 9.6%, below market consensus ($8.29 billion). Apple's other hardware business continued to decline this quarter, mainly due to weak demand for wearable products in the market. Considering Qualcomm's 10.6% year-on-year decline in IoT business, both companies saw nearly a 10% decline in related businesses, indicating overall market performance remains weak.
4. Software Services: Setting a New Record Again
In the second quarter of the 2024 fiscal year, software services revenue was $23.9 billion, a year-on-year growth of 14.2%, slightly better than market consensus ($23.28 billion)The software business is the most robust part, showing a continuous growth trend. Even with a significant decline in hardware, software services still see double-digit growth, mainly due to the increase in single-user service revenue.
In software services, the most concerning aspect is the gross profit margin level. In this quarter, the software service gross profit margin reached 74.6%, hitting a new historical high, maintaining above 70% for 11 consecutive quarters. Software services with steadily growing high gross profit attributes are an important part of the company's profits.
Dolphin Research on Apple Historical Articles:
Earnings Season
February 2, 2024 Earnings Call "Steady Increase in Hardware Gross Margin, Venturing into AI (Apple FY24Q1 Earnings Call)"
February 2, 2024 Earnings Review "Why does the 'lying flat' Apple enjoy a 30x PE ratio?"
November 3, 2023 Earnings Call "Apple: A Quarter with No Highlights (FY23Q4 Earnings Call)"
November 3, 2023 Earnings Review "Apple: A 'Money Tree' with Zero Growth, Worth a 30x PE ratio?"
August 4, 2023 Earnings Review "Apple: Barely Holding On, Will India Save the Day?"
August 4, 2023 Earnings Call "Indian Market, Setting Historical Records Again (Apple FY23Q3 Earnings Call)"
May 5, 2023 Earnings Review "Apple: Turning the Tide Against the Wind, the True 'King of Machines'"
May 5, 2023 Earnings Call "Apple's Turnaround Against the Wind, Is it All Thanks to India and Other Emerging Markets? (Apple FY2023Q2 Earnings Call)"Financial report review on February 3, 2023: "Apple: The Thunderclouds Finally Arrive"
Conference call on February 6, 2023: "Limited Demand Impact, Guiding Confidence Continues (Apple FY2023Q1 Conference Call)"
Conference call on October 28, 2022: "Apple: Off-season Downturn, Can the 'Roll King' Escape Decline? (FY2022Q4 Conference Call)"
Financial report review on October 28, 2022: "Apple: The Only Giant Standing, How Much Longer Can It Last?"
Conference call on July 29, 2022: "With Only iPhone Business to Cover Up, How Will Management Explain? (Apple Conference Call)"
Financial report review on July 29, 2022: "The Slightly Growing iPhone, Unexpectedly Becomes Apple's Last 'Cover-Up'"
Conference call on April 29, 2022: "Multiple Factors Troubling, Apple Gives Soft Guidance (Conference Call Summary)"
Financial report review on April 28, 2022: "Apple Making Crazy Money, Should Worry About Growth! | Financial Report Season"
Conference call on January 28, 2022: "Apple: Supply Crisis Eased, Innovation Ignites True Technology (Conference Call Summary)"
Financial report review on January 28, 2022: "Apple's Solid Strength, Sweet and Fragrant Again | Reading Financial Reports"
Conference call on October 29, 2021: "After Missing Performance Expectations, What Did Apple Management Discuss?"2021 年 10 月 29 日财报点评"Missing the mark, Apple's answer was embarrassing" (https://longbridgeapp.com/topics/1263392?invite-code=032064)
2021 年 7 月 28 日电话会"Apple's all-round performance far exceeds expectations, management's interpretation (with complete Q&A)" (https://longbridgeapp.com/news/41413283)
2021 年 7 月 28 日财报点评"Apple: Defining excellence, all-round performance far exceeds expectations" (https://longbridgeapp.com/news/41377499)
2021 年 4 月 29 日电话会"Apple 2021Q2 earnings conference summary" (https://longbridgeapp.com/topics/781014?invite-code=032064)
2021 年 4 月 29 日财报点评"Excellent companies always exceed expectations, Apple in the new fiscal quarter is tough!" (https://longbridgeapp.com/news/34578989)
2021 年 4 月 25 日财报前瞻"After a domineering first quarter report, will Apple's new quarterly report continue to explode?" (https://longbridgeapp.com/news/34167490)
In-depth
2022 年 12 月 29 日"Semiconductor avalanche? True resilience only comes after the most brutal decline" (https://longportapp.com/en/topics/3805995)
2022 年 11 月 11 日"Good performance but still falling, is Apple really sweet?" (https://longbridgeapp.com/en/topics/3638189)
2022 年 6 月 17 日"Consumer electronics 'ripe', Apple stands firm, Xiaomi struggles" (https://longbridgeapp.com/topics/2917540)
2022 年 6 月 6 日"Massive turbulence in US stocks, were Apple, Tesla, and Nvidia wrongly killed?" (https://longbridgeapp.com/topics/2758465)
2022 年 2 月 28 日"Apple: Passing on cost pressures, hats off to you!" (https://longbridgeapp.com/news/56609825)
2021 年 12 月 6 日"Apple: Dual-drive momentum gradually weakens, 'limping' hardware urgently needs a major product for continued strength" (https://longbridgeapp.com/news/51510803) Live Broadcast
September 8, 2022 "Apple 2022 Autumn Launch Event"
April 29, 2022 "Apple Inc. (AAPL.US) 2022 Second Quarter Earnings Conference Call"
January 28, 2022 "Apple Inc. (AAPL.US) 2022 First Quarter Earnings Conference Call"
October 29, 2021 "Apple Inc. (AAPL.US) 2021 Fourth Quarter Earnings Conference Call"
October 19, 2021 "Apple October Product Launch Event"
September 15, 2021 "Apple 2021 Autumn Launch Event"
July 28, 2021 "Apple Inc. (AAPL.US) 2021 Third Quarter Earnings Conference Call"
April 29, 2021 "Apple Inc. (AAPL.US) 2021 Second Quarter Earnings Conference Call"
April 21, 2021 "Apple Spring New Product Launch Event"
Risk disclosure and statement of this article: Dolphin Investment Research Disclaimer and General Disclosure
