Is the iPhone sales slump the end for Apple? Probably not.
Apple had revenue decline for the first quarter in 13 years. But record-breaking sales records still outshine the shadow of the current slump.
Apple is experiencing its first slump in over a decade.
The tech giant announced Tuesday that revenue in the latest quarter of 2016 declined. At the root of decline are drooping sales for iPhones, which make up a considerable portion of Apple's total revenue.
The blip has stirred Wall Street investors, who expected growth, and raised a flurry of questions over the long-term outlook of the Silicon Valley native company. But the drama surrounding the slump is more soap-opera than documentary, say industry analysts.
"Do we think this is the end all for Apple? No," says Angelo Zino, a senior equity analyst at S&P Global Market Intelligence, in a phone interview with The Christian Science Monitor. It's taken a "perfect storm of bad news" for the company to show a decline, he says.
The iPhone 6 cycle was a huge success, almost a "one-time phenomenon," according to Mr. Zino. The iPhone 6 broke records in September 2014 with more than 10 million sold on the opening weekend, even without being available in China, the world's largest smartphone market. Once the market in China did open, sales surged even higher.
But following that dramatic launch, the iPhone 6S was largely a flop. Weak demand forced Apple to begin limiting production in August. Largely to blame are minimum improvements to the iPhone 6 and the 6S, which offered scarce aesthetic changes, Zino explains.
In all, the rollercoaster ride of an amazing market performance from the iPhone 6 and a lackluster performance from the iPhone 6S combined with inventory readjustments for the next quarter left Apple in a vulnerable position for the second quarter.
And sky-high expectations made any dip seem more drastic than it really was.
"For years now, Apple has managed to ride above a wave of expectations linked to something close to perfection.... Eight consecutive years of sales growth for the iPhone helped to fuel those expectations," Mark Hamrick, a senior economic analyst for Bankrate.com, writes in an e-mail to the Monitor.
The company faced a 13 percent revenue drop in quarterly revenue earnings in Q2 in 2016, but the numbers still added up to $50.6 billion in revenue and $10.5 billion in profit. And with an iPhone 7 announcement expected in late September, the company could be in a prime position to continue growing with strong sales.
"Let's not forget: it is still highly profitable, just not quite so much as before," Mr. Hamrick added.
But for investors concerned about a revenue dependence on smartphones, there may be some valid criticism for Apple.
Roughly two-thirds of the company's revenue is the result of iPhone sales, according to Zino. If the smartphone market starts to slow down, there likely won't be a hardware product to fill the gap.
"In the market for tablets, the iPad's recent upgrades haven't added sufficient value or capability to compel existing customers to upgrade or others to purchase for the first time," Hamrick explains. "And like the smartphone market, there are many good products available at lower prices. The same thing holds true for laptop (and desktop) computers, for the diminishing numbers of people buying those for personal use."
The Apple Watch sales have garnered mixed reviews and are somewhat inscrutable, as Apple's Q1 sales report in January did not separate sales for watches from other products. And sales also suffer from the availability of cheaper options: the Apple Watch sells for between $549 and $1,099. A Samsung Gear S2 is less fancy, but retails at $299.
"There's little doubt that Apple will continue to drive sales to those who are huge fans of the brand.... But those aspects alone may not be sufficient to match traditional expectations for the company," Hamrick says, highlighting Apple's need for innovation.