Apple Inc.

By Paresh Dave
April 26, 2016

Apple Inc. forewarned investors of its first-ever drop in iPhone sales and its first decline in quarterly revenue in 13 years.

Still, they came away alarmed Tuesday as Apple’s latest financial results revealed worse-than-expected sales in China and predicted a second quarter of overall decline.

Shares of the Cupertino, Calif. company plunged more than 8% after hours, sinking to less than $96 and evaporating a two-month rally.

The “challenging” quarter and unfavorable outlook reflect a tough economy worldwide, Chief Executive Tim Cook said. They also show that not every iPhone model can be a hit, now that so many people around the world already own one.

IPhone sales drove Apple to record revenue and profits in recent years, as interest in the iPod, iPad and other Apple devices waned. Apple’s fortunes are now staked on the iPhone, which accounts for two-thirds of revenue.

Yet gaining new customers in the United States and Western Europe is proving difficult for the world’s most valuable company. And at $640 on average, iPhones are too expensive for new smartphone purchasers in emerging markets.

The trends cut overall first-quarter revenue to $50.6 billion, down 13% from the same period last year. Profit fell 22.5% year-over-year to $10.5 billion. The figures translate to $1.91 in earnings per share, below analyst estimates of about $2.

Apple also said Tuesday that it would increase quarterly dividends by 10% to 57 cents per share and expand its stock buyback plans by $35 billion.

Cook attempted to dismiss many of the worries in a call with analysts Tuesday.

The iPhone 6 and 6 Plus boosted purchases in 2015 because Apple had never before sold smartphones with such big screens. Apple had no chance of matching that pent-up demand this year, especially in a shakier global economy, Cook said.

Apple sold 51.2 million iPhones from January through March, or about 10 million fewer than the same three months in 2015. Analysts on average had estimated 50 million iPhone purchases, according to data compiled by FactSet.

“The market as you know is currently not growing,” Cook told analysts Tuesday. “However, my view is that’s an overhang of the macroeconomic environment in many different places of the world. We are optimistic…the market will grow again.”

He noted four encouraging signs. Though people might not be scooping up last year’s iPhone 6s as fast as they did the iPhone 6, the pace of people upgrading to the 6s is faster than for the iPhone 5s two years ago.

More people also switched to the iPhone from competitors during between October and March than in any prior six-month span. There were still millions of first-time iPhone buyers last quarter, in part because of 56% sales growth in India.

And the iPhone SE, the most affordable Apple smartphone ever, is attracting new customers. The device was released after the last quarter closed.

“The future of Apple is very bright,” Cook said.

But analysts are divided on when the iPhone will see a resurgence.

Apple originally had expected January through March to be its worst sales period of the year. But on Tuesday, Apple forecast sales of between $41 billion and $43 billion for the current quarter, below analyst expectations of $47 billion.

To read expanded article, click here.