Apple Shares Slide on Channel Inventory Reduction, Lower Q3 Guidance

quarterly revenue drop since Q1 2003, and the $50.6 billion Q2 revenue was at the low end of guidance, a 13 percent drop year over year. Sales of the iPhone fell 16 percent to 51.2 million over the year-ago quarter, Apple said. Apple’s revenue guidance for Q3 is $41 billion-$43 billion, down from year-ago revenue of $49.6 billion, said Chief Financial Officer Luca Maestri. He cited a planned channel inventory reduction worth more than $2 billion -- vs. $800 million a year ago -- that will hit higher-end models. The “tough compare” is also due to a strong year-ago quarter and macroeconomic conditions, he said. Apple CEO Tim Cook outlined the three buyer segments for the iPhone: Customers who upgrade from previous iPhones, switchers from Android and other operating systems, and first-time smartphone buyers. During the first half of this fiscal year, the upgrade rate for the iPhone 6s has been “a lot lower” than that of the iPhone 6 but slightly higher than that of the 5s two years ago, Cook said. Apple continues to see a “very high level” of switchers, adding more in first half FY 2016 than any other six-month period, he said. For first-time buyers, he focused on emerging markets including India, where iPhone sales were up 56 percent in Q2 vs. the year-ago quarter. In Q&A, Cook commented on the “mature” smartphone market, saying the company is optimistic about the opportunity for attracting new customers with the more affordable iPhone SE, and about new products in the pipeline. The SE is attracting customers who want the latest technology in a compact package, and that group is larger than Apple anticipated, causing supply constraints. The SE is also drawing consumers who “aspire to own an iPhone but couldn't quite stretch to the entry price of the iPhone,” said Cook.