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May 4th, 2016
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Apple Posts Its First Quarterly Sales Decline in 13 Years

Apple Posts Its First Quarterly Sales Decline in 13 Years

Apple’s results for the second quarter of fiscal year 2016 are just in, and the company’s reign as a near-invincible titan of Wall Street is, in the words of Nathan Fillion, “certainly coming to a middle.” On the one hand, the company just posted its first year-on-year quarterly decline in 13 years (meaning Q2 2016 sales were lower than Q2 2015 sales). On the other, Apple still had the kind of quarter that most companies would kill for, with $50.6 billion in sales and $10.5 billion net revenue.

Nonetheless, that’s an $8 billion decline over the same period last year, and the declines hit across most Apple segments. iPhone sales declined 18.42%, iPad’s fell 18.7%, and Macintosh sales declined 9%. “Services” increased by 20% (that’s Apple Music and iTunes), while “Other Products” increased from $1.59 billion to $2.19 billion. Apple still isn’t telling anyone how many Apple Watches it has sold, but the company did note that most of the increase in “Other” was Apple Watch revenue.

Breaking out the declines

The declines in Apple’s core businesses reflect three different trends and have to be broken out separately. The easiest to explain is the steep drop in iPhone sales. The iPhone 6 and 6 Plus triggered a great deal of pent-up demand in the Apple world for larger-screen devices, and sales of these units were extremely high as a result.

Most of that high sales volume occurred in Q1 2015, as the chart shows, but Q2 2015 was still far above Apple’s historical norm for the iPhone. iPhone sales grew 20% in 2013 over 2012, 12% in 2014 compared with 2013, and 37% in 2015 compared with 2014. 2016’s figures, in other words, are less a decline than a return to previous trends.

The iPad decline, on the other hand, is much more of a trend. iPad sales peaked in Q1 2014 and have continued to decline since then, despite a number of refreshes and product launches, including the iPad Pro. The continued decline in iPad shipments suggest that tablet sales were not particularly rejuvenated by Apple’s recent hardware launches.

Finally, there’s the decline in Mac shipments. It’s hard to parse much from this — on the one hand, most of Apple’s products are at least a year old, and some, like the Mac Pro, are three years old. With 14nm GPU hardware right around the corner, Apple will probably launch some significant product refreshes in the next 12 months. On the other hand, the Mac market probably isn’t immune to the same contractions that have dogged the PC industry for several years now. The speed at which people replace hardware isn’t likely to be a Mac-versus-PC issue. And you could argue new Macs, including the just-released 2016 Macbook, are decidedly evolutionary, not revolutionary these days.

The iPad tablet sales information is interesting because it suggests that tablets may be falling prey to the same forces that have dragged down PC sales for nearly five years. If most customers are making do with tablets that are 2-3 years old, then how long before that same trend impacts smartphones — and what will the impact be on handset manufacturers and technology companies that now depend on shipments in these markets to prop up margins and provide revenue?

Come what may, Apple remains the best-positioned of any of the tech companies to ride out that uncertainty. But the stark gap between Apple’s “Other” category revenue and everything else is a reminder that for all the hype, the “wearables” revolution has yet to arrive — and nobody, including Apple, has figured out how to build wearable devices that consumers want to wear.

Joel Hruska (ExtremeTech.com)

 

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