Apple’s second-quarter earnings report for fiscal 2016 is historic for all the wrong reasons. The iPhone has driven growth at a breakneck pace for nearly a decade now, and has helped Apple consistently post on-year sales and profit growth in every quarter. But in the March quarter this year, Apple’s revenue declined for the first time in 13 years as the pillar on which Apple has stood since 2007 finally began to crack. For the first time ever, Apple’s iPhone sales declined, dropping significantly in fiscal Q2 2016 compared to the same period a year ago.

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No one was surprised on Tuesday afternoon when Apple reported declines in both revenue and iPhone units sales. The company’s second-quarter guidance issued alongside its record-breaking first quarter report called for revenue to fall between $50 billion and $53 billion last quarter, down from just over $58 billion in the fiscal second quarter last year.

But, about that first-quarter record…

In the fiscal first quarter of 2016, Apple managed to narrowly top the prior year’s profit, revenue and iPhone sales records — but it took a bit of craftiness to get the job done. I explained it in an article back in January.

Pent up demand for iPhones with larger displays sent holiday sales soaring when the iPhone 6 and iPhone 6 Plus were released back in 2014. In 2015 demand wasn’t quite as high, so Apple had to double the preorder period and launch the iPhone 6s and iPhone 6s Plus in China much earlier than it did the prior year in order to show iPhone sales growth.

Even then, Apple only managed to sell 2 million more iPhones in Q1 2016 than it did in Q1 2015.

It was good thinking and it worked well at the time, but iPhone demand was already slowing. By piling all those sales into the fiscal first quarter, Apple was left wide open to decline in the second quarter. And that’s exactly what happened.

Apple on Tuesday reported fiscal second-quarter earnings of $1.90 per share on revenue totaling $50.56 billion. Those figures compare to a profit of $2.33 per share and $58.01 billion in sales during the same quarter last year. Meanwhile, Wall Street was expecting EPS to come in at $2.00 on revenue totaling $51.97 billion.

Apple shares immediately fell more than 4.5% on the news.

Where the crown jewel of Apple’s product lineup is concerned, iPhone sales slowed in the second quarter just as we all knew they would. Analysts were expecting iPhone sales totaling 51.53 million units, and actual Q2 2016 sales came in at 51.2 million iPhones. In the second quarter last year, Apple sold 61.17 million iPhones.

Elsewhere in Apple’s lineup, iPad sales came in at 10.2 million units and Mac sales totaled 4 million units for the second quarter. Analysts were expecting sales to total 9.95 million iPads and 4.53 million Mac computers. iPad sales in the year-ago quarter were 12.62 million units, and 4.56 million Macs were sold during that period.

Here is Apple’s guidance for the fiscal third quarter:

  • revenue between $41 billion and $43 billion
  • gross margin between 37.5 percent and 38 percent
  • operating expenses between $6 billion and $6.1 billion
  • other income/(expense) of $300 million
  • tax rate of 25.5 percent

Now, despite all the doom and gloom you’ve been reading recently and all the doom and gloom to come following Tuesday’s report, this is hardly where the iPhone story turns south for good. Apple is set to launch completely redesigned iPhone 7 and iPhone 7 Plus handsets this September, and the company has even more exciting things coming down the road. In fact, an upcoming new generation of iPhones might change the game more than you can even imagine.

Apple’s iPhone business won’t continue to grow forever, but it’s certainly not finished yet.

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