Apple sees first sales dip in more than a decade as super-growth era falters

PUBLISHED : Wednesday, 27 January, 2016, 6:06pm
UPDATED : Wednesday, 27 January, 2016, 6:49pm

Apple forecast its first revenue drop in 13 years and reported the slowest-ever increase in iPhone shipments 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 its Watch sales, but the device does not appear to have the makings of being a hit on the same level as the iPhone a year after launch.

And while Apple is reportedly working on a car, what it plans to do in that area and when are still unclear.

READ MORE: With China weakening, Apple turns to India’s smartphone market to revive flagging fortunes

The company’s shares, which have fallen 5 per cent this year, bounced around in after-hours trading in the United States and were down more than 2.6 per cent.

“It’s disappointing to see them miss on an already downward adjusted sales number and the fact is that with their iPhone growth slowing what was needed was a product to be excited about,” said J J Kinahan, chief strategist at TD Ameritrade.

“Pressure on the shares will continue without a well-defined plan to grow sales or a new product.”

The company said on Tuesday it sold 74.8 million iPhones in its fiscal first quarter ended December 26, the first full quarter of sales of the iPhone 6S and 6S Plus.

The 0.4 per cent growth in shipments was the lowest since Apple’s smartphone was launched in 2007.

Its sales were expected to fall for the current quarter compared with the same quarter last year, Apple chief executive Tim Cook said in a conference call with analysts.

Cook suggested there is still room for growth as 60 per cent of people who had an iPhone prior to the launch of the iPhone 6 have yet to upgrade to an iPhone 6 or 6S.

Apple’s iPhone remains popular with American consumers. According to a Reuters/Ipsos poll, 86 per cent of iPhone owners were somewhat or very likely to buy another iPhone.

READ MORE: Apple opens ‘secret’ lab in northern Taiwan to develop new displays

Of those likely to buy a phone, 15 per cent are currently looking to upgrade and 17 per cent will when the next iPhone is released. The January poll had a credibility interval of 2.0 percentage points.

While revenue in Greater China rose 14 per cent in the last quarter, Apple is beginning to see a shift in the economy, particularly in Hong Kong, Apple chief financial officer Luca Maestri said.

“As we move into the March quarter it’s becoming more apparent that there are some signs of economic softness,” Maestri said.

“We are starting to see something that we have not seen before.”

Apple forecast second-quarter revenue of US$50 billion to US$53 billion, below analysts’ average forecast of US$55.5 billion. In the same quarter last year, Apple reported revenue of US$58 billion.

Apple’s guidance for the March quarter implies iPhone sales of 50 million to 52 million units, which would mark the company’s first-ever decline in sales of the gadget, said analyst Daniel Ives of FBR Capital Markets & Co.

In the same quarter last year, Apple sold 61.2 million iPhones.

The company reported revenue of US$18.37 billion from Greater China, accounting for 24.2 per cent of total revenue. Revenue from the region had nearly doubled in the fourth quarter.

Apple’s iPhone shipments fell short of analyst expectations for 75.5 million, according to research firm FactSet StreetAccount.

READ MORE: No January blues for China’s smartphone market as 2015 saw record sales of 460.5 million units as 4G handsets take off

Apple reported earnings of US$3.28 per share, beating the average analyst estimate of US$3.23 per share, according to Thomson Reuters I/B/E/S. Revenue increased 1.7 per cent to US$75.87 billion, both records for the company.

Analysts had expected revenue of US$76.54 billion.

Apple’s overall performance was “slightly better than feared”, said Ives at FBR.

Despite the slowdown, Apple remains the most profitable company in the S&P 500 and the most valuable publicly traded US technology company.

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 per cent, according to data company Statista.

Maestri attributed the lackluster revenue to foreign exchange headwinds caused by the strong US dollar, which he said knocked about US$5 billion off the company’s revenue.