Five takeaways from Apple's worst results in 13 years

Apple revealed that iPhone sales fell for the first time in over a decade - but bright spots elsewhere in the business suggest the company is looking well beyond the saturated smartphone market.

Apple: the iPhone 6 proved hugely popular, partly leading to the drop in sales this quarter
Apple: the iPhone 6 proved hugely popular, partly leading to the drop in sales this quarter

iPhone sales were down - but that isn't surprising

There were rumblings in January that the iPhone's seemingly endless upward trajectory might have stalled, when analysts predicted that sales were flat.

Apple revealed that it had shipped 51m iPhones this quarter, down from 75m in the same period last year. 

Why did this happen?

Industry watchers have noted this isn't exactly a surprise. iPhone sales growth has been slowing since 2011, when the smartphone market started maturing and Android manufacturers caught up with Apple in terms of device quality.

But when the iPhone 6 came out in September 2014, that briefly changed. Consumers flocked to upgrade, and Apple watchers saw the boost in sales as business as usual, rather than masking a wider trend of slowing growth.

As Beyond Devices analyst Jan Dawson notes: "For some, this was the new normal for Apple, driving sky-high growth rates in a product that had appeared headed for only modest growth in a saturating smartphone market.

"Now that the iPhone 6 year is past, however, we’ve seen the first flat year-on-year quarter for the iPhone, and are about to witness the first year on year decline. Hence all the calls from reporters about whether we’re witnessing some sort of crisis."

For Dawson, this doesn't mean a crisis for the iPhone, and the release of the smaller, cheaper iPhone SE could boost sales once again. He predicts that Apple should sell 39m to 42m iPhones in its next quarter - anything less will be "bad news" for the long term.

A side note on the wider smartphone market. Speaking to Marketing after the launch of the Huawei P9, IHS analyst Ian Fogg noted that the camera is what sells smartphones nowadays. With the P9 offering a dual camera, Apple might need to follow suit to bump sales again.

Apple makes more money from services than the Mac

For all that Apple's brand is about design and hardware, it does well financially out of its services - iTunes, Apple Music, Apple Pay, App Store, Apple Care and licensing.

Revenue from services stood at $5.99bn, up 20% year on year. That was higher than revenue from Mac sales, which was down 9% year on year to $5.1bn.

Services was Apple's second biggest category in terms of revenue for the quarter. Which might explain why...

Apple Music is just the 'first' subscription service

Among those growing services is Apple Music, which hit 13m subscribers in the quarter, Cook revealed.

The numbers meant Apple's music business was starting to grow, after "many years of decline", he said.

Tellingly, Cook referred to Apple Music as the company's "first" subscription service, though he didn't say where the company might venture next.

With an install base of 1bn iDevices globally, it makes sense for Apple to tap these for "recurring revenue".

Apple is ready to make bigger acquisitions

During Apple's earnings call, one analyst asked whether Apple now sees itself as a mature tech firm or a growth company, and with all that cash in the bank, whether it would make more acquisitions.

Cook said Apple was still willing to enter new markets through acquisition, and that the company was prepared to buy bigger firms than before.

He said: "We would definitely buy something larger than we've bought thus far. It's more about the strategic fit and whether it's a great technology and great people. And so we continue to look and we stay very active in the M&A market."

This led to some frantic speculation, since Apple is reportedly working on a car.


Apple Watch 2 might arrive before Christmas

The first Apple Watch was unveiled in spring 2015, meaning the second iteration is now overdue. But Cook quashed continued rumours of a summer 2016 launch by saying the firm expected the same seasonality as the iPod.

Translated: people buy the Apple Watch at Christmas, just like the iPod.

This suggests the Apple Watch 2 will be unveiled in September or October, closer to the holiday season.

Cook didn't reveal sales for the Apple Watch, but said they had "met expectations" during the quarter. He added that the watch, in its first year on sale, outperformed the first iPhone during its first year on sale.

And for Apple Watch naysayers, there certainly will be an Apple Watch 2. "We have learned a lot, and we believe it has an exciting future head," said Cook.

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