24 October 2016
Apple's dependence on the iPhone leaves it vulnerable to any deceleration in demand. Photo: Bloomberg
Apple's dependence on the iPhone leaves it vulnerable to any deceleration in demand. Photo: Bloomberg

Apple forecasts sales drop as smartphone market slows down

Apple Inc. said revenue in the first three months of 2016 will be between US$50 billion and US$53 billion, the first time since 2003 that the company has forecast a sales decline.

The technology giant’s dim outlook is 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, Bloomberg News reported.

Apple remains immensely profitable, generating a record US$18.4 billion in net income on sales of US$75.9 billion in the December quarter. 

But it’s no longer benefiting as much from the rapid adoption of smartphones around the world. 

Such concerns have fueled a 20 percent slide in the stock in the past six months.

Rival Samsung Electronics Co. has also 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, Bloomberg said.

“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.

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, Maestri 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.”

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 US$100 in sales in the fourth quarter of 2014 is today worth only US$85 because of the currency exchange rates, Apple said in a statement.

Apple got a boost last quarter from an earlier release in China of the latest iPhone models — the 6S and 6S Plus — but the trade-off is that sales in the current period may take a hit.

Overall sales in the Greater China region rose 14 percent to US$18.4 billion last quarter, and Cook said the company would continue to invest there despite an economic slowdown.

“We remain very bullish on China,” Cook said. “I don’t subscribe to the doom-and-gloom predictions.”

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