Apple’s 13 year mobile device growth spurt comes to an end

Device giant Apple delivered its first annual revenue decline for 13 years thanks to slowing sales across all its hardware categories.

The iPhone typically accounts for around two thirds of total Apple revenue and Q1 2016 shipments of 51 million were 16% lower than the 61 million shipped in Q1 2015, but a lot higher than the number guessed by one over-eager analyst firm last week. Consequently total Apple revenues for the quarter were $50.6 billion, down 13% year-on-year. Despite Apple publicly guiding that revenue would be in the $50-$53 billion range its shares took a beating, down 7% at time of writing.

Tim Cook, Apple CEO, attempted to put a positive spin on things. “Our team executed extremely well in the face of strong macroeconomic headwinds,” he said. “We are very happy with the continued strong growth in revenue from Services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices.”

By segment revenue was down for iPhones, iPad and Macs. Services, which include the app store, iTunes, music streaming, Apple Pay, etc, were up 20% to nearly $6 billion, overtaking Macs to become Apple’s second largest product group. Other Products, which includes iPods and Apple Watch, was up 30% year-on-year. Geographically China seems to be the biggest drag on the numbers, with revenues there down 26% year-on-year.

In the subsequent analyst call Cook broke down some current trends in iPhone sales. He insisted sales from existing users upgrading remain strong, but indicated the ‘s’ sales cycle – i.e. 5s, 6s, which tend to be more incremental refreshes – suffers in comparison with the sales cycle when iPhones go up a number. The inference of cyclical weakness does have some substance in the numbers, as Apple only shipped 44 million iPhones in Q1 2014.

The second source of iPhone sales is Android switchers and here Cook himself switched parameters to the last two quarters, saying Apple added more switchers in the last six months than any previous six month period. Apple gained a percentage point of global smartphone market share from Android in 2015 so there’s nothing very new there.

The last source detailed by Cook was new entrants to the smartphone market. He claimed global smartphone penetration of the handset market is still only at 42% and that Apple is claiming a decent chunk of new entrants, citing an annual increase of 56% in India as evidence. Cook will also be hoping the cheaper iPhone SE, which didn’t start selling until Q2, accelerates this trend, although that will be at the cost of lower ASPs and margins.

Moving as quickly as possible onto the Services segment Cook pointed out what a great earner having such a large installed base of Apple mobile devices is, with all the key metrics up substantially. Of course it also follows that if the installed base starts to shrink, so will Services revenues. Cook also mentioned that sales of the Apple Watch in its first year on the market were greater than the first year of the iPhone. That’s a great achievement but nobody thinks that trend will continue and there is some concern they’re already slowing significantly.

Apple has reported revenue growth every quarter for the past 13 years. This more or less coincides with the launch of the iPod, which effectively morphed into the iPhone and iPad over time. For thirteen years Apple has dominated the mobile device markets it has participated in and, in terms of profitability, continues to do so. The end of that great run is symbolic of a mature devices market and puts increased pressure on Apple to pull a rabbit out of the hat later this year.