Apple announces $60-bn share buyback as profits decline

Technology giant Apple Inc's profit fell by 18 per cent in the first quarter on sales of $43.6 billion, its first quarterly drop in profits in a decade, but announced the biggest share buyback in history.

For its fiscal second quarter ending 30 March, the iPhone maker said that its net income dropped 18 per cent to $9.55 billion from $11.62 billion during the same period a year earlier, while revenue rose 11 per cent to $43.6 billion from $39.19 billion.

The results were more or less in line with Apple's earlier forecast of profit decline of about 20 per cent in the quarter on revenue of $41 billion to $43 billion.

The California-based company, which went public in 1980 at $22 per share, is giving its shareholders a bonanza by announcing that it will spend $100 billion in buying back its stock and paying dividends.

Apple's shares closed yesterday at $406.13 on the Nasdaq Stock Exchange, but still far below the record high of $702.10 in September 2012.

Its share repurchase will increase to $60 billion from the $10 billion it had earlier committed, the largest buyback in history, the company said in a statement. It will also raise its dividend to shareholders by 15 per cent.

Apple expects the share buyback to be completed by the end of 2015.

''We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases,'' Timothy Cook, the company's chief executive, said in a statement.

But although it holds cash reserves of over $140 billion, Apple said it plans to borrow money in order to return cash to shareholders. Most of Apple's cash reserves are held overseas, which would be taxed if it brought the money back to the US and would be cheaper to borrow and repay through profits reaped in the US.

Sales of Apple's devices have surpassed analysts' expectations as the company sold 37.4 million iPhones, up from the 35.1 million sold in the second quarter last year, while iPad sales increased by 65 per cent from 11.8 million units a year ago to 19.5 million units, but Mac sales were down to 3.95 million units, compared to 4 million units sold in the second quarter last year.

Although Apple is still a force to reckon with in the smartphone and tablet computer markets, investors have been worried that its share price has lost 40 per cent from September because it is losing market share due to stiff competition from Android-based smartphone manufacturers like Samsung and ITC.

Analysts and critics have also voiced their opinion on the company's need to develop new products instead of continuously updating its existing products.

One of the biggest challenges for the tech giant is whether it can count on its core strength of innovation and deliver a breakthrough new product, but continue with selling its smartphones, which currently generates nearly 70 per cent of its revenues.

Cook hinted that the company is working on some amazing new hardware, software and services that it hopes to introduce this fall and throughout 2014.

Rumours have been floating for some time that Apple is expected to launch its own branded television equipped with 4K display and resolution of 3,840-x-2,160 along with iTunes integration and app support.

Many of Apple's fans have also said that the company may come with a new version of the iPhone as well as a wristwatch operating on iOS.