Apple feels effects of new world economic environment as iPhone sales slow

Bloomberg January 27, 2016 No Comments

Apple feels effects of new world economic environment as iPhone sales slow

GoogleKayvan Shoaye RadkayvanshrHi-Tech Development Group LLCApple feels effects of new world economic environment as iPhone sales slow2016-01-27 11:00:02Author Google+ Page

Apple is forecasting a sales decline for the first time in more than a decade, adding to evidence that the market for smartphones is becoming saturated and that expansion in China is no longer enough to maintain the company’s unprecedented run of growth.

Revenue in the first three months of the year will be $50 billion to $53bn, Apple said on Tuesday, the first quarterly drop since 2003 and below analysts’ estimates for $55.5bn. That follows a holiday quarter in which overall sales and iPhone shipments fell short of projections, reinforcing concerns that Apple is reaching the limits of iPhone growth and that a push in China won’t make up for a slowdown in the rest of the world – a sentiment that’s fuelled a stock slide of 20 per cent in the past six months.

While Apple remains immensely profitable – generating a record $18.4bn in net income on sales of $75.9bn in the December quarter – it’s no longer benefiting as much from the rapid adoption of smartphones around the world. Mobile-phone rival Samsung also recently reported weaker-than-expected results. Apple chief executive Tim Cook has expanded in China and released new services and products such as Apple Watch to help broaden the business, but the company’s dependence on the iPhone leaves it vulnerable to any deceleration in demand.

“They have other products, and have the potential to launch other products, but the hole left from an iPhone slowdown is too big to fill,” said Abhey Lamba, an analyst at Mizuho Securities USA. “Its future is whatever is happening in the smartphone space.”

In addition to the iPhone, Apple’s other product lines are also stalling. iPad purchases continued to decline, falling to 16.1 million tablets during the holiday quarter, compared with a projection of 17.3 million. Mac sales fell to 5.31 million, compared with the 5.8 million estimated. IPhone sales rose to 74.8 million units, compared with the average 75 million predicted by analysts.

Apple shares slipped 2.2 per cent in extended trading following the report. They had gained less than 1 per cent to $99.99 at the close in New York.

Luca Maestri, Apple’s chief financial officer, said the company is feeling the effects of a “very different” economic environment around the world. Apple is beginning to see “softness” in China, particularly in Hong Kong, he said.

“You need to take into account the business opportunities that we have, but also the realities of an economic environment that is not ideal right now,” he said. Brazil, Canada, Japan and Russia also are showing signs of slowing down, he said. “There are a lot of economies around the world that are in recession.”

Apple said it’s also being hurt by the strength of the US dollar against foreign currencies, which is trimming revenue. What would have been $100 in sales in the fourth quarter of 2014 is today worth only $85 because of the shift in currency-exchange rates, Apple said in a statement.

For the first quarter, which ended in December, the Cupertino, California-based company reported per-share net income of $3.28. Analysts on average had projected earnings of $3.23 a share on sales of $76.5 billion, according to data compiled by Bloomberg.

The results step up pressure on the company to pack its next iPhone update with new features that will prompt customers to upgrade. IPhone sales exploded after the release of the larger-screen models in 2014, but the latest versions released in September didn’t include many distinctive changes – and sales plateaued.

“The question is whether there has been a secular slowdown of people buying smartphones, said Kim Forrest, a senior equity analyst at Fort Pitt Capital Group, which has about $1.7 billion under management. “The second question is whether customers are still buying iPhones at the same rate in China.”

Apple has been adding tools such as the Apple Music streaming service and Apple Pay digital payments to augment its business, but the challenge is generating enough revenue from new products to move the needle for a company of Apple’s size. Mizuho’s Lamba said that while Apple makes about $300 for each iPhone sold, it takes about 60,000 transactions via Apple Pay to make $100.

Apple didn’t disclose sales for Apple Watch, which isn’t yet a breakout hit with customers in the way that iPhone or iPad were.

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