Inc.’s latest results show the popular gadget maker can still sell a lot of expensive stuff in a slump. Staying in the game carries a growing cost, though.
For the fiscal third quarter reported Tuesday afternoon, Apple said revenue rose 1% year over year to $53.8 billion. That came in slightly ahead of Wall Street’s forecasts thanks to strong growth in services as well as Mac, iPad and Apple Watch sales. Those were largely offset by a 12% decline in revenue from the iPhone, which still accounts about half of the company’s business. Apple’s forecast for the fiscal fourth quarter confirmed another period of revenue declines ahead. That was still about 3% above analysts’ projections, though, and Apple’s shares rose 4% following the report.
While Apple’s sales have slowed, its costs haven’t. Operating expenses rose 11% year over year in the third quarter largely due to a record outlay of $4.3 billion for research and development. Technology companies naturally have to invest in developing future goods and services, even when their sales slow, but Apple’s expenditures stand out due to their historically small size relative to the company’s resources. R&D expenditures have averaged less than 5% of Apple’s annual revenue over the past five years. Big Tech peers Google,
and Amazon.com have averaged between 12% and 16% over that period.
The recent increase still leaves Apple highly profitable relative to other consumer-electronics makers, but its bottom line is feeling the weight of the future. Apple’s need to continue diversifying away from the huge but mature iPhone business has led to big investments in new areas such as cars, augmented reality and even moviemaking. Operating margins of 21.5% in the third quarter were the company’s lowest in more than a decade, according to data from S&P Capital IQ. Operating margins for the full fiscal year are poised to drop below 25% for the first time since 2008.
Being Apple has its price.
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