Apple Posts Slowest iPhone Sales Growth Yet, Forecasts First Drop Since 2003

Phone Sales Fall Short of Analyst Expectations as Smartphone Market Saturates

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Credit: Apple

Some of the concern about the growth of the iPhone may be founded, if Apple's first fiscal quarter is any indication.

The company posted its slowest iPhone sales growth since its introduction in 2007, shipping 74.8 million phones, up just 1% versus a year ago when it sold 74.5 million.

Analysts have been wondering whether Apple would match or surpass last year's record sales performance in the first fiscal quarter, a time just after the company unveiled its bigger-screen iPhone 6 and 6 Plus. This time, after the company released its iPhone 6s and 6S Plus in September, and as smartphone markets are becoming saturated, the company fell just short of analysts' expectation of about 75 million phone shipments.

Sales for the iPad fell, with 16.1 million units versus 21.4 million in the same period in the prior year. It sold 5.3 million Macs versus 5.5 million in the prior year and it didn't disclose sales for Apple Watch.

"Our results are particularly impressive given the challenging global macroeconomic environment. We're seeing extreme conditions unlike anything we have experienced before just about everywhere we look. Major markets including Brazil, Russia, Japan, Canada, southeast Asia, Australia, Turkey and the UR quo zone have been impacted by slowing economic growth, falling commodity prices, and weakening currencies," said CEO Tim Cook during an earnings call.

He added that total iPhone sales were up 76% in India, more than 45% in Korea, Middle East, and Africa, up 20% or more in many western European countries and grew 18% in mainland China. About two-thirds of Apple's revenue is generated outside the U.S.

But Apple is also forecasting a sales drop, its first since 2003, to about $50 to $53 billion in revenue, the company said Tuesday. "As you know, we don't provide guidance beyond the current quarter, and it's difficult for us to forecast economic and foreign exchange factors. However, at this point, we believe the March quarter faces the most difficult year-over-year compared relative to the rest of the year," said Luca Maestri, VP and corporate controller.

While Apple remains immensely profitable -- generating $18.4 billion in net income on sales of $75.9 billion in the December quarter -- it's no longer benefiting as much from the rapid adoption of smartphones around the world. Mobile-phone rival Samsung Electronics Co. also recently reported weaker-than-expected results. Mr. Cook has expanded in China and released new services and products such as Apple Watch to help broaden the business, but the company's dependence on the iPhone leaves it vulnerable to any deceleration in demand.

Apple has been adding tools such as the Apple Music streaming service and Apple Pay digital payments to augment its business, but the challenge is generating enough revenue from new products to move the needle for a company of Apple's size.

~~ With Bloomberg News

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