IPhone Sales Drop, and Apple’s 13-Year Surge Ebbs
SAN FRANCISCO — From the iPod to the iPhone to the iPad, Apple created more than a decade’s worth of new gadgets to fuel its historic growth.
But the technology company’s dazzling 13-year run of quarterly revenue growth ended on Tuesday — a casualty of Apple’s already immense size, weakness in key global markets like China and the lack of another hot product to pry open the wallets of customers.
Apple, the Silicon Valley giant that has spent much of the last five years as the world’s most valuable company, said on Tuesday that revenue for its second fiscal quarter, which ended in March, declined 13 percent to $50.6 billion as sales of its flagship product, the iPhone, fell, with little else to take its place.
Nearly half of the smartphones sold in the United States are iPhones, and Apple may be reaching the saturation point among potential customers in other developed countries. Rival smartphone makers using Google’s Android operating system continue to challenge the company with powerful, less expensive devices.
Over all, Apple sold 16 percent fewer iPhones in the quarter compared with the same quarter last year.
“There’s no question that Apple’s best days are behind it,” said Toni Sacconaghi, an analyst at the Bernstein brokerage firm. “The company grew at astronomical rates, and it’s now so big that its ability to grow at those rates doesn’t exist anymore.”
Apple’s disappointing quarter is the latest in a string of bad reports from the biggest technology companies. While the reasons vary — including the long slump in personal computer sales and slipping prices for online ads — a common theme has been that as these companies have grown into giants, it has become harder and harder to keep up the momentum.
Apple’s chief executive, Timothy D. Cook, described the decline as a “pause,” not a fundamental change in the company’s business.
“This, too, shall pass,” he said in a call with Wall Street analysts to discuss the results. “The future of Apple is very bright.”
But investors were not so sure. Net income fell 22 percent to $10.5 billion, or $1.90 a share. Apple’s results fell well short of Wall Street expectations, and its shares were down as much as 8 percent in after-hours trading. That wiped out about $47 billion in stock market value.
Sales fell faster in greater China, which includes Hong Kong and Taiwan, than in any other region, down 26 percent compared with the previous year. Sales in mainland China, Apple’s second-largest market after the United States, fell 11 percent as the country struggled with a slowing economy. Apple’s prospects there remain uncertain since the government recently shut down Apple’s e-book and digital movie services without explanation.
Apple’s forecast for the current quarter did not make Wall Street more confident. The company projected revenue of $41 billion to $43 billion. That is much worse than Wall Street had been predicting.
Amit Daryanani, an analyst with RBC Capital Markets, said that Apple may be entering a period of slowing replacement sales, similar to what happened in the personal computer market a decade ago.
Mr. Daryanani also noted that many companies had been hurt by the strong dollar, which makes American products more expensive overseas. “It’s a common theme across technology companies,” he said.
Mr. Cook portrayed the slowdown as part of the normal two-year product cycle of Apple’s iPhone. The company’s larger iPhone 6 line, introduced in 2014, led to a surge in sales last year as customers upgraded, sending Apple’s stock to a record high.
“If you look at our installed base of iPhones today versus two years ago, it’s increased 80 percent,” he said.
Apple’s stock price over the last six months.
Apple’s newest phone, the four-inch iPhone SE, went on sale March 31 — too late to affect the second quarter’s results — and Mr. Cook said that there was more demand for it than Apple could currently fill.
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. Apple said first-year sales of the Watch exceeded first-year sales of the original iPhone, but declined to provide specific figures.
The iPad tablet, once a powerful revenue generator for the company, has had disappointing sales in recent years, despite new, larger professional versions. But Mr. Cook said iPad sales would improve in the current quarter.
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 services segment 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 telephone interview. Although unit sales were down 16 percent, “we continue to draw millions of people that are buying their first smartphone to iPhone.”
Denny Fish, a portfolio manager at the Janus Global Technology Fund, said Tuesday that the fund sold some of its position in Apple in the first quarter, citing the company’s growth challenges and worries about its position in China.
Apple, which is based in Cupertino, Calif., is expected to introduce other iPhones this year, which could give sales a jolt.
The company has been embroiled in a well-publicized battle with the federal government over unlocking encrypted iPhones. But Mr. Maestri said it had not seen any impact on sales, positive or negative, from the controversy.
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