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The five key moments in Apple’s Q2 2016 earnings call

Jason Snell | Jan. 27, 2016
Not only did the company set records for revenue, profit and iPhone sales - its US$18.4 billion profit is one of the most profitable quarters for any company ever.

Tuesday was an Apple quarterly financial report day like none other. Not only did the company set records for revenue, profit and iPhone sales - its US$18.4 billion profit is one of the most profitable quarters for any company ever - but it got hammered by stock analysts who fear that the iPhone's rocket ride of rapid growth has come to an end.

Still, some of the most interesting news of the day comes out of the hour-long conference call that Apple executives, namely CEO Tim Cook and CFO Luca Maestri, have with financial analysts about a half an hour after the results are released. Here's a look at the most interesting things they said (or didn't say) in that call.

iPhone deflection

"Whatever you do," Basil Fawlty warned his employees, "don't mention the war." The equivalent on Tuesday was the iPhone's lack of sales growth - iPhone revenue grew less than one percent when compared to the same quarter a year ago. Wall Street really likes growth, and this isn't that.

Cook tried to downplay the lack of growth and, even more damning, Apple's admission that iPhone sales will decline year-over-year in the forthcoming quarter. While saying that Apple won't project iPhone sales in subsequent quarters, Cook said that the second fiscal quarter of 2015 would be the most difficult to beat this year, because of sales that came from pent-up demand that Apple wasn't able to fulfil in the first fiscal quarter of 2015.

apple store lines

Fair enough, except that if that number was lower - if Apple had managed to make as many iPhones for the 2014 holiday season as there was demand - that would've set the bar higher for the first quarter, which means iPhone sales growth would have looked worse Tuesday but better in three months. The larger point still stands: iPhone sales seem to have plateaued. Nobody's saying they're going to drop - the smartphone is basically one of the most popular product categories in existence - but if you're focused purely on growth, this category may no longer be as exciting as it once was.

Economic headwinds

Echoing a buzzword from last quarter's conference call, Cook cited the economic headwinds Apple faces, both in the softness of the Chinese economy and difficulty in foreign-exchange conversations. Apple went to the trouble of releasing an appendix to its financial statements (PDF) that showed its numbers in a more favorable light if currency rates were constant, rather than fluctuating as they have done. The state of currency conversions has definitely taken a toll on Apple's numbers, hiding some progress.

Moreover, in markets where the local currency is losing out to a stronger US dollar, Apple is forced to choose between two difficult options: raise prices (and presumably depress sales) in order to maintain profit margins or hold prices steady and watch profit margins dwindle.


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