Apple INC (NASDAQ: APPL) reported a mixed fourth quarter results yesterday, with revenues declining by 8.9% to $46.9 billion and profit declining from $11.1 billion to $9.01 billion. The company reported an EPS of $1.67 and delivered a dividend of $0.57 per share. Gross margin was at 38% during the quarter down from 39.9% in the year ago quarter while its guidance range for the quarter was 37.5% to 38%. International sales accounted for 62% of quarter’s revenues.

As per the full year of 2016 performance, Apple generated a $215.6 billion in sales with $45.7 billion in net income, down from $233.7 billion in sales and $53.4 billion in net income for fiscal 2015. The year 2016 marks the first full year revenue decline for Apple since 2001. The fiscal year 2016 performance was hurt by the devaluation of the Chinese currency.

Apple’s first quarter of 2016 was a massive stretch for Apple. The company revenue was $75.9 billion on the back of 74.7 million iPhones, 16.1 million iPads and 5.3 million Macs. In the second quarter, the company earned $50.6 billion in revenues driven by over 50 million iPhones, more than 10 million iPads and 4 million Macs. In the third quarter, the company sold 40.4 million iPhones, 9.9 million iPads and 4.2 million Macs and earned $42.4 billion. The sales in the fourth quarter improved to $46.9 billion on the back of sale of over 45 million of iPhones, 9.2 millions of iPads and 4.9 millions of Macs.

Apple Inc sold 4.886 million units of Mac during September quarter, which is 15% improvement on QoQ basis translating 10% increase in QoQ revenue growth. Mac Revenue is third largest revenue contributor after service income.

Strong Service revenue growth

Apple’s Service revenue grew 24% to an all-time quarterly record to $6.3 billion. The company is making the new record for September quarter. Apple continues to have a strong $16.1 billion in operating cash flow. The result highlighted Apple’s ability to generate cash, which the company would use for dividend payouts and share repurchases. The rise in service income was one of the more optimistic takeaways from Apple’s fourth quarter earnings release.

Hopes on Performance of iPhone 7 and 7 plus

The management said the company was thrilled with the customer response to the new iPhones. The newest iPhones’ sales were limited during the quarter as iPhone7 and 7 plus were launched only a few weeks of the quarter left and since shipments were supply constrained, demand for the device is apparently high enough to impress management.

But if we see the iphone revenue performance which accounted for about 60% of the fourth quarter revenue, the revenues slumped by 13% on a YoY basis. However, the revenue as well as unit sales were up quarter on quarter. For the quarter, Apple sold 45.5 million iPhones down from 48 million a year ago quarter. It is also worth noting that the year on year decline was controlled this quarter as compared to the second and third quarter iPhone declines of 18% and 23% respectively.

(Source: Company Reports)

Strong Indian growth could offset China’s decline to a certain extent

In 2015, China reported a surge of upgraders that came into the market for iPhone 6 and iPhone 6 plus and upgrade rate increased relatively more in Greater China than elsewhere around the world. In 2016, the upgrade rate returned to normal, due to which the fall in revenues has been seen. The revenue declined both on QoQ as well as on yoy basis by 1% and 30% respectively. The new lunches of iPhone 7 and 7plus is expected to drive upgrade market, we need to wait and watch the performance.

But, management expressed their hopes on further Indian growth, wherein the iPhone sales surged> 50% during the year. Apple has partnered with Reliance Jio which is having 4G coverage in 18,000 cities and 200,000 villages across the country, promising more opportunity.

First quarter of 2017 guidance 

Apple Inc has provided revenue guidance of between $76 billion – $78 billion for the first quarter of 2017. The range is slightly above Apple’s revenue of $45.9 billion in its first fiscal quarter of 2016. Gross margin would be between 38%- 38.5% and tax rate of 26%. The management expects operating expenses between$6.9 billion and $7 billion and other income of $400 million.

What Analysts think on Apple?

Apple’s stock opened subdued this morning while the stock could face pressure the whole day given the mixed response of its results. But a decent first quarter guidance coupled with their growth driver’s performance ahead could revamp the sentiment on the stock. Based on the data at tipranks.com, over 10 firms reiterated their “buy” recommendation on the stock today. However, Aaron Rakers from Stifel Nicolaus downgraded the stock to “Hold” due to their concerns over “potential fundamental upside drivers”. The analyst pointed that the group’s fourth quarter of 2016 iPhone sales fell short of their expectations. This coupled with Declines in China added to the worry. The analyst warns a possible Weakness in the coming Quarters and accordingly took a cautious view. Based on the consensus estimate at tipranks.com, Apple has an upside of over 14% as per 35 analyst ratings