Apple’s falling iPhone sales don’t bother Wall Street so long as margins, buybacks are increasing

A
10%
decline
in
iPhone
sales
sounds
like
a
problem
for


Apple,
considering
the
company
counts
on
the
devices
for
half
its
revenue.

But
investors
didn’t
seem
to
mind
Thursday,
when
Apple
revealed
the
year-over-year
drop
in
its
fiscal
second-quarter

earnings
report.
The
stock
rose
more
than
6%
after
the
market
close,
a
rally
that
would
be
the
steepest
since
November
2022
should
it
continue
into
regular
trading
Friday.

Instead
of
glaring
too
much
at
iPhone
revenue,
Wall
Street
chose
to
focus
on
the
positive.
Apple’s
gross
margin
expanded
to
46.6%,
continuing
an
upward
trajectory
that
reflects
the
company’s
growing
services
business,
which
brings
with
it
stout
profits.

Apple
also
signaled
overall
revenue
growth
in
the
current
quarter
will
be
in
the
low
single
digits,
after
a
4%
decline
in
the
second
period.
Analysts
were
looking
for
third-quarter
growth
of
1.3%,
according
to
LSEG.

Deepwater
Asset
Management’s
Gene
Munster
described
the
guidance
as
a “relief”
given
the
recent
trajectory
of
the
business.

“I
was
expecting
this
was
going
to
be
flat,
some
investors
were
saying
it
was
going
to
be
down
a
few
percent
in
June,”
Munster
told
CNBC’s “Fast
Money”
after
the
report. “I
think
that
was
a
big
part
of
this
move
higher.”

But
perhaps
the
biggest
catalyst
for
the
pop
was
Apple’s
announcement
that
it
had
approved
$110
billion
of
share
buybacks,
the
most
ever
for
a
public
company.
For
the
past
three
years,
Apple
has
authorized
$90
billion
in
annual
repurchases.

The
after-hours
jump
shows
how
much
investors
are
valuing
Apple’s
massive
cash
flow
and
the
company’s
willingness
to
return
more
of
it
to
shareholders.
It’s
a
shift
in
the
way
Apple
has
been
viewed
by
Wall
Street
over
the
years,
away
from
a

hits-driven
gadgets
business
and
toward
a
financial
powerhouse.

“Our
free
cash
flow
generation
has
been
very
strong
over
the
years,
particularly
the
last
few
years,”
Apple
CFO
Luca
Maestri
said
on
an
earnings
call.

Apple
revealed
earlier
this
year
that
it
has
2.2
billion
active
devices,
illustrating
the
mammoth
reach
of
its
customer
base
as
the
company
rolls
out
new
subscription
services.
Despite
the
4%
drop
in
revenue,
Apple
still
recorded
nearly
$24
billion
in
profit,
a
slip
of
just
over
2%
from
a
year
earlier.

Apple
said
iPhone
sales
suffered
from
a
difficult
comparison
to
last
year,
when
sales
were
elevated
after
previous
shortages.
Still,
investors
are
looking
for
future
iPhone
growth,
and
many
analysts
say
a
potential
iPhone
with
artificial
intelligence
features
could
do
the
trick
and
help
the
company
snag
customers
from
Android.
Annual
iPhone
revenue
peaked
in
Apple’s
fiscal
2022.

While
Apple
provided
some
guidance
for
total
revenue,
it
avoided
offering
any
sort
of
forecast
for
iPhone
sales.

That’s
a
change,
even
for
a
company
that’s
been
giving
less
forward
guidance
since
the
pandemic.
Maestri
typically
provides
trends
on
iPhone
sales,
and
had
for
the
past
four
quarters.

There’s
no
guarantee
investors
will
be
able
to
continue
counting
on
increased
buybacks
from
a
company
that’s
been
more
aggressive
in
that
department
than
any
other.
Apple
says
it’s
trying
to
draw
down
its
huge
cash
pile,
which
stood
at
$162
billion
at
the
end
of
the
quarter.
When
its
debt
is
roughly
equal
to
its
cash
balance
—
meaning
the
company
is
net
cash
neutral
—
Apple
will
evaluate
what
to
do
next,
executives
said
Thursday.

As
of
the
end
of
2023,
Apple
had
spent
$658
billion
on
buybacks
over
the
past
10
years,
far
ahead
of
second-place
Microsoft,
according
to

S&P
Dow
Jones
Indices.

“For
the
last
couple
of
years
we
were
doing
$90
billion
and
now
we’re
doing
$110
billion,”
Maestri
said
on
the
call.

In
terms
of
what
happens
when
Apple
gets
to
net
cash
neutral,
Maestri
said, “let’s
get
there
first.
It’s
going
to
take
a
while
still.”

“And
then
when
we
are
there,”
he
said, “we’re
going
to
reassess
and
see
what
is
the
optimum
capital
structure
for
the
company
at
that
point
in
time.”