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Apple stock drops after it misses on revenue, signals softness ahead (AAPL)

The key question on everyone's mind: Are the weaker than expected iPhone sales and Apple's soft forecast for the next quarter a normal sign of consumers holding back before the release of a new iPhone in September?

Apple's iPhone sales cooled in the first three months of the year, sending its stock slipping 2% in after hours trading on Tuesday as investors weighed the significance of the slowdown.

The key question on everyone's mind: Are the weaker than expected iPhone sales and Apple's soft forecast for the next quarter a normal sign of consumers holding back before the release of a new iPhone in September?Or is it a sign of deeper trouble in its most profitable business?

Although Apple's fiscal Q2 earnings per share beat Wall Street estimates, revenue missed Wall Street expectations. And Apple's revenue forecast for the current quarter, which calls for $44.5 billion at the midpoint of Apple's projected range, was about $1 billion short of Wall Street estimates.

Shares of Apple, which had traded at all-time highs ahead of this week's earnings report, were down about 2% at $144.55 in after hours trading on Tuesday.

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Still, Wall Street's reaction to the disappointing results may have been tempered by Apple's plans to return a hefty chunk of its cash hoard to shareholders.

Apple said it planned to spend an additional $50 billion to return capital to shareholders in the form of buybacks and dividends. The $50 billion will be spent on mainly share repurchases according to Apple CFO Luca Maestri. Apple's quarterly dividend was also increased to $0.63 per share.

Here's are the key numbers that Apple reported on Tuesday:

  • Q2 EPS (GAAP):
  • Q2 revenue:
  • , up 4% year-over-year,
  • Gross margin
  • , down 0.1% year-over-year,
  • iPhone unit sales:
  • , flat year-over-year,
  • iPhone average selling price:
  • iPad unit sales
  • Mac unit sales

Apple provided a forecast for next quarter:

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  • 3Q quarter revenue guidance:
  • 3Q margin guidance:

"We feel great about this performance," Apple CEO Cook said during the conference call to discuss the results on Tuesday.

Apple sold fewer iPads and Macs than it did a year ago, and iPhone sales were flat.

But Apple's iPhone business was front and center. Unit sales of iPhones dipped ever so slightly, down 1% year over year, during the quarter, while iPhone revenue inched up 1%.

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6:00: And we're done here. Thanks for tuning in!

5:52: Apple saw greatest number of switchers outside of Greater China that we've ever seen during this period, Cook says.

5:48: Tim Cook on Qualcomm: "You can't pay something when there's a dispute about the amount."

5:46:"We're seeing what we believe to be a pause in purchases of iPhone which we believe are due to the earlier and much more frequent reports about future iPhones. That part is clearly going on and what's going on behind the data. We are seeing that in full transparency," Cook said.

5:45: Cook says that AirPods supply is still ramping up.

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5:42: "We have seen the watches as a really key product category for us before we launched it, and we took our time to get it right," Cook said. He seemed pretty upset that UBS analyst said that some people thought it was disappointing. "It's already a big business," he said.

5:41: "We think about pricing, we come up with a price that is a good value for the product we're delivering, we do that on the hardware side, as well as on the services side. We're not thinking about taking profits from one to subsidize the other," Cook said.

5:38: Maestri says that Apple added 15 million subscriptions, most likely referring to Apple Music and iCloud, over the past three months.

5:35: Cook points out that the dollar devalued by 5% against the Yuan during the quarter, and that 7 out of 10 of Apple's "most trafficked" stores are in "Greater China," which includes Taiwan and Hong Kong.

5:33: Shannon Cross asks a question about China. Tim Cook points to strong iPhone 7 Plus sales, Mac sales.

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5:33: Tim Cook: We did not get iPhone 7 and iPhone 7 Plus mix right.

5:29: On Qualcomm: "We didn't get any benefit in our P&L in the March quarter or June quarter either," Maestri said.

5:28: Now onto Q&A! First up, Morgan Stanley's Katy Huberty. Question is about gross margin.

5:24: "We have now completed $151 billion in share repurchases," Maestri said.

5:23: Visitors to retail and online stores up 16% in the last year.

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5:23: Maestri talking about Apple's efforts in the enterprise.

5:20: Maestri says iPad actually grew in the US during the quarter.

5:19: Maestri says Apple's App Store doubled the revenue of Google Play app store over the same time period.

5:18: Goal is to double size of services business by 2020, Maestri says.

5:15: Now CFO Luca Maestri is talking.

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5:14: Tim Cook says Apple spent $50 billion in the US economy last year.

5:14: "We're exciting to move into our new corporate headquarters," Cook says. Main building "fosters even greater collaboration."

5:10: Tim Cook says "our wearables platform is the size of a Fortune 500 company." Apple considers Apple Watch, Beats, and AirPods to be wearables.

5:09: Apple watch sales doubled year-over-year, Tim Cook says.

5:09: Apple gained market share in US, Australia, and other markets, Cook says.

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5:08: Tim Cook says Apple's new app, Clips, is off to a great start.

5:07: Apple Pay transaction volume up 450% over the last year, Tim Cook says.

5:05: "For the second quarter in a row, services revenue topped $7 billion."

5:03: Tim Cook says "we feel great about this performance."

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We'll be covering Apple's results and its earnings conference call live, so click here to update this post with the latest info.

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