Apple confirmed it had seen what chief Tim Cook described as a “pause in our growth”, with a sharp drop in iPhone sales following a bumper quarter for the company this time last year.

The company reported a profit for the quarter to 26 March 2016 of $10.52 billion, down 22.5 per cent, on revenue of $50.56 billion, down 12.8 per cent. This apparently marked the company’s first revenue decline in 13 years.

Cook said the company had seen “ongoing macroeconomic headwinds in much of the world and difficult year-on-year comparisons”. This included currency weakness in “the vast majority of our international markets”, the executive said.

Sales in the iPhone unit dropped 18 per cent to $32.86 billion, off the back of a 16 per cent drop in unit volumes to 51.19 million. The CEO said that last year it saw an acceleration in iPhone upgrades (leading to a 40 per cent increase in shipments), making this year’s comparison a tough one for the company.

The rate of iPhone 6s upgrades is “slightly higher” than for the iPhone 5s two years ago, but lower than for the iPhone 6, which drove strong growth for Apple. iPhone average selling prices have also dropped, to $642 from $659, due to weak international currencies and “very popular mid-tier and entry offerings” (the even lower cost iPhone SE launched after the end of the quarter).

iPad sales also continued to slide, with a 19 per cent drop in revenue to $4.41 billion, and a 19 per cent drop in volume to 10.25 million units.

Services growth
The positive in the numbers came from the services business, which saw 20 per cent growth to $5.99 billion – it was Apple’s second biggest revenue generator during the period. App Store revenue was up 35 per cent “to beat last quarter’s all-time record”, and Apple Music now has more than 13 million paying subscribers, leading to “an inflection point” following many quarters of decline in music sales from downloads.

Driving services growth, the company said, was its “huge installed base of active devices”, which has passed the 1 billion mark.

The company remained tight-lipped on Apple Watch sales, other than that these “met our expectations in the quarter”. The company noted that it expects Watch sales to be similar to the historic seasonality of iPod, which typically generated 40 per cent of sell-through in the December quarter.

Modest forecast
Apple is forecasting revenue between $41 billion and $43 billion in the coming quarter, again reflecting a year-on-year decline due to the strength of the prior-year period. This is “compounded by the continued weak macro environment this year and the strong US dollar,” Luca Maestri, Apple’s CFO, said.

Also on the sheet is a $2 billion reduction in channel inventory, with the finance head stating that “we have elected to be prudent about our channel inventory position given the current macro environment”.

And the launch of iPhone SE will also have an impact, including how quickly the company can balance supply and demand. This launch will also impact iPhone sales prices, particularly as the iPhone 6s and iPhone 6s Plus age.