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Apple Revenue Falls on 5% Lower iPhone Unit Sales

Tech company forecasts stronger December quarter on iPhone 7 demand

Apple edged out earnings estimates for the quarter ended Sept. 24, even as the tech giant posted its third straight quarterly drop in revenue on lower sales of its flagship iPhones.

The company reported revenue for the September quarter of $46.9 billion — down 9% year over year — and net income of $9 billion, or $1.67 per share, versus net income of $11.1 billion ($1.96 per diluted share) in the year-ago quarter. Wall Street had forecast revenue of $46.9 billion and EPS of $1.65 per share.

Shares of Apple were down about 2% in after-hours trading Tuesday, after closing at $118.25 per share (up 0.5%).

Apple sold 45.51 million iPhones in the quarter, in line with analyst expectations, down 5% compared with the year-earlier period; iPhone revenue dropped 13% year over year, to $28.2 billion.

The company on Sept. 16 began shipping the new iPhone 7 and 7 Plus — which are water-resistant and don’t have a traditional headphone jack — so the quarter included just two weeks’ worth of sales for the new models. Unlike in years past, Apple did not release initial weekend sales for the iPhone 7.

“We’re thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our Services business, where revenue grew 24% to set another all-time record,” Apple chief Tim Cook said in announcing the results. The company’s Services segment, which hit $6.3 billion in quarterly revenue, includes iTunes, AppleCare, Apple Pay, licensing and other services.

Apple issued a more bullish forecast for the current quarter, which ends in late December and includes the holiday-shopping season. The company expects revenue to be between $76 billion and $78 billion, compared with the record $75.9 billion in the year-earlier period. However, the fiscal-year Q1 2017 includes an extra week, analysts noted, making it unclear how strong the company expects iPhone 7 sales to be through the end of the year. Moreover, Apple forecast gross margin of between 38% and 38.5%, below Wall Street expectations.

On a call with analysts, Cook said “demand continues to outstrip supply” for the iPhone 7, and particularly the larger-screen iPhone 7 Plus, but the company did not break out sales figures for the new models.

For the December quarter, analysts have expected iPhone sales to get a lift from the woes of rival Samsung Electronics. Last month Samsung issued a massive recall for the Galaxy Note 7 smartphone after overheating batteries caused some devices to catch fire and subsequently terminated the product altogether.

Sales in Apple’s “other products” segment — which includes Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories — dropped 22%, to $2.37 billion.

Meanwhile, iPad unit sales of 9.27 million were down 6% for the September quarter, while revenue was flat. Mac sales dropped 17% compared with the year-earlier period, to $5.74 billion. Apple has announced an Oct. 27 event, where it’s expected to roll out a new Macbook Pro and possibly a new iMac.

Apple said international sales accounted for 62% of the quarter’s revenue, which is its fiscal fourth-quarter 2016. Sales in Greater China dropped by 30%, to $8.79 billion. Cook said the largest reason for the year-over-year decline in China was because in the September 2015 quarter, Apple saw an unusual surge of customers upgrading to the iPhone 6 and iPhone 6 Plus. “We are very bullish on China,” he said.

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