The Californian iPhone-maker recently released its first quarter earnings, which showed a decline in revenue - the first time in thirteen years - which ends a historically successful run for the world's most valuable company. The slump which Apple faces reflects the challenges that CEO Tim Cook is up against.
Since Cook took the CEO position from Steve Jobs in 2011, iPhone sales are now dropping, as well as the iPad for more than two years now, and it's still very early days to say whether the Apple Watch has the potential to boost Apple sales. It was Apple's larger-screen smartphones that peaked interest of the iPhone in late 2014, which ignited a surge in sales for the company. Since the release of its follow up models such as the iPhone SE, it's clear that consumer interest has dropped and enthusiasm towards smartphones is turning elsewhere.
This is the first time Apple has been hit with doubt. The company's revenue and profit for the fiscal second quarter ended March 26 and both missed analysts' expectations. Apple also projected that revenue in the current quarter is also expected to fall short of expectations.
For all the concerns circulating about the company's financial situation, Apple still generated high profits in the March quarter, a total that is expected to exceed the combined earnings of other technology giants such as Alphabet Inc., Facebook Inc., and Amazon Inc. However, Apple is aware of its potentially unstable situation.
The iPhone is undeniably the reason why Apple's financial results have dropped. Looking at the figures: Apple reportedly sold 15.19 million iPhones in the first quarter, compared to 61.17 million units in 2015. In Apple's defense, Cook said that iPhone sales have dropped because users of the iPhone 6 don't feel the need to upgrade, because it's that good of a device. Furthermore, Apple says that more Android users made the switch to Apple in the first six months of its fiscal year, starting October, than any previous six-month period.
Due to the success of the Apple iPhone and iPad, Apple's market value has risen to $579 billion. That leaves the company confronted with the challenge of extending or replicating the iPhone's success, similar to Microsoft's operating system and Alphabet Google's search engine. The iPhone accounted for 65 percent of Apple's total revenue in the March quarter; therefore, if iPhone sales don't pick up, the company could be facing a serious decline.
Apple Inc. reported profit of $10.52 billion, or $1.90 a share for the quarter, compared with $13.57 billion, or $2.33 a share in 2015. In short, revenue declined 13 percent to $50.55 billion from $58 billion. Compare this to analyst predictions, such as Thomson Reuters, who expected Apple to post earnings of $2 a share on revenue of $51.97 billion.
Ultimately, smartphone sales are declining globally. Apple's iPad sales fell for the ninth-straight quarter, and Apple Watch sales only generated $6 billion in sales, which barely features on the company's annual revenue of $233 billion. According to the Wall Street Journal, Cook said the lower-than-expected revenue forecast for the current quarter reflects Apple's plan to "reduce inventory by $2 billion, because of the difficult economy, the lower average selling price of the iPhone SE and overly optimistic forecasts for sales of Mac computers during the back-to-school shopping season."
