Analysis: Apple optimistic despite iPhone sales losing shine

The news that the sale of the iPhone had fallen in the past few months was no real surprise. In fact, it had been widely expected.

Growth in sales of the device slowed in the the first quarter of Apple's fiscal year, with the 0.4 per cent increase the most sluggish since Apple began selling the iPhone in 2007. Bear in mind, though, that the company was still shifting more than 74 million phones in a three month period.

However in the period to the end of March, the numbers had fallen back. Apple sold 51 million iPhones, about 10 million fewer than the same period a year earlier. Tablet sales were also down, to the tune of 2 million, and Mac sales were slightly lower too. Apple didn’t even reveal the figures for its Apple Watch, saying only that it met expectations.

iPhone

But all eyes were on the iPhone, and it’s not hard to see why. The phone has been the star performer for the company since its launch, following a seemingly endless upwards trajectory, generating billions for the technology firm.

But what goes up must eventually come down. Apple was riding high last year as the sales from the new generation of iPhones boosted figures. This year, with iPhone 6S and 6S Plus more of an evolution than a major step foward, sales were more muted. The impact of the new iPhone SE came too late for the first quarter figures.

Apple is facing a few headwinds. First off, there is the upgrade cycle. Customers may be holding off for the iPhone 7 in the hope that there will be a significant jump in functionality between devices.

Secondly, there is the perception that developed markets are saturated. Competition is intense, with Android manufacturers upping their game to compete on the more premium stage. Apple chief executive Tim Cook insisted on an earnings call that there was more room for growth, noting a large number of people switching from Android to iOS, but how much that will swell its sales figures in the next quarter remains to be seen.

Growth

And then there is the factors outside Apple’s control, macroeconomic considerations and tepid growth in many major markets that are slowing sales, although Cook believes “this too shall pass” and Apple will return to growth.

The company is, for now, predicting more modest revenues in the next reporting period, with revenue expected to be in the range of $41 billion and $43 billion, and gross margin falling to between 37.5 per cent and 38 per cent.

Against that backdrop, attention has been shifting to Apple’s services revenue. That covers everything from Apple Music – now with 13 million paying customers – and its cloud services to AppleCare support packages and its digital products through iTunes and the App Store.

In the most recent quarter revenue from the sector rose 20 per cent compared with the same period a year ago. That follows impressive growth in the first quarter of the year.

In total, Apple sold almost $6 billion worth of services to its customers in the second quarter; compare that to the sales of its Macs, once the mainstay of the company, which generated $5.1 billion in the same period.

Revenue

But the services revenue, impressive as it is, still pales in comparison beside the money generated by the sales of the iPhone. Over three months, Apple made almost $33 billion from its flagship phone, and that was on the back on falling sales. Services revenue has a long way to go before it can take over as the main earner at the company.

None of this is worrying Cook, who says the future is still bright for the firm. And the impact of the SE, which Apple executives say has seen great demand from consumers, has also yet to be counted, along with its updated iPad Pro line.

All eyes will be on the next quarterly figures to see if Apple has hit a more drawn-out sour note.