The contrasting fortunes of Apple and Microsoft in the smartphone market were clear for all to see this week, after iPhone sales drove huge profits at the former while a $7.5 billion writedown on Nokia left the latter in the red.
However, Microsoft’s share price fared better, since it had informed investors about its handset woes two weeks ago, while Apple’s share price took a bigger hit after iPhone shipments missed analyst forecasts and it served up a lower-than-expected revenue outlook.
The 47.5 million iPhones Apple shipped during its fiscal third quarter ended 30 June fell short of the 49 million forecast by analysts in a Thomson Reuters poll, fuelling concerns about slowing demand at the high end of the smartphone market. This is despite growing iPhone shipments by 35% from the same period of 2014.
Microsoft shipped a more meagre 8.4 million Lumia smartphones during its fiscal fourth quarter – which also ended 30 June – up from 7.5 million a year earlier. Phone hardware revenue fell 38% to US$1.23 billion as the focus shifted away from flagship products, while revenue generated by the Windows Phone operating system was down 68% due to lower royalty payments.
On 8 July, Microsoft announced a $7.6 billion writedown on its Nokia hardware assets and warned that 7,800 jobs would be cut. That haircut was trimmed slightly to $7.5 billion on Tuesday, but that, combined with $940 million worth of restructuring charges, resulted in a $3.2 billion net loss for the quarter, compared to a $4.6 billion profit a year earlier.
Meanwhile, the continued popularity of the iPhone, combined with strong performances by its Mac laptops and services such as the App Store, helped Apple notch up a $10.7 billion profit, up from $7.7 billion a year earlier.
"We had an amazing quarter, with iPhone revenue up 59% over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch,& quot; said Apple CEO Tim Cook, who did not share how many Apple Watches the company has shipped since launch.
Despite the difference in performance, Apple’s shares fell 7% in after-hours trading, while Microsoft’s fell just 4%, according to Reuters.
For Apple, the iPhone contributes by far the largest share of its total revenue. In the company’s fiscal Q3, iPhone revenue surged 58.8% to US$31.4 billion. This helped to drive Apple’s overall revenue to $49.6 billion, up from $37.4 billion a year ago.
However, shipment volumes missed expectations and so did Apple’ fiscal fourth quarter revenue outlook of $49 billion-$51 billion, which was below the average analyst estimate of $51.13 billion, according to a Thomson Reuters poll.
Microsoft is far less reliant on handsets.
Its biggest single revenue generator is its commercial division, which sells software, cloud services, and server solutions to enterprises.
In the three months to 30 June, commercial revenue at Microsoft was flat on-year at $13.5 billion, as lower Windows sales were offset by higher sales of cloud products. Commercial revenue accounted for more than half of the company’s total revenue, which came in at $22.2 billion, down 5% on last year.
"Our approach to investing in areas where we have differentiation and opportunity is paying off," insisted Microsoft CEO Satya Nadella, in a statement. "And the upcoming release of Windows 10 will create new opportunities for Microsoft and our ecosystem."
