Apple Revenue, iPhone Sales Continue to Fall

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Apple sold more iPhones than analysts were expecting but the electronics giant still posted year-over-year revenue declines that have some questioning the longterm growth potential for its signature business.

Apple, which gets two thirds of revenue from the iPhone, experienced its first annual sales decline since 2001, amid waning smartphone demand.

The iPhone maker reported fiscal fourth quarter revenue of $46.9 billion, down 9% from the same period last year. Earnings fell 19% to $1.67 per share.

The company's financial results were in line with analyst expectations. Wall Street, polled by Thomson Reuters, was expecting revenue of $46.9 billion and earnings of $1.65 a share. But this quarter marks the third consecutive decline in quarterly revenue, which contributed to a slight drop in share price during after-hours trading on the Nasdaq.

Apple sold 45.51 million iPhones during the quarter, slightly more than the 45 million analysts were anticipating. The new iPhone 7 went on sale just two weeks before the end of the quarter, so this next quarter will be where most of those sales are reflected.

Competitor Samsung killing production of its flagship Galaxy Note 7 handset and facing a brand crisis may create an opportunity for Apple, even as the introduction last month of the competing Pixel phone from Alphabet's Google presents a greater competitive threat in future years.

Global handset shipments will rise 1.6% this year, down from 10% growth in 2015, IDC estimated last month. That's increased pressure on Apple to find its next blockbuster product to drive growth.

"We're thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2," CEO Tim Cook said in a statement.

"We're open to acquisitions of any size that are of strategic value where we can deliver better products to our customers and innovate more," Mr. Cook said, when asked about his strategy around larger acquisitions during the earnings call, according to The Hollywood Reporter. His comments come after The Wall Street Journal reported last week that Apple expressed interest earlier this year in Time Warner, which is being acquired by AT&T for $84.5 billion.

Meanwhile, Apple's services division, which includes revenue from Apple Music, Apple Pay and other non-hardware offerings, was up 24% to a record $6.3 billion. Mr. Cook noted in his statement that the segment was seeing "incredible momentum."

Mr. Cook spent much of the past year pushing Apple's services, such as the App Store, iCloud storage and Apple Music. That division has become the company's fastest growing. Though those businesses represent a fraction of iPhone revenue, they foster customer loyalty by making it harder to trade in handsets for those made by rivals.

Apple has been developing multiple new Mac products and is expected to unveil a redesigned MacBook Pro at its "Hello Again" event on Thursday, ending a drought without an update for its oldest product category ahead of the holiday sales period. The new MacBook Pro's highlight feature will be a OLED secondary display above the keyboard that offers shortcut commands depending on the task at hand, while new features such as a larger trackpad and faster graphics cards are also said to be present.

The company is anticipating a strong holiday sales season, issuing revenue guidance for the fiscal first quarter of 2017 between $76 billion and $78 billion.

-- Bloomberg News, with Ad Age staff

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