Crunch Time for Apple as iPhone Sales Fall

Convershaken Staff
April 27, 2016

Tepid trading meant Apple's turnover shrunk 13 per cent to $50.6bn (£34.8bn) in the three months ended 31 March, marking the technology giant's first quarterly revenue decline in 13 years. Moreover, sales of iPhones fell for the first time in history. And management forecasts revenues of between $41bn and $43bn in the current quarter, significantly below what analysts expected. The coming months will be critical for the iconic company if it hopes to prove it isn't past its prime.

Apple certainly has its work cut out. Our first chart shows its quarterly revenues, broken down by product line, since October 2014. First-quarter revenues have been historically highest in the company's first quarter, reflecting the release of new iPhones in late September and brisk trading around Black Friday and Christmas.

The sharp fall-off in second-quarter iPhone sales is clear, and demand has clearly dwindled for iPads and, to a lesser extent, Mac computers. Sales of 'other products' - including accessories and the Apple Watch - have grown strongly, but still make up a small proportion of revenue. The services business, which includes App Store downloads, Apple Music sales and Apple Care insurance payments, is a bright spot.

Our second chart shows Apple's sales by region over the same period. The big worry is Greater China - mainland China, Hong Kong and Taiwan. Sales soared more than 70% there in the first quarter, but slumped 26% in the second quarter. Many analysts hoped that China's mushrooming middle class would compensate for slowing growth in the United States, but that looks far less certain now.

Sales fell across Apple's regions due to macroeconomic uncertainty, an uninspiring product range and a tough comparative period that benefited from blockbuster sales of the iPhone 6. It could also reflect mounting competition from new competitors such as Chinese player Xiaomi.

More positively, Apple's directors pointed out that a record number of Android users switched to iPhones in the six months to 31 March. The iPhone 7, slated for release this autumn, could also revitalise growth.

Apple's reliance on the iPhone could become a problem going forward, particularly in 's' years where new models only feature incremental upgrades. The Apple Watch has also failed to capture consumers' imagination so far. But given Apple's stellar track record and history of innovation, we wouldn't bet against it having an ace up its sleeve.