For any other company, reporting annual sales of more than $215 billion would be worth celebrating. For Apple, however, it’s a reason for disappointment.
Apple on Tuesday reported annual sales that fell for the first time in 15 years. After the close of trading, Apple said that for the fiscal year ending in September, it had sales of $215.6 billion, a 7.7 percent decline from the $233.7 billion it reported a year ago.
Several quarters of declining iPhone sales have been the main source of Apple’s revenue slipping this year. In its fourth quarter, the world’s most valuable company said that it sold 45 million iPhones, but that total was down 5 percent from last year’s quarterly iPhone sales of 48 million.
For the three months that ended Sept. 30, Apple earned $1.67 a share, on $46.9 billion in revenue, compared with a profit of $1.96 a share, on sales of $51.5 billion, a year ago. Analysts surveyed by Thomson Reuters had forecast Apple to earn $1.65 a share on $46.9 billion in revenue in the quarter.
But even when Apple exceeds expectations, it’s not necessarily enough because the company has set such a high bar for performance year after year. Although it surpassed analysts’ earnings estimates, and its sales were in line with Wall Street’s expectations, Apple shares shed almost 3 percent to slip to $114.90 in after-hours trading.
On a conference call, Apple Chief Executive Tim Cook worked to put a positive spin on the results, noting what he called the “incredible momentum” of the company’s services business. During the quarter, Apple reported $6.3 billion in services revenue, a 24 percent increase from last year’s $5.1 billion.
For Apple, services revenue includes sales from the App Store, Apple Music subscriptions, Apple Pay transactions, Apple Care programs and licensing and other services. Cook said that revenue from the App Store “continues to skyrocket,” while Apple Music and Apple Pay sales are going “strong.”
“We remain confident about the future of our services business. We have almost doubled (services) revenue in the last four years,” Cook said, before reiterating that he expects Apple’s services business to reach “a Fortune 100 company size” in 2017.
Still, services was the only business area for Apple that grew on a year-over-year basis. Among Apple’s other major product lines, iPhone revenue fell 13 percent, Mac sales were down by 17 percent, and iPad sales were flat with the same period a year ago.
Another black eye came from Apple’s sales in China, which a year ago appeared on track to someday surpass the company’s business in the Americas region, but fell by 30 percent from last year to $8.8 billion.
“Apple desperately still needs another hit (product) to stop the decline, but doesn’t seem capable of bringing one to market, suggesting these declines will continue until that is fixed,” said Rob Enderle, director of technology research firm the Enderle Group.
Tuesday’s report put a capper on a strange fiscal year for Apple. While Apple’s sales declined, it still sold more than twice as much stuff as Microsoft. And then there was the matter of Apple getting into a scrap with the U.S. government over its refusal to help unlock an iPhone that belonged to one of the shooters in the December 2015 San Bernardino attack that killed 14 people.
Despite the decline in annual revenue, 15 years is a long time for any company to go without seeing a sales retreat. Despite changes in technology, entering product areas where it had never had any presence, and the death of its co-founder and philosophical driver, Steve Jobs, Apple had managed to go through almost four Presidential terms without seeing its annual revenue decline.
To put that streak in some perspective, the last time Apple reported a year-over-year drop in sales:
— Barely one month had passed since the 9/11 terrorist attacks.
— Just days before putting out its quarterly results, Apple had released the first version of the iPod, the product that, arguably, saved the company and sent it on course to where it would eventually record more than $200 billion in annual sales.
— And the Golden State Warriors were about as far away as they could get from being an NBA champion, or even runner-up, as the team had just kicked off a season in which they would go 21-61 and finish in last place in the NBA’s Pacific Division.
Apple also set the stage for what it hopes will be a strong final three months of 2016. Because of Christmas and holiday shopping, the last quarter of the year is always Apple’s busiest, and the company expects sales to be between $76 billion and $78 billion for what is the first quarter of its fiscal year.
Piper Jaffray analyst Gene Munster noted that Apple’s current business quarter has one more week than the same one a year ago, which he estimated should give Apple as much as $3 billion more in sales than last year’s quarter.
“The Apple franchise is intact,” Munster said. “(I) believe talk now will shift to what the iPhone 7 looks like in the March 2017 (quarter).”
When asked if Apple is following a roadmap for getting ahead of the next big things in technology, or if it is choosing to see what comes next and then jump in with a hopefully better product, Cook offered up a classic Apple-style response.
“We have the strongest (product) pipeline that we’ve ever had,” Cook said, before adding that he wasn’t going to talk about what’s in that pipeline.