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Apple beats revenue estimates but margins are falling

Plans $100bn share buy-back bonanza for investors

Internet Security Threat Report 2014

Apple has beaten some of the gloomier analyst expectations in its second quarter's results filing, with revenues of $43.6bn for the quarter generating $9.5bn in profits. But margins are falling and the company warned that next quarter it may clear only $33.5bn to $35.5bn in revenues – its biggest fall in a decade.

The company said in the quarter is sold 37.4 million iPhones and 19.5 million iPads, up 6.7 per cent and 26.7 per cent respectively. Mac sales fell to just under four million for the quarter while iPod sales continue to fall with just 5.6 million sold compared to 7.7 million last year.

More worrying is the drop in Apple's margins, which are down from 38.5 per cent last quarter (and 47.5 per cent on the year) to 37.5 per cent this quarter and the company expects them to fall further to as low as 36 per cent in the next quarter. Lower-price items like the iPad Mini are hurting and any move into the low-cost phone sector will also have an effect.

"We are pleased to report record March quarter revenue thanks to continued strong performance of iPhone and iPad," said Tim Cook, Apple's CEO. "Our teams are hard at work on some amazing new hardware, software, and services and we are very excited about the products in our pipeline."

Cook also announced that the company will spend $100bn in a share buy-back operation it describes as the largest in history. This will bolster the value of shares, and to sweeten the pot further the company is increasing the cash dividend to shareholders by 15 per cent to $3.05 per share, which will cost the company $11bn a year.

"We are very fortunate to be in a position to more than double the size of the capital return program we announced last year," Cook said in Apple's SEC filing. "We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases."

These latest results will add to concerns by some that we have reached the point of Peak Apple, and that the company faces a slow and inevitable decline. This is unlikely, but the effect on Apple's share price for such a fall will increase scrutiny on Tim Cook's record as CEO.

Cooks had a very tough act to follow. Steve Jobs (with a lot of help from Jon Ive and others) reinvented Apple with a slew of products that made the company, for a while, the most valuable on the planet by stock valuation. Coming next was always going to be tough.

In the meantime Apple is using its enormous cash pile to placate investors and support the share price. In the opinion of this hack it might be better investing this in new products and technologies rather than buying off investors and Wall Street. ®

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