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Apple Second Quarter, 2016 Earnings Report : April 26, 2016

Join the MacNN team live for a rundown of the good, the bad, and the ugly of Apple's latest financial report.
3:32 - You're early! The conference call proper starts at 5:00 PM eastern time. In addition to a summary on the main MacNN news page, we'll post tidbits from the financial information here before the fun and games really start!
4:34 - Music's started on the Apple audio cast, 26 minutes to go. Figures are imminent.
4:41 - $50.6B revenue
4:41 - 51.1M iPhones, 4M Macs, 10.2M iPads sold in the quarter
4:42 - ($58B Year-ago quarter, 19% iPad drop, 18% drop in iPhones)
4:43 - Apple is providing the following guidance for its fiscal 2016 third quarter: revenue between $41 billion and $43 billion, gross margin between 37.5 percent and 38 percent, operating expenses between $6 billion and $6.1 billion, other income/(expense) of $300 million, tax rate of 25.5 percent
4:43 - Board of Directors has increased its share repurchase authorization to $175 billion from the $140 billion level announced last year.
4:47 - Quarterly net income of $10.5 billion
4:48 - Wall Street is NOT going to like this, not one bit -MW
4:54 - AAPL down $7.07 in after-hours to $97.28 just now.
4:55 - A drop of over $7 billion in quarterly revenue would destroy some companies, but at Apple’s scale, it’s a hefty but not too serious reduction… -MO
4:56 - it's that $10B further drop next quarter that may cut pretty deep​ - CM
4:57 - I thought Tim said THIS one was supposed to be the "toughest compare"​ - CM
5:00 - Everybody got their beverages and snacks? Good. Strap in, this is going to be a bumpy one.
5:01 - Makes sense that the share buyback is getting expanded. Apple will get a great price.
5:02 - Here we go.
5:03 - Expect to hear a LOT about currency headwinds - CM
5:03 - Tim Cook: "busy and challenging quarter"
5:03 - Big weaknesses because of economic headwinds, currency exchange.
5:04 - Installed base over 1B active devices, "huge number" of Android switchers, new to Mac.
5:05 - iPhone business "healthy and strong"
5:05 - Upgrade rate slightly higher now than from 5 to 5s to 6, lower than 6 to 6s.
5:06 - Very high level of customer switches. More switchers from Android in first half of this year, than ever before.
5:06 - Services: second largest revenue generator
5:06 - Services jumped 20 percent, app store revenue up 35 percent, Apple Music 13M paying subscribers.
5:07 - Services growth independent of unit shipments.
5:08 - Apple Pay: tremendous growth, 5x the volume of a year ago, 1M new users a week. 10M contactless-ready purchase locations. More expansion of Apple Pay coming soon.
5:08 - Mac: 100000 reduction in channel inventory. Over half of buyers new to Mac. China, 80% of Mac purchasers were first-time buyers.
5:09 - Apple Watch: seasonality similar to iPod.
5:10 - iPhone SE. None of sales reflected in Q2.
5:10 - Demand for iPhone SE exceeds supply at this point.
5:11 - June quarter expecting best revenue compare in two years for iPad.
5:13 - Company lowering product inventories in the next quarter, lowering revenue.
5:13 - (revenue based on sell-through, not shipments)
5:14 - 15 key company acquisitions over the last four quarters
5:14 - stock buyback extended through March 2018, increased to $250B
5:15 - AAPL $96.40, down $7.95
5:15 - Mainland China, revenue drop 11%
5:17 - Services $6B in revenue
5:18 - Average spent in app store per customer all-time record last quarter
5:18 - Double-digit market growth in many served markets.
5:19 - NPD: 78% of the market share of tablets prices over $200.
5:20 - Other product revenue growth 30% because of Apple Watch.
5:21 - IBM has 200 native iOS apps for large enterprises.
5:21 - $232.9B cash on hand.
5:22 - 90% outside the US.
5:23 - Dividend growing from $0.52 to $0.57 per share.
5:25 - Tough compare from incredible quarter last year, planned channel reduction, currency situations.
5:26 - Seasonal sequential decline in iOS sales, increase in Mac sales. (back to school)
5:27 - question and answer time.
5:28 - Q: Context for channel inventory reduction, how does Apple think of itself going forward given shift in mobile market.
5:28 - A: $800M channel inventory reduction a year ago.
5:29 - Tim Cook: "market as you know is currently not growing." "Overhang of macro-economic environment" "we are very optimistic that this too shall pass"
5:29 - Tim Cook: "compare favorably to previous upgrade cycles"
5:30 - Tim Cook: current problems are a "transitory thing"
5:31 - Tim: iPhone SE is attracting customers to the platform. "very excited" about what's in the pipeline.
5:31 - Tim: always looking at synergies. Apple's moves and acquisitions are about strategic fit.
5:32 - Q: iPhone ASP trend? Services segment as far as which piece is driving growth.
5:33 - Tim: SE attracting customers who want latest tech in a compact package; and people who wanted a lower entry price.
5:33 - SE supply constraint being worked out.
5:34 - Average Selling Price: affected by SE entering, channel inventory reduction.
5:35 - Biggest growth in services is the app store. Music business declining for several quarters, but is now starting to climb.
5:35 - Apple Pay does not provide a meaningful contribution to the financial bottom line at this point.
5:37 - Q: Worst gross margin guidance in the last year and a half. Are some of the tailwinds winding down?
5:38 - A: commodity environment favorable. Headwinds: loss of leverage, different mix of products.
5:38 - Q: What are hurdles in the India market?
5:39 - A: (Tim Cook) Installed base of iPhones now versus two years, increase of 80%. Upgrade cycles have varying rates. "really really good business in developed markets" still.
5:40 - India: market held back by LTE rollout in the country just having begun this year in earnest.
5:40 - "2.5G, and even some 3G won't do"
5:41 - Carriers in US sell vast majority of phones in US. Carriers in India sell almost none. Retail in India is primary vendor of smartphones.
5:42 - India the third largest smartphone market in the world, but primarily low end because of network, economics. Market potential hasn't historically been as great. Parallels in India to China from 7-10 years ago.
5:43 - Q: Why aren't we seeing iPhone revenue increases because of growth numbers?
5:44 - Tim Cook: Channel inventory in high-end iPhone. Consumer iPhone SE response shows demand much beyond what Apple thought.
5:45 - Tablet replacement cycle materially different than iPhone cycle.
5:45 - Use metrics incredibly high, but consumers hanging onto iPads for a very long time.
5:46 - Q: how have replacement cycles on iPhones changed over the last few generations?
5:48 - If the 6 to 6s upgrade rate was the same as 5s to 6, there would be a GIANT difference in these quarterly results.
5:48 - Dumb question from the press rep. a s to non-s upgrade will have more upgraders than the other way around -MW
5:49 - Q: Greater China's contributions?
5:49 - A: vast majority of the weakness in China is in Hong Kong.
5:50 - Down 11% in Mainland China, if forex wasn't a problem only down 5%.
5:50 - Tim Cook: "may not have the wind at our backs like we once did" in China.
5:51 - Tim Cook: "look underneath the numbers for details before concluding anything"
5:52 - Q: How does Apple juggle the different financial situations in tough times like these?
5:53 - A: Varying factors, Apple must invest in R&D, and run a tight ship in a disciplined way. Expense to revenue is about 10%, number "incredibly competitive"
5:54 - Q: Are services a primary driver of earnings or subservient to hardware? (questioner seems to be answering his own question - MW)
5:55 - A: Tim Cook: embark on services that help the customer experience. In doing so, large and profitable services business built.
5:56 - Services "huge" but maybe not prime mover of company's finances.
5:56 - Q: Upgrade cycles lengthening on iPhone?
5:57 - A: Tim: repeats that compared to 5s, upgrade rate is higher. Depends on people's reference point.
5:58 - Q: Help us understand the top two or three changes that have impacted Apple's earnings.
5:59 - A: Tim Cook: True customer demand is still outstanding, even with falling revenues.
5:59 - Q: treasury has made some changes to taxes. WHat's the impact on Apple?
6:00 - A: Apple's still looking at them, but not expecting any material impact. Apple is the US' largest single taxpayer.
6:01 - Tim: growing number of people in both parties who would like to see comprehensive tax reform. Optimistic that it just a matter of when.
6:01 - And that's it! Look for continued coverage on the MacNN homepage!

Previous Live Event Coverage:

2016 WWDC Keynote, June 13, 2016
Apple second quarter, 2016 earnings report, April 26, 2016
Apple 'Let Us Loop You In" Press Event, March 21, 2016
The Encryption Tightrope; Balancing Americans' Security and Privacy, March 01, 2016
Apple quarterly earnings report, January 26, 2016, January 26, 2016
Apple fourth quarter 2015 earnings call, October 27, 2015
Apple September 9 "Hey Siri" launch event, September 09, 2015
Apple's third quarter 2015 earnings announcement and conference call, July 21, 2015
2015 WWDC Keynote - The Epicenter of Change, August 06, 2015
Apple's September 9 event, September 09, 2014
WWDC 2014 keynote, June 02, 2014
WWDC 2014, June 02, 2014
Apple fiscal Q4 conference call, October 28, 2013
Apple's October 22 media event, October 22, 2013
Apple's September 10 event, September 09, 2013
Samsung Unpacked at IFA, September 04, 2013
Samsung Unpacked 2013 Episode 2, September 04, 2013
Apple fiscal Q3 2013 , July 23, 2013
WWDC 2013 Keynote, June 10, 2013
Apple fiscal Q2 2013 earnings call, April 23, 2013
Apple iPad mini unveiling, October 23, 2012
Apple iPhone 5 launch event, September 12, 2012
Apple Financial Conference Call Q3 2012, July 24, 2012
Live 2012 WWDC Coverage, June 11, 2012
Apple fiscal Q2 2012 results call, April 24, 2012
Apple cash balance call, March 19, 2012
Apple's iPad 3 Event, March 07, 2012
Apple fiscal Q1 2012 results call, January 24, 2012
Apple FYQ4 Quarterly Results, October 18, 2011
Apple - Let's Talk iPhone, October 04, 2011
Apple July Conference Call, July 19, 2011
Live WWDC 2011 Event Coverage, June 06, 2011
Google I/O 2011 day one keynote, May 10, 2011
Apple fiscal Q2 2011 results call, April 20, 2011
March 2 iPad event, March 02, 2011
Intel Thunderbolt Technology, February 24, 2011
HP webOS event, February 09, 2011
Google Android event, February 02, 2011
Apple January January 2011 fiscal results call, January 18, 2011
Verizon NYC Event, January 11, 2011
Google Chrome Event, December 07, 2010
Acer's Interact event, November 23, 2010
Back to the Mac, October 20, 2010
Apple's FYQ4 2010 results, October 18, 2010
Google TV Intro, October 12, 2010
Apple Sept 1 music event, September 01, 2010
BlackBerry August 3 Event, August 03, 2010
Apple iPhone 4 Press Conference, July 16, 2010
Sony E3 Keynote, June 15, 2010
Nintendo E3 Keynote, June 15, 2010
Microsoft E3 Keynote, June 14, 2010
WWDC 2010, June 07, 2010
D8 conference 2010, June 01, 2010
Google I/O Keynote II, May 09, 2010
Google I/O Keynote, May 19, 2010
Apple earnings - 2010, April 20, 2010
iPhone OS 4.0, April 08, 2010

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