Apple's annual profits fall for first time in 15 years as iPhone sales decline
Apple's annual profits fall for first time in 15 years as
iPhone sales decline
Company has sold 45.5m iPhones in current quarter, down
5% from last year as analysts worry that the world has reached ‘peak Apple’
Tuesday 25 October 2016 17.06 EDT
Apple has reported its first decline in annual sales and
profit in 15 years. The Silicon Valley company, which had bounced back from
near bankruptcy in 1997 to become the world’s most valuable company today, told
investors on Tuesday night that it had sold $215.6bn (£177bn) worth of iPhones,
Watches, Mac computers and other products in the year to 24 September.
That works out as an 8% decrease on Apple’s record
$233.7bn of sales it collected in the previous year. The decline in sales hit
the company’s profits, which fell 14% to $45.7bn.
It is the first time Apple’s annual sales or profits have
declined since 2001, and some analysts are concerned that the world may have
reached “peak Apple”, meaning nearly everyone who wants (and can afford) an
iPhone or other products already has one.
Sales declined by 9% to $46.85bn in the three months to
24 September – the third consecutive quarterly fall. The sales fall hit the
company’s quarterly profits which came in at $9bn - a 19% decline on the same
period a year earlier.
The fall in sales was mostly down to declining sales of
the iPhone, which is by far Apple’s most important product and accounts for
two-thirds of all sales. Apple sold 45.5m iPhones in the quarter, a 5% drop on
last year.
Despite the decline in sales and profits, Tim Cook,
Apple’s chief executive, said: “Our strong September quarter results cap a very
successful fiscal 2016 for Apple. We’re thrilled with the customer response to
iPhone 7, iPhone 7 Plus and Apple Watch Series 2.”
The iPhone, which first launched in June 2007, has
transformed the telecoms industry but Apple is now facing more intense
competition from the likes of Google, which last week released its first
branded smartphone, the Pixel, and upstart rivals offering much cheaper
smartphone devices in key markets such as China.
The iPhone 7, the latest model, went on sale on 16
September but the company has struggled with supply issues, meaning that most
of the uplift from sales will come in the current quarter, which also includes
Thanksgiving and Christmas. The current quarter’s sales are also likely to
benefit from Samsung’s recall of the Galaxy Note 7, due to a fault that caused
some devices to catch fire. Telecoms companies offered Note 7 customers the
opportunity to trade in their phones for rival devices such as the iPhone.
Apple forecast that it would sell $76-$78bn of products
in the coming quarter, a 1% increase on last year. The company’s cashpile has
grown to $237bn, up from $231.5bn three months ago.
The company’s share of US smartphone users remains static
at 43.5%, according to research firm eMarketer. In the UK, 31.8% of smartphones
are iPhones, a slight increase on last year. The great hope for Apple was
emerging markets such as China and India, but after generating huge
year-on-year growth, demand has decreased. Apple’s share of the Chinese market
has fallen from 9.2% to 6.7% as local competitors up their game and offer
decent rivals at much cheaper prices.
Thomas Husson, an analyst at Forrester Research, said:
“The new iPhone 7 devices were only on sale for few weeks during the quarter –
so it is unlikely they were able to prevent quarterly iPhone sales to continue
to decline. It will be key to get early performance indicators of how well the
new devices sell ahead of the holiday season.
It is especially important in non-western markets like
India where there is still significant growth. Overall, Apple is still
significantly dependent on its iPhone product line but I would expect again a
massive growth for new services like Apple Cloud, Apple Music or Apple Pay.”
Apple’s shares, which had achieved huge growth in recent
years, closed at $118.50 on Tuesday – roughly the same level they were at a
year ago.
As well as dealing with flagging iPhone sales, Apple has
been hit with a record-breaking demand to repay Ireland €13bn in back taxes
after the European commission ruled that a sweetheart tax deal between Apple
and the Irish tax authorities amounted to illegal state aid. The commission
said the deal allowed Apple to pay a maximum tax rate of just 1%. In 2014, the
tech firm paid tax at just 0.005%. The usual rate of corporation tax in Ireland
is 12.5%.
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