Dive Brief:
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Apples earnings report Tuesday was big business news Wednesday morning as the company reported a record-breaking Q1 with $18.4 billion in profit, beating expectations of $18.2 billion, and $75.9 billion in revenue, which topped last year's numbers but slightly missed analysts’ expectations of $76.54 billion, according to Thomson Reuters.
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But the company also forecast its first revenue drop in 13 years for the upcoming quarter and reported its slowest gain—0.4%— in iPhone sales in its Q1.
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The company sold 74.8 million iPhones in Q1, the first full quarter of sales of the iPhone 6S and 6S Plus. And Q2 iPhone sales would likely fall year over year, CEO Tim Cook said on a conference call with analysts, which would be the first iPhone sales decline ever.
Dive Insight:
A global economic slowdown, especially currency headwinds in Brazil and slowing growth in China for the first time, particularly in Hong Kong, is putting a chink in Apple’s prospects, Cook said. He noted that the Brazilian real is down 40% and that, overall, the currency hit to Apple equals the size of a Fortune 500 company. Earlier the company noted that its 1.7% revenue gain would have been 8% except for fluctuating currencies.
But Cook also said the iPhone has plenty of space to grow, considering that 60% of iPhone users have yet to upgrade to the iPhone 6 or 6S models, and that the company has been surprised by the number of people switching from Android phones.
Apple is under close scrutiny by analysts and investors, with whispers of the end of its era of super-growth hanging over it like a cloud. The iPad seems to have petered out as tablets have failed to catch on with consumers and aren’t replaced as often as mobile phones.
Perhaps above all, the company for the first time in a long time is presenting no new, blockbuster device, with even its iPhone getting only a modest upgrade and its Watch apparently not a big hit (though, as usual, no Watch sales numbers were revealed).
But above all the company appears to be somewhat sidelined by the prospect of slower growth in China. Tim Cook talked up India as a promising area of growth, considering its large population of tech-savvy, mobile first young people.
Apple confirmed last week that it had applied to India’s Department of Industrial Policy and Promotion to open its own stores. Running its own stores in India is only recently possible, considering the government only in November moved to relax the country’s stipulations that companies seeking more than 51% foreign direct investment source 30% of its products within India and that foreign single-brand companies couldn’t establish e-commerce portals. Apple now sells its wares through franchise stores in India.
Before those changes, Apple alone had been negotiating with government officials there to relax the rules, according to reports. Cook himself met with Prime Minister Narendra Modi, and the two reportedly discussed introducing Apple Pay and expanding a manufacturing base there.
All in all, Cook appears to ease concerns that Apple products, especially the iPhone, had reached a point of saturation, telling analysts that while Q2 sales would be down, they would still surpass analyst expectations.