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Apple just had its first annual revenue decline since 2001

Apple's revenue is headed in the wrong direction

For the first time since 2001, Apple's annual revenue has declined year over year, falling from $233.7 billion in 2015 to $215.6 billion in the 2016 fiscal year. That 7.7 percent decline marks the first annual revenue drop since 2001, largely due to the continued decline in iPhone sales, down 5 percent year over year.

It's clear Apple has its work cut out for it to right the fiscal ship — and it's likely that it will happen given the expectations for next year's iPhone — but right now it's unclear how long that will take. The bulk of iPhone 7 sales will hit in the next quarter, and while another monster first quarter is expected from Apple, it's unclear if this phone will be able to maintain sales like previous iPhones have. The combination of a familiar design in its third year plus the expectations of a radical rethinking of the world's most popular smartphone could have a negative effect on fiscal year 2017 as consumers wait until next fall when Apple's 10th anniversary iPhone is unveiled.

The 9 percent decline marks the first annual revenue drop since 2001, largely due to the continued decline in iPhone sales

iPad sales are also down from last year (6 percent) and Mac sales took a huge hit (down 14 percent) after a strong 2015, thanks to a lack of serious hardware updates which looks like it's about to change. The one bright spot for Apple is Services, which includes iCloud, iTunes, and Apple Music. Services grew 24 percent year over year, and shows that Apple's attempts to boost its Services division as hardware tapers off is working. With $24.3 billion in revenue this fiscal year, Services has cemented itself as Apple's second biggest revenue driver, outpacing the iPad. But despite that growth Services still only makes up 11 percent of Apple's annual revenue — the only thing that can turn Apple's revenue boat around is the iPhone.

2017 is going to be an interesting year for Apple. Unlike other years in the past, the company is reportedly preparing its biggest hardware update ever to its most crucial product and everyone knows it. This time around there's not just an assumption that the next iPhone will be better than the current one, there's an expectation that it will blow us away. How that mindset will effect sales moving forward is still anyone's guess. But Apple's ability to convince consumers that next spring and summer they should buy an iPhone 7 and not hold out a few more months for next fall's refresh will be put to the the test more than it ever has before.

Update: October 26th, 12:30PM ET: Apple's annual revenue decline was 7.7 percent, not 9 percent. The post has been updated accordingly.

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