Apple reports slowdown in iPhone sales and first revenue decline in 13 years

Tim Cook

Apple shares dropped on Tuesday afternoon after the company reported a nearly 13% fall in quarterly sales, the first time revenue at the world’s most valuable publicly traded company has declined in 13 years.

As of publication time, shares were down more than 7% without appearing to hit bottom. Revenue was predicted by Apple itself to fall between $50bn and $53bn – it came in on the low end of that range, with a final tally of $50.6bn, a 13% drop.

Apple said the decline would continue, predicting revenue between $41bn and $43bn for the June quarter.

The company had warned investors to brace for impact. The iPhone accounts for nearly 2/3 of Apple’s revenue and the company sold 16% fewer iPhones than it had during the same period in 2015 and made 18% less money from them. The total tally for the device was $32.9bn from 51.2m phones sold – the year previous Apple brought in $40.3bn from 61.2m phones.

“Despite the pause in our growth, our results reflect excellent execution by our team despite strong macroeconomic headwinds in most of the world,” said Tim Cook, Apple’s CEO.

Much of the falloff was attributable to the struggling Chinese economy. The nation’s consumer technology sector is in flux, as is the yuan. Still the second-largest market in the world for Apple products behind the US, the Chinese segment of Apple’s dismal report declined by more than a quarter of its value. The business made $18.4bn in China in the second quarter of 2015; in the previous three months it made $12.5bn.

Annette Zimmerman, research director at tech research and advisory company Gartner wrote last month that the problem was not Apple’s alone, pointing out that the entry price of a smartphone in the developing world was still a barrier, even among very inexpensive devices.

“Vendors were not able to reduce the price of a ‘good enough to use’ smartphone lower than $50,” Gartner wrote.

Earnings were released around 4.25pm EST, when Apple shares hovered around $104 a share. Half an hour later, the stock price had declined 7.8% to under $97 and falling.

Despite, the sales decrease and warning about its growth, Cook said “the future of Apple is very bright” and promised that the company has some “amazing innovations” in the pipeline. One of those new products should be the iPhone 7, which, based on rumors from Apple’s supply chain, could have a new kind of headphone port, be dust-proof and waterproof and may even have a totally redesigned home button.

It is the first time Apple’s sales have fallen since 2003. Back then, the iPhone didn’t exist. Apple was still selling Power Mac computers and had sold only 600,000 iPods. It was the year iTunes was launched, which revolutionized the music business.

The iPhone came out in 2007, followed by the iPad, and both were constantly updated with new, much-anticipated iterations which sold in their hundreds of millions around the world, sending the company’s sales to ever higher levels.

A year ago Apple sold $58bn of gadgets - or nearly $650m a day - in the first three months of the year. Two thirds of that revenue came from iPhones and sales were powered by the new iPhone 6.

Apple’s chief financial officer Luca Maestri said it was difficult for the company to match sales it achieved with the launch of the new larger version. “The iPhone 6 is an anomaly, and so it creates a very difficult comparison for us,” he said.

Questions are being asked about whether 2015 will turn out to have been the year of “peak iPhone”.

Some analysts believe the sales reverse is because of the soaraway success of the iPhone 6, and its bigger stable mate the 6 Plus.

With screens measuring 4.7 and 5.5 inches, the two phones, launched in September 2014, were the largest the company had ever released. The 6 Plus was Apple’s first foray into the world of so-called “phablets”: hybrid devices, smaller than a tablet but larger than a conventional smartphone, which had proved particularly popular in Asian markets.

They were a huge success, with the two models selling four million in their first 24 hours. Last September Apple pushed the bar even higher, with the launch of the iPhone 6S. But keeping up the pace of sales was always going to be a big ask.

Cook gave the the first hints of a downturn back in January. He blamed the phenomenal success of the initial iPhone 6, which has been so popular it sold out, forcing some customers to delay their purchases. That artificially boosted sales in the next quarter, making it harder to keep on breaking records.

Morningstar analyst Brian Colello, however, reckons the latest iPhone just isn’t very exciting. “Fewer customers had incentive to trade up for the latest iPhone this year if they bought an iPhone 6 just over a year ago.”

Apple has been the master of invention, but real innovation is now proving tough. The Apple Watch, its first new product without co-founder Steve Jobs at the helm, has been underwhelming. Apple won’t release sales figures for the device, instead lumping it together with the Apple TV, iPod, and accessories. Combined, that entire category is less than a tenth the size of the iPhone.

Analyst John Kirk, of Techpinions, said: “Those impatient for Apple to reinvent the world on an annual basis simply ignore the reality that iteration on existing tech products is the norm and significant change is the rare exception.”

But Apple does have big projects underway. It’s probably the worst-kept secret in Silicon Valley that the company is working on an electric car, poaching engineers from Tesla and scouting for test locations in California. And it’s also been hiring engineers and filing patents that also suggest it’s working on a virtual reality device of some sort.

In the meantime it is still piling up cash. It now has a cash mountain of $233bn; more than all the foreign currency reverses across the world and more than the Czech Republic, Peru and New Zealand make in gross domestic product (GDP) a year.

Powered by article was written by Sam Thielman and Rupert Neate in New York and Alex Hern in London, for The Guardian on Tuesday 26th April 2016 22.16 Europe/London © Guardian News and Media Limited 2010