'Pause' in iPhone Purchases Due to Rumors About Upcoming Phone, Says Cook
Apple CEO Tim Cook noted a “pause in purchases” on iPhones, speaking on the company’s fiscal Q2 earnings call Tuesday. He blamed a lag in buying intent for current iPhones on “earlier and much more frequent reports about future iPhones.” Reports have been circulating for months about the 10th anniversary iPhone with features expected to include an OLED display, no-bezel screen and wireless charging.
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Across all current iPhone models, Apple sold 50.8 million units in the quarter vs. 51.2 million in the year-ago quarter, the company reported. Apple didn’t break out sales by iPhone model, but Cook said the company didn’t estimate the right mix between the iPhone 7 and 7 Plus, with demand for the 7 Plus higher than predicted. It took Apple a while to adjust for the mix through the supply chain, but balance returned early this quarter, he said. The iPhone average selling price was $655, up from $642 a year ago, he said.
Unit iPad sales fell 13 percent in Q2 to 8.9 million units, while revenue lagged the year-ago quarter by 12 percent at $3.8 billion, said Apple. Apple Watch sales nearly doubled year over year, Cook said. Apple Watch is combined in Apple’s “other” product segment with Apple TV, Beats products, iPod and accessories, but those segments aren’t broken out independently. The category grew 31 percent to $2.9 billion, said the company's earnings release.
Globally, Apple sales were up in all markets but China, where sales fell 14 percent year on year to $10.7 billion. Cook cited 5 percent currency devaluation as part of falloff, but said performance was also hit by a continued tourism slump in Hong Kong. The iPhone 7 Plus “didn't perform as well on some of the previous generation iPhones,” Cook said.
Meanwhile, in its ongoing dispute with Apple over royalty payments (see 1704200016), Qualcomm issued a Friday news release saying Apple informed Qualcomm it's withholding payments to its contract manufacturers for the royalties those contract manufacturers owe under their licenses with Qualcomm for sales during the March quarter. “Apple has indicated it will continue this behavior until its dispute with Qualcomm is resolved,” said Qualcomm General Counsel Don Rosenberg, saying Apple is “improperly interfering with Qualcomm's long-standing agreements with Qualcomm's licensees.” The license agreements remain “valid and enforceable,” said Rosenberg.
In response during Q&A, Cook said Qualcomm has a responsibility to offer its “standards-essential patent” to “everyone that would like it” under fair, reasonable and nondiscriminatory terms, and the chipmaker hasn’t done so. An analyst asked whether Apple is concerned that its withholding of royalty payments to Qualcomm could have repercussions -- such as the withholding of modem chips or an injunction on selling iPhones in certain geographies -- especially before the big iPhone product introduction expected later this year. “I don’t believe anyone is going to decide to enjoin the iPhone based on that,” said Cook, citing “plenty of case law.”
On why Apple is withholding royalties, Cook said: “You can't pay something when there's a dispute about the amount. You don't know how much to pay.” Qualcomm believes Apple owes an amount, and “we think we owe a different amount, and there hasn't been a meeting of the minds there,” said Cook. Unless the companies can agree on a settlement amount, over time, “we’re depending on the courts to do that,” he said.
Apple is pursuing the matter because “Qualcomm's trying to charge Apple a percentage of the total iPhone value,” Cook said. While Qualcomm does “really great work around standards-essential patents,” it’s “one small part of what an iPhone is,” he said. Qualcomm’s contribution has nothing to do with the phone's display, Touch ID feature or a “gazillion other innovations that Apple has done," said Cook. "We don't think that's right, and so we're taking a principled stand on it.”
Apple posted Q2 revenue of $52.9 billion vs. $50.5 billion in the year-ago quarter. Net income rose to $11 billion from $10.5 billion, it said. Revenue guidance for Q3 FY 2017 is between $43.5 billion and $45.5 billion, it said.