What goes up must come down, and Apple is in the midst of a tough lesson in gravity at the moment. The company’s second-quarter earnings report this past April marked the first time Apple had ever reported a decline in iPhone sales. Of course, the decline was expected by anyone who was paying attention — after astronomical iPhone 6 sales fueled by pent-up demand for iPhones with larger displays, there was simply no way Apple was going to be able to keep pace with an incremental “S” upgrade. What was unexpected, however, was how dramatic that sales decline would be.
With the second quarter behind us and serious questions surrounding the future of Apple’s core business swirling, all eyes were still fixed on the iPhone ahead of Tuesday’s fiscal Q3 earnings report.
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At Tuesday’s open, Apple shares were down more than 7% from where they were trading ahead of Apple’s second-quarter earnings report three months ago. The chief concern among investors (thanks in no small part to a dreary picture painted repeatedly by bearish analysts) is that Apple’s iPhone business has hit a wall. March-quarter units sales this year came in at 51.2 million iPhones, which was down from 61.2 million units in the same quarter last year.
That’s a massive decline, to say the least, so it’s understandable that people would be rattled.
Making matters worse is the fact that Apple has all but confirmed that this year’s new iPhones won’t be major upgrades. In a series of reports that reeked of a PR plant, expectations were established for a somewhat minor update in 2016 that will feel more like a second consecutive “S” upgrade than the big bi-yearly update Apple fans are used to. As a result, some industry watchers are predicting further declines that reach well into 2017.
When will it end? It’s obviously difficult to say, but one thing is certain: Apple’s iPhone sales slide didn’t come to an end in the June quarter.
Apple on Tuesday announced fiscal third-quarter earnings of $1.42 per share, or $7.8 billion in net income, on sales totaling $42.4 billion. That compares to a net profit of $1.85 per share in the same quarter last year, while revenue slid from the Q3 record of $49.6 billion that Apple set in fiscal 2015.
Ahead of Apple’s report, analysts were expecting EPS to come in at $1.39 while revenue was seen dropping to $42.1 billion, right in the middle of Apple’s guidance of between $41 billion and $43 billion.
iPhone sales in fiscal Q3 2016 totaled 40.4 million units, down from the 47.5 million iPhones the company sold during the June quarter last year, which was also a third-quarter record. Wall Street’s consensus for this past quarter was 40 million units.
The company said it expects between $45.5 billion and $47.5 billion in sales for the fiscal fourth quarter.
Apple remains the world’s most profitable consumer electronics company by a substantial margin, but there’s little question that the company has some choppy waters to navigate right now. The iPhone has been the star of the show for the better part of a decade, and Apple has enjoyed astronomical growth as a result.
Is growth in Apple’s iPhone business gone for good? Don’t be so sure. But iPhone growth is certainly over for the time being, and there’s nothing else in Apple’s portfolio that can pick up the slack. Bears see that as a sign of serious trouble for Apple’s future under CEO Tim Cook. Bulls see it as an opportunity to buy Apple shares at a deep discount before they skyrocket again in the coming years. There are certainly compelling cases being made on both sides of the fence, but only time will tell if the new products Apple is working on behind the scenes can bring the company back to growth.