iPhone worries dominate Apple's stellar earnings report

Apple posted a record-breaking quarter yet again, but all analysts can focus on are iPhone sales.

iPhone sales slow Apple earnings report quarterly earnings

Apple's iPhone 6s

Credit: Martyn Williams

Apple this week both wowed and distressed investors with its Q4 2015 earnings report. For the quarter ending December 31, Apple posted revenue of $75.9 billion and a quarterly profit of $18.4 billion, a figure which represents the most profitable quarter in corporate history.

"Our team delivered Apple’s biggest quarter ever, thanks to the world’s most innovative products and all-time record sales of iPhone, Apple Watch and Apple TV," Apple CEO Tim Cook said in a press release. "The growth of our Services business accelerated during the quarter to produce record results, and our installed base recently crossed a major milestone of one billion active devices."

Per usual, the iPhone remained Apple's primary revenue driver for the quarter, with the company selling 74.7 million units for the quarter, just barely missing estimates of 75 million. Year-over-year, iPhone sales barely increased, while revenue increased just 1%.

But what really has investors worried is that iPhone sales during the company's March quarter are going to decline year-over-year for the first time in history. As a result, some believe that we may soon be approaching "peak iPhone." 

Looking to assure investors, Tim Cook explained that the year-over-year decline is the result of abnormally high iPhone sales during the company's March 2015 quarter.

We see that Q2 is the toughest compare. We believe it's the toughest compare because the year-ago quarter also had catchup in it from Q1; if you recall, we were heavily supply-constrained throughout the whole of Q1, and so some of that demand moved into Q2. Plus, we're in an environment now that is dramatically different from a macroeconomic point of view than last Q2: from a currency point of view, from the level at which we've had to adjust pricing in several of these markets, and sort of the overall malaise in virtually every country in the world. It's really all of those factors that play in there, and it's difficult to sort out how much is due to which one.

Some other theories have suggested that the iPhone 6s simply wasn't attractive enough of a device to convince users to upgrade en masse. While the iPhone 6s is objectively a great device, there may be something to the fact that 'S' refresh cycles simply aren't as alluring as numbered upgrades.

Speaking to Reuters, J.J. Kinahan of TD Ameritrade added:

It's disappointing to see them miss on an already downward adjusted sales number and the fact is that with their iPhone growth slowing, what was needed was a product to be excited about. Pressure on the shares will continue without a well-defined plan to grow sales or a new product.

That being the case, it's far too soon to declare that the iPhone has already peaked. For starters, the iPhone 7 will likely be a juggernaut. What's more, Tim Cook noted during Apple's earnings conference call that the number of Android-to-iPhone switchers hit an all-time high last quarter.

Not surprisingly, Wall Street didn't react too positively to Apple's report that iPhone sales would drop next quarter. The stock is currently trading at $93 levels, a level it hasn't seen since August of 2014.

As for other products, Apple sold 16.1 million iPads and 5.3 million Macs for the quarter.

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