Apple Inc forecast its first revenue drop in 13 years and reported the slowest-ever increase in iPhone shipments on Tuesday (January 26) as the critical Chinese market showed signs of weakening, suggesting the technology company’s period of exponential growth may be ending.
The slowdown comes as Wall Street analysts worry the company does not have another blockbuster product to replace the iPhone. Apple does not report Watch sales, but it does not appear to have the makings of being a hit on the same level as the iPhone a year after launch.
And while the company is reportedly working on a car, what it plans to do in that area and when are still unclear.
The company’s shares, which have fallen 5 percent this year, bounced around in after-hours trading and were down more than 2.6 percent.
“It’s unclear what’s causing this, we’ll call it a slowdown in growth, for the iPhone sales. Some people believe it is saturation That as many people who would buy iPhones have bought them. There’s also a belief that the devices themselves are less interesting this year than they were in the last year at the same time, when they had the iPhone 6 and it was a new design, it looked different, people had this kind of ‘I want to get the new device.’ This year it looks very similar,” said Ian Sherr, Executive Editor at technology and media website CNET.
The company said on Tuesday it sold 74.8 million iPhones in its fiscal first quarter, ended Dec. 26, the first full quarter of sales of the iPhone 6S and 6S Plus. The 0.4 percent growth in shipments was the lowest since the product was launched in 2007.
“The number of iPhones sold was just a hair more than they did the same time a year ago and remember that this is during the holiday shopping season, one of the most important periods during the year for Apple. And the other thing is that their forecasting for the first time that they’re not going to grow since 2003, which is another indication that this company is moving from being this huge growth company that was really just blowing through everyone’s expectations with the iPhone to being, it’s still a massive company but no longer this growing, fast growing company,” said Sherr.
IPhone sales were expected to fall for the current quarter compared with the same quarter last year, Chief Executive Officer Tim Cook said on a conference call with analysts.
But suggesting there is still room for growth, 60 percent of people who had an iPhone prior to the launch of the iPhone 6 have yet to upgrade to an iPhone 6 or 6S, Cook said.
And iPhones remain popular with American consumers. According to a Reuters/Ipsos poll, 86 percent of iPhone owners were somewhat or very likely to buy another iPhone.
Of those likely to buy a phone, 15 percent are currently looking to upgrade and 17 percent will when the next iPhone is released. The January poll had a credibility interval of 2.0 percentage points.
Apple forecast second-quarter revenue of $50 billion to $53 billion, below analysts’ average forecast of $55.5 billion. In the same quarter last year Apple reported revenue of $58 billion.
Apple’s guidance for the March quarter implies iPhone sales of 50 million to 52 million units in the March quarter, which would mark the company’s first-ever decline in sales of the gadget.
In the same quarter last year Apple sold 61.2 million iPhones.
The company reported revenue of $18.37 billion from Greater China, accounting for 24.2 percent of total revenue. Revenue from the region had nearly doubled in the fourth quarter and Cook expects the country to continue to be a big consumer of Apple products.
“So, Tim Cook, Apple’s CEO said that there are a lot of concerns about China’s growth and that a lot of them may be overblown. There are still a lot of indications that China’s going to grow more and certainly at the moment this country has been, really, the rocket ship in which Apple has attached itself in and become the world’s largest company because of how successful it’s been there. You know, he points out that LTE radio chips, which are the way that the highest end cell phones communicate, that those are still being built in China and that cities are coming online there with this new technology that has already been used a lot in the U.S. and so those types of trends he believes are really going to change the game for apple and that as this communication technology comes online in other parts of the world, people are going to want Apple’s premium products to connect to them. If he’s right that could be the case,” said Sherr.
Apple’s iPhone shipments fell short of analyst expectations for 75.5 million, according to research firm FactSet StreetAccount.
Apple reported earnings of $3.28 per share, beating the average analyst estimate of $3.23 per share, according to Thomson Reuters I/B/E/S. Revenue increased 1.7 percent to $75.87 billion, both records for the company.
Analysts had expected revenue of $76.54 billion.
Despite the slowdown, Apple remains the most profitable company in the S&P 500 and the most valuable publicly traded U.S. tech company.
“It’s worth noting that Apple broadly has been able to get people to pay more for their devices than competing companies and that’s a real indication for Apple, at least, and a lot of its supporters that it has a lot of legs left in this business and that even though it may not be growing there, it’s still a multi-billion dollar company. It’s one of the largest in the world and they’re able to command pretty high prices for these phones,” said Sherr.
The rise in iPhone shipments in the key holiday shopping quarter was the smallest since the second fiscal quarter of 2013, when they rose 6.8 percent, according to data company Statista. (Reuters)
