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Apple reports third consecutive quarterly decline as iPhone sales continue to slow

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Apple's first annual revenue drop since 2001

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Dieter Bohn

The big story over the last six months of Apple earnings has been the dreaded decline in iPhone sales. After more than a decade of record-setting revenue growth, the company finally saw consumer demand for its flagship smartphone dip down. During the fiscal fourth quarter ended September 24, Apple continued that trend with revenue shrinking 9.8 percent to $46.9 billion and profit falling 23 percent to $9 billion from the same period one year earlier. That's about on par with analyst expectations.

This decline was mainly driven by weak sales of the iPhone, which dropped 13 percent year over year to 45.5 million units. This drop was not offset by the improved performance of Apple’s Services division. For the full year, Apple suffered its first annual revenue drop since 2001.

Apple just posted its first annual revenue decline since 2001

As hardware sales plateaued, CEO Tim Cook has tried to shift Apple narrative, promising that the recurring revenue from its cloud services and streaming software would help to pick up the slack. That trend remained strong this quarter, with revenue from Services growing 24 percent to $6.3 billion over the same period last year. "We had a record-setting growth for Services," CEO Tim Cook said on an earnings call this afternoon. "Music revenue grew by 22 percent thanks to the growing popularity of Apple Music."

Meanwhile, the company's other core segments declined. Mac sales declined 17 percent to $5.7 billion due to a 14 percent decline in unit sales. The iPad, on the other hand, saw unit sales drop 6 percent, but revenue remained stable thanks in part to the more lucrative iPad Pro line.

The latest iteration of the company's flagship device, the iPhone 7, made fewer dramatic changes than Apple typically presents in a new generation of smartphone. This quarter only took into account two weeks of iPhone 7 sales. Looking ahead, Apple's guidance for the quarter ending in December forecasts revenue higher than analyst expectations at between $76 billion and $78 billion. That means the iPhone 7 could be selling better than expected. The company is also unveiling a whole suite of new Mac products on Thursday, which could also be a factor bolstering its forecast. Apple estimates that it could break its all-time quarterly revenue record come December.

Over the last several quarters, China has been by far Apple’s fastest growing market. That changed this quarter as Apple saw a 30 percent year over year decline in sales from the Greater China segment. While China continues to add a healthy slice of Apple’s revenue, it is no longer posting triple digit increases from the year before. Apple says it expects its December quarter performance to significantly improve over this past quarter with regards to China sales.

The Apple Watch has been touted by the company as a multi-billion dollar business, already rivaling many storied watch brands. But so far Apple has not delivered a breakout detailing the number of units sold per quarter. That remained the same this quarter, with Apple Watch revenue lumped into Other Products instead of being broken out as its own category of flagship devices. That segment, which also includes iPod, Apple TV, and Beats, is down 22 percent year over year to $2.4 billion in revenue.


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