HOLDING TIGHT

Apple’s falling revenue is turning into a trend

Many believed that Apple would announce that it had sold its billionth iPhone on today’s third-quarter earnings call, but instead the company outlined that sales were either flat or falling across all of its business lines.

Apple reported revenue of $42.4 billion for the quarter—beating analysts’ estimates, but in line with the company’s own—which was down about 15% from the same quarter last year.

Although the numbers confirm that Apple’s overall revenue and sales of its main cash cow were down for the second quarter in a row, Wall Street was upbeat on the news that sales weren’t as poor as expected. Shortly after the results were released, Apple’s stock is up about 7% in after-market trading. (Shares had been down about 8% for the year coming into today.)

The company also announced its sales guidance for next quarter—between $45.5 and $47.5 billion—which is not markedly down from the $51 billion in revenue it reported in the fourth quarter last year, seemingly reassuring investors that Apple can weather any storms between now and when its next blockbuster product is ready to launch.

iPhone sales have stalled

Last quarter, Apple sold fewer iPhones than it did in the same period the year before for the first time since the iPhone launched. That rut has now extended into its second quarter: Apple sold 40.4 million iPhones this past quarter, about 7 million fewer than it did last year. Apple even released a new phone, the rehashed iPhone SE, during the quarter, but it seems the diminutive device had little effect on average sales. Many prospective iPhone owners are also likely waiting until September at this point to get a new phone, as Apple will likely launch a new device or two then, which will also likely lower the price of the phones on the market now.

Rumors have suggested that the next iPhone Apple releases will be quite similar to the last one, which may dissuade many current owners from upgrading. The vast majority of Apple’s revenue comes from the iPhone—this quarter it represented 58% of the company’s total revenue—and so any deviation from the upgrade cycle that Apple has stuck to over the last nine years may well have a large impact on the company’s bottom line.

And so has revenue growth

Every other major Apple product—iPads, Macs and everything else it sells—had relatively poor quarters. Mac sales revenue was down 13% over the same quarter last year. And even though the new, smaller iPad Pro debuted this past quarter, it had a mixed effect on sales—units sold were down 9%, although revenue was up 7%, presumably because the Pro models are more expensive than previous iPads. Even with the meager growth in iPad revenue, as the iPhone accounts for so much of the company’s revenue, and every other major product having a relatively unspectacular quarter, it’s difficult to see where growth will come from in the short term.

Services held firm

Apple’s services business—which likely includes everything from iTunes songs and app sales to Apple Care and Apple Pay fees—has managed to keep plugging along. For the second quarter in a row, services was the company’s second-largest business, which at a time when Apple is selling fewer iPhones, and potentially refreshing its models less often, finding a way to lock customers into Apple’s ecosystem with smaller, more frequent, purchases could prove key to keeping the company plugging along until its next big release. Apple CEO Tim Cook said on the company’s earnings call that revenue for the App Store was up 37% on the quarter, which certainly helped shore up the services business revenue.

The Apple Watch is still a mystery

Apple is still not breaking out sales of the Apple Watch, instead choosing to include it in its “Other Products” line on its earnings report, which also includes things like Beats headphones, phone cases, and wifi routers. But it seems that the Apple Watch also didn’t have a great quarter, as Apple’s other products segment revenue fell 16%, compared to the same quarter a year ago. (Although in reality, that’s only about $400 million, or a rounding error on Apple’s quarterly earnings.) But with a new model likely to be announced this fall, along with snappier software, perhaps the second version of the Watch can be a breakout hit, as many Apple products before it have proven to be.

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