Many analysts expected iPhone sales to be soft, even as its chief competitor, Samsung, deals with explosive problems with its Galaxy Note 7. But Apple, like its competitors, has long-term problems with smartphone sale growth, which can't be offset by a short-term windfall. For example, revenue in China fell 30 percent from the year-ago quarter.
In a statement, Apple executive Tim Cook tried to focus attention on growth in its services sector, which includes iTunes and the App Store. "“We’re thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our services business, where revenue grew 24 percent to set another all-time record,” Cook said.
The company reported better-than-expected financial results, with a quarterly income of $9 billion — giving it earnings of $1.67 per share, higher than the $1.65 analysts expected for the company's fourth quarter. Yet the firm posted $46.90 billion in revenue, versus projections of $46.94 billion.
On a call with analysts to discuss the earnings, Cook highlighted the interconnectivity of Apple's systems — which, in turn, encourage customers to buy multiple Apple products — and the company's ongoing investment in new technologies such as artificial intelligence and voice-activated software.
But the iPhone still makes up 61 percent of Apple's revenue, and no other Apple products saw any sales growth from the same time last year. Revenue for the iPad unit was flat, while Mac revenue was down 17 percent. Revenue of “other products” — which include the Apple Watch and Apple TV — were down 22 percent.
Some analysts said that investors should not read too much into the slower iPhone sales. “Some reports will focus on Apple having a weak quarter which ignores the fact that it continues to be the most profitable device maker on the planet and there seems little evidence that will end any time soon,” said Ben Wood, Chief of Research at analysis firm CCS Insight, in a note to investors ahead of earnings.
He also noted that Apple had a blowout quarter last year with the introduction of the iPhone 6s, which also accounts for the drop-off in sales as compared to last year. The iPhone 7 was seen as more of an incremental update than many expected, and may therefore not have been quite as appealing to upgrading smartphone buyers. Many may be holding out for next year's iPhone, in which Apple is expected to make significant upgrades to mark its smartphone's 10th anniversary.
Apple did offer strong guidance for the upcoming holiday quarter — which, in its accounting, is the first quarter of the next fiscal year — indicating that it could be having some supply issues that it will resolve, analysts said. On the call, Cook confirmed that there were some supply issues, particularly with the iPhone 7 Plus. Apple is also gaining an extra week this year for its holiday quarter, which should help sales.
The firm is also expected to announce new laptops at a Thursday event, which many customers have been waiting for before making their next purchase.
“This quarter was good, but not great. But expectations are high,” said Patrick Moorhead, analyst at Moor Insights and Strategies, after the report. “I think there will be investors asking 'Where is the innovation?' and 'Where is the growth?'”
Still, Moorehead said, Apple — which continues to increase spending in research and development — shouldn't rush into releasing products that aren't yet ready. “You can't rush a company like this, which is known for products that are fully baked and make people happy,” he said. While companies such as Google are able to release beta products without hurting its brand, Moorehead said that if “Apple were to rush something out, it would be detrimental to their brand and what people expect of them.”