Apple, the mobile device giant experienced its first decline in revenue for 13 years after the sales in all its device categories significantly slowed down.
Typically, the iPhone brings in about two-thirds of Apple’s total revenue; the 51 million shipments in Q1 2016 were 16% lower than in Q1 2015 where 61 million devices shipped. As a result, the total revenue of Apple for the first quarter of 2016 were $50.6 billion, a value which is a 13% drop from the revenue of the first quarter of the previous year. Even though Apple publicly mentioning that they expected a revenue within the range of $50-$53 billion, its shares plummeted by 7%.
Apple’s CEO Tim Cook tried to keep things on a positive note when he said that their team did an exceptional job of executing in the face of tough macroeconomic gales and that they are quite happy with the constant growth in the revenue earned from the Services as a result of the remarkable strength of the ecosystem of Apple and their expanding customer base which has already surpassed a billion active devices.
By division revenue was not only down for iPhone devices but also for the iPad and Mac devices. Services on the other hand which comprises of iTunes, the app store, Apple Pay and music streaming among others, rose by 20% getting the revenue to almost $6 billion, outdoing the Mac devices to hold the second spot of the second largest product group of Apple. Other Apple products such as the Apple Watch and iPod also experienced a 20% increase in revenue compared to the same time in the previous year. Geographically, the largest drag on the revenue numbers which dropped by 26% year-over-year.
Cook also laid out the latest trends in iPhone sales in the subsequent analyst call. He maintained that sales from upgrades of existing users are still strong, but pointed out that the sales cycle of the ‘s’ (5s and 6s) which have a tendency of being more incremental refreshes, suffers as compared to the cycle of sales whenever the iPhone devices increase. Inferring that there is a cyclic weakness is not substantial when you look at the numbers since in the first quarter of 2014, Apple only shipped 44 million iPhone devices.
Switchers from Android are iPhone’s second sales and here, Tim himself changed parameters to the last 2 quarters indicating that in the last 6 months, Apple garnered more switchers as compared to any other six-month period. Globally, Apple gained a percentage point of the share of the smartphone market from Android in the previous years so it is not something new.
The final source as cited by Tim Cook was the new entrants of the handset market. He said that smartphones have only penetrated 42% of the global handset market and that Apple is taking in a substantial amount of the new entrants, detailing evidence of a 56% annual increase in India. He also hoped that the iPhone SE, a cheaper version which did not start selling until the second quarter will increase even though it will be at the expense of lower margins and ASPs.
Despite the fact that Apple Watch sales were greater than iPhone’s in their first year as Cook mentioned, there is a concern that they are already facing a significant drop in sales.
The end of the growth of Apple’s revenue after a consistent growth and dominance in the past 13 years starting from the iPod to the iPhone and iPad symbolizes a mature devices market. This calls for Apple which is already under pressure, to make a game-changing move later on in the year as we anticipate their new set of iPhone devices.