Shares of Apple Inc. (NASDAQ: AAPL) surged on Wednesday after the smartphone maker reported quarterly sales and earnings that were higher than expected. More importantly, Apple showed that it is quickly overcoming its dependence on the iPhone, which had threatened to undermine future earnings amid softer Chinese demand.
Quarterly Earnings Summary
- Earnings per share: $2.46
- Revenue: $58.02 billion
- iPhone revenue: $31.05 billion
Apple Beats on Earnings, Raises Guidance
For its fiscal second quarter, Apple reported per-share earnings of $2.46 on revenue of $58.02 billion. Analysts in a median forecast called for per-share earnings of $2.36 on revenue of $57.37 billion.
Although revenue declined year-over-year, Apple managed to diversify away from the iPhone more quickly than many had envisioned. For the quarter, iPhone sales totalled $31.05 billion, which accounted for 53.5% of company-wide revenue. This time last year, the iPhone represented 61.4% of total revenue. Year-over-year, iPhone sales are down more than 17%.
After a fairly strong quarter, Apple boosted its guidance for fiscal Q3. Last year, the company slashed its first-quarter outlook after admitting it may have a China problem. Apparently, iPhones aren’t cutting it in mainland China. A slowing domestic economy has weakened demand for most of Apple’s products.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” CEO Tim Cook said in a letter to investors in early January. “In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.”
$1 Trillion Market Cap
Apple’s share price rose by as much as 7.5% on Wednesday, bringing its total market cap back above $1 trillion. Last summer, the iPhone maker became the first publicly-listed U.S. company to reach that milestone.
Since Jan. 3, Apple’s share price has gained a chunky 50%, which translates into roughly $325 billion. In its earnings call Tuesday evening, the company announced a new $75 billion buyback program and upped its dividend payouts by 5%. The new quarterly dividend stands at $0.77 per share, up from $0.73 per share. These developments could make Apple even more coveted in the eyes of investors.
While far from a dividend aristocrat, Apple has increased its payouts for six consecutive years. The company’s dividend yield is 50% higher than the broader technology-sector average.
In the face of weaker iPhone sales, Apple appears to be pivoting toward two high-growth segments: wearables and online services. It remains to be seen whether the company can maintain its historic growth trajectory following the peak-iPhone era. One thing is for sure: Apple is still operating from the position of strength given its installed user base of 900 million active iPhones.
Disclaimer: Author holds no investment position in Apple Inc. at the time of writing.