iPhone sales drop, and Apple’s 13-year surge ebbs

Details are pictured on the back of an Apple Iphone 6 on a table in a restaurant in Hanau, Germany, April 10, 2016.    REUTERS/Kai Pfaffenbach/File Photo      TPX IMAGES OF THE DAY
–Kai Pfaffenbach / REUTERS

SAN FRANCISCO — Apple’s 13 years of continuous quarterly growth have finally ended.

The technology giant said Tuesday that revenue for its second fiscal quarter, which ended in March, fell 13 percent to $50.6 billion as sales of its flagship product, the iPhone, fell, with little else to take its place. Net income fell 22 percent to $10.5 billion, or $1.90 a share.

The results fell short of Wall Street expectations and Apple’s shares were down more than 5 percent in early after-hours trading.

Apple may be reaching the saturation point among potential customers in some countries, and other smartphone makers using Google’s Android operating system continue to challenge the company with powerful, lower-price devices. China, Apple’s second-largest market after the United States, is experiencing an economic slowdown and recently shut down Apple’s e-book and digital movie services in the country.


Sales fell faster in China than in any other region, down 26 percent compared to the previous year. And sales in the Americas were down 10 percent. Overall, Apple sold 16 percent fewer iPhones in the quarter compared to the same quarter last year.

Apple has high hopes for some of its consumer-oriented services, such as Apple Music and iCloud, as well as for its nascent Watch accessory, but those have yet to turn into giant businesses. The iPad tablet, once a powerful revenue generator for the company, has had disappointing sales in recent years, despite new, larger professional versions.

Nevertheless, Apple still generates tens of billions of dollars of cash every year. And the company said Tuesday that it would pass along more of that money to its shareholders. Apple said it would raise its quarterly dividend 10 percent to 57 cents a share and increase the amount of stock it buys back to $175 billion.

Apple’s service business was one bright spot in the quarter, with revenue up 20 percent. The company ended the quarter with $233 billion in cash and marketable securities.

“When we look at the dynamics of the iPhone business, we feel very good,” Luca Maestri, Apple’s chief financial officer, said in a phone interview. Although unit sales were down 16 percent, “we continue to draw millions of people that are buying their first smartphone to iPhone.”


Maestri acknowledged weakness in greater China, but he said the strong dollar played a big role there. In Hong Kong, whose currency is pegged to the dollar, sales fell sharply, but in mainland China, revenue was down only 11 percent.

Analysts expected Apple to report revenue of $52 billion and net income of $11 billion, or $2 a share, according to consensus estimates compiled by S&P Global Market Intelligence.

In last year’s second fiscal quarter, Apple reported net income of $13.6 billion, or $2.33 a share, on revenue of $58 billion.

Denny Fish, a portfolio manager at the Janus Global Technology Fund, said Tuesday that the fund sold some of its position in Apple during the first quarter, citing the company’s growth challenges and worries about its position in China.

Its newest smartphone, the 4-inch iPhone SE, went on sale in late March, too late to affect the most recent quarterly results, but analysts hope to get more insight into how it is selling. Apple, which is based in Cupertino, California, is also expected to introduce other iPhones this year, which could give sales a fresh jolt.

The company was expected to provide more details of the impact on sales of its well-publicized battle with the federal government over unlocking encrypted iPhones. Apple argued that it was fighting for customer privacy and security, while the Justice Department contended that the company’s refusal to help was a “brand marketing strategy.”

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