Apple Q2 Revenue Falls 13% Marking First Sales Decline Since 2003

Apple's Q2 results were below analyst expectations and mark the first time since 2003 that the company's revenue has declined.  

Apple revenue

Apple's string of 13 years of quarterly revenue reports without a decline, dating back to 2003, came to an end April 26 as the company reported second-quarter 2016 revenue of $50.6 billion, 13 percent lower than the $58 billion the company posted one year ago.

Net income was also down in Q2 to $10.5 billion from $13.6 billion a year ago as sales of the company's flagship iPhone smartphones leveled off ending Apple's enviable 13-year record of uninterrupted sales growth.

Apple also missed analysts' revenue estimates as it reported $50.6 billion in sales, below the $51.97 billion average estimate of 34 financial analysts who were surveyed by Thomson Reuters in advance of the earnings report. The company also reported earnings per diluted share of $1.90, which is down from $2.33 per share one year ago. The $1.90 EPS was also below the average estimate of $2.16 EPS reported by analysts.

One year ago, Apple's global revenue continued its then-usual climb in Q2 2015, reaching $58 billion, a 27 percent jump from $45.6 billion in the same period in 2014, while its net profit rose 33 percent to $13.6 billion from $10.2 billion in Q2 2014. Contributing to that success were the sales of 61.2 million iPhones globally, as well as 12.6 million iPads and 4.6 million Mac computers along with about $5 billion in sales from the iTunes Store, the App Store and other Apple services.

In January, the company reported Q1 2016 revenue of $75.9 billion, which was a new Apple record, but its sales of 74.7 million iPhones were flat from the 74.5 million that were sold in the same quarter a year earlier. The company's Q1 net income was $18.4 billion, which set another quarterly record, up from $18 billion in January of 2015. Earnings rose to $3.28 per diluted share, up from $3.06 in the same quarter in January 2015.

But that was when it appeared Apple's iPhone sales would never stop growing.

In Q2 of 2016, Apple reported sales of 51.2 million iPhones, which is down 18 percent from the 61.2 million iPhones sold in the same quarter one year ago. The Q2 2016 iPhone sales fell even more precipitously—by 32 percent—from the 74.78 million that were sold in the first quarter of 2016. Revenue from iPhone sales fell to $32.9 billion in Q2, down 18 percent from $40.3 billion one year ago.

Apple's iPad sales were also down in Q2 to 10.3 million devices, a drop from the 12.6 million units that were sold one year ago. Mac sales were also down to 4 million, from 4.6 million one year ago.

However, Apple executives maintained a stoic public face despite the disappointing numbers.

"Our team executed extremely well in the face of strong macroeconomic headwinds," Tim Cook, the CEO of the company, said in a statement. "We are very happy with the continued strong growth in revenue from Services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices."

Several IT analysts told eWEEK that the disappointing Apple earnings report was a shocker on several fronts.

"This is not going to be pretty," Rob Enderle, principal analyst at Enderle Group, wrote in an email reply to an inquiry. "This is the first quarterly sales drop since 2003 and it will be difficult for folks not to draw a line suggesting is the beginning of a trend. But we don't get a trend from one data point," he added.

"However, we've known for some time that Apple's move back to dependency on one product was risky and that this one product, the iPhone, is the one they have the least control over due to both carriers and regulations that surround them," wrote Enderle.