Apple's quarterly revenue drops for the first time since 2003

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Credit: REUTERS/Mike Segar

Apple earlier today released its Q2 2016 earnings, and the results might leave investors a bit wary. When the dust settled, Apple reported $10.5 billion in profits on the back of $50.6 billion in revenue. And while those figures are certainly impressive, they are markedly lower than what Apple reported during the company's second fiscal quarter in 2015 when it posted $58 billion in revenue.

Notably, this marks the first time that Apple's quarterly revenue experienced a year-over-year decline since 2003.

Product wise, Apple sold 51.2 million iPhones, a significant drop-off from the 61.17 million iPhones Apple sold during the same quarter a year ago. In fact, Apple's most recent quarter represents the first time that quarterly iPhone sales have dropped off. 

Moving along, Mac sales also disappointed, with sales checking in at about 4 million units compared to about 4.5 million units sold during Apple's Q2 2015. As for the iPad, sales came in at 10.2 million, representing a nearly 20 percent decline year over year.

In short, every single piece of major Apple hardware experienced a year-over-year sales and revenue decline.

One bright spot in Apple's earnings report, though, came from the company's services division. For the quarter gone by, Apple services generated $6 billion in revenue, an impressive 20 percent increase compared to last year. Specifically, Apple indicated that Apple Music now boasts more than 13 million paying subscribers.

Apple's press release reads in part:

Apple today announced financial results for its fiscal 2016 second quarter ended March 26, 2016. The Company posted quarterly revenue of $50.6 billion and quarterly net income of $10.5 billion, or $1.90 per diluted share. These results compare to revenue of $58 billion and net income of $13.6 billion, or $2.33 per diluted share, in the year-ago quarter. Gross margin was 39.4 percent compared to 40.8 percent in the year-ago quarter. International sales accounted for 67 percent of the quarter’s revenue.

“Our team executed extremely well in the face of strong macroeconomic headwinds,” said Tim Cook, Apple’s CEO. “We are very happy with the continued strong growth in revenue from Services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices.”

The Company also announced that its Board of Directors has authorized an increase of $50 billion to the Company’s program to return capital to shareholders. Under the expanded program, Apple plans to spend a cumulative total of $250 billion of cash by the end of March 2018.

“We generated strong operating cash flow of $11.6 billion and returned $10 billion to shareholders through our capital return program during the March quarter,” said Luca Maestri, Apple’s CFO. “Thanks to the strength of our business results, we are happy to be announcing today a further increase of the program to $250 billion.”

As part of the updated program, the Board has increased its share repurchase authorization to $175 billion from the $140 billion level announced last year. The Company also expects to continue to net-share-settle vesting restricted stock units.

The Board has approved an increase of 10 percent to the Company’s quarterly dividend, and has declared a dividend of $.57 per share, payable on May 12, 2016, to shareholders of record as of the close of business on May 9, 2016.

From the inception of its capital return program in August 2012 through March 2016, Apple has returned over $163 billion to shareholders, including $117 billion in share repurchases.

The Company plans to continue to access the domestic and international debt markets to assist in funding the program. The management team and the Board will continue to review each element of the capital return program regularly and plan to provide an update on the program on an annual basis.

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