Apple Inc. posted its first quarterly revenue drop in more than a decade and forecast another decline in the current period, dragged down by waning demand for the iPhone.

Shares fell as much as 5.4% in extended trading. Sales in the third quarter, which ends in June, will be $41 billion to $43 billion, the Cupertino, California-based company said Tuesday in a statement. On average, analysts estimated revenue of $47.4 billion, according to a Bloomberg survey. Second-quarter sales slid 13% and IPhone shipments fell 16%.

“The number that is declining is the number of people that are upgrading,” Chief Financial Officer Luca Maestri said. “Last year we had a very strong iPhone upgrade cycle.”

With the introduction of a new iPhone model still months away, Apple investors are trying to gauge whether lackluster sales of the device, the company’s biggest revenue generator, reflect a broader slowdown in the market for high-end smartphones—or just the pause before another upgrade frenzy. Forecasts from suppliers such as Qualcomm Inc. and Taiwan Semiconductor Manufacturing Co. have suggested demand is cooling, and researcher Gartner Inc. predicts that global smartphone sales growth will slow to 7% this year, the weakest rate in the industry’s history.

“It’s a tapering in demand,” Shannon Cross, a Millburn, New Jersey-based analyst at Cross Research Group who recommends buying Apple shares, said before the earnings report. “There are all these levers going on with reduced subsidies, changes in the cell phone plans, so the question becomes how do consumers globally react to these shifts, and we’re going to see that in the next few quarters.”

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The company also said it will boost its share-repurchase program to $175 billion, from the $140 billion announced last year. Apple will increase its quarterly dividend, as it did a year ago, to 57 cents a share from 52 cents.

Smartphone Demand

Concerns about decelerating smartphone demand have contributed to an almost 20% decline in Apple shares in the past 12 months. The stock fell less than 1% to $104.35 at Tuesday’s close in New York. That gave Apple a market capitalization of about $579 billion—still the world’s largest company by that measure.

In the second quarter, which ended in March, revenue fell to $50.6 billion from $58 billion a year earlier, Apple said. That compared with the average analyst estimate of $52 billion. Net income declined to $10.5 billion.

IPhone sales in the period fell to 51.2 million from 61.2 million a year earlier. Analysts on average predicted the company would sell 50.7 million iPhones in the recent quarter, according to a Bloomberg survey.

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The quarterly report is Apple’s first since a high-profile legal skirmish with the U.S. government over data privacy, encryption and law enforcement. The U.S. dropped two separate demands that the company help it break passcodes to get data from the iPhones used by a drug dealer in New York and a shooter in a December terrorist attack in San Bernardino, California. Apple had vehemently fought against both orders, saying that helping the government would jeopardize security for hundreds of millions of users and the cases could pose a dangerous precedent for law enforcement agencies’ access to encrypted iPhone data. The Department of Justice had argued it only wanted access to specific phones in limited instances, and abandoned the two cases after finding alternate methods for unlocking the phones in question.

As iPhone sales slow, Apple investors are increasingly asking what might fuel the company’s next growth spurt. A number of possibilities have surfaced: virtual reality gear, a self-driving car or a live television service, for example. Yet Apple’s secretive approach to development makes it hard to predict when, in what form, or even if any of these innovations will someday surface.

Virtual reality gained headlines back in January, when Cook said VR wasn’t a “niche” and had some “interesting applications.” Meanwhile the potential allure of the automotive industry for Apple and other technology companies has been highlighted in recent weeks as Tesla secured more than 325,000 pre-orders for its latest electric car in a matter of days.

Though a new version of the flagship iPhone probably won’t be unveiled until the fall, the company has been adding to its product line. In March, the company rolled out the new iPhone SE, partially seen as a move to bolster sales in emerging economies such as India and China. Yet analysts cautioned that the smaller phone, starting at $399 in the U.S., could risk cannibalizing sales of the more expensive flagship 6-series handsets, and may reduce the average price at which Apple sells its phones.

Smaller IPhone

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To help make up for dwindling growth in smartphones in the shorter term, Apple has been trying to bolster its services business, which includes its iCloud storage platform, Apple Music and the App Store. Not only is the profit margin wider on these offerings, buying them usually commits customers to subscription services that generate stable recurring revenue streams over months or years.

It also unveiled a new, smaller iteration of the iPad Pro, incorporating the power and some features of its larger Pro model for business users, aimed at stemming a persistent decline in sales of the tablet.

IPad shipments in the recent quarter fell 19% from a year earlier to 10.3 million, topping analysts’ average projection of 9.4 million. Mac sales declined 12% to 4.03 million units, less than estimates of 4.6 million.

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