Apple posts record profits but warns on future sales

27th January 2016


Apple has announced record profits, but warns that iPhone sales are likely to fall in the coming quarter, as the global economic slowdown affects its customers.

Apple revenue in the three months to 26 December was $75.9bn (£53bn) and net profit was $18.4bn (£12.8bn).

Sales of iPhones accounted for 68% of the company’s revenue in the period.It sold 74.8 million iPhones, compared with 74.5 million a year ago.

It forecast next quarter’s revenue would be in the range of $50-$53bn, compared to the $58bn it reported for the same period last year, which would potentially be the first fall in year on year sales since the iPhone was launched in 2007.

Despite the slowing economy, growth in Greater China remained strong with sales up 14%, though CEO Tim cook hinted that conditions had deteriorated in January, particularly in Hong Kong.

The Apple dynasty has also breached another milestone: there are now over 1 billion active Apple devices in the world, and the company is harvesting that user base with services like iTunes, the App Store, and the recently launched Apple Music.

CEO Tim Cook remains ‘very bullish on China’ where he sees the demographics as positive for iPhone sales, likewise India, in both cases because there is a fast-growing middle class and a young population.

Laith Khalaf, senior analyst, Hargreaves Lansdown says: “It’s been another great quarter for Apple despite economic difficulties in some key markets. However the problem with being a constant over-achiever is that when your grades start to slip just a little, people start questioning your calibre.

“The next quarter may therefore be uncomfortable for the tech giant, seeing as it predicts its first decline in sales since the iPhone was launched in 2007.

“The company is facing macro-economic headwinds, particularly in commodity producing countries like Brazil, Russia and Australia. A stronger dollar is also significantly denting revenues and has prompted the company to raise prices in some countries.

“Looking forward, Apple is betting big on China where it sees huge long term growth potential amongst the emerging middle class, despite the country’s current economic woes. The company now has 28 retail outlets in mainland China, and aims to have 40 by the summer.

“While the company may be approaching “peak iPhone” in more developed countries, emerging economies like China and India appear to be markets where Apple can still enjoy considerable expansion.

Khalaf adds: “The company is still heavily reliant on the iPhone, which accounts for around two thirds of the company’s revenues, though it is at pains to diversify with the launch of Apple TV, Apple Pay, and of course the Apple Watch. The tech firm is also enjoying growth in recurring revenues from the services it provides to users like iTunes, the App Store and iCloud, and with one billion Apple devices now in active use, it’s easy to see why.

“Apple is of course a huge company and one quarter of falling sales is not going to derail a company which boasts more than $200 billion of cash on its balance sheet. However the technology sector is home to an elephant’s graveyard of fallen giants who fell behind the pack, from the likes of IBM through to Nokia. Apple will therefore be keen to make sure the coming quarter is a blip rather than the start of something more serious.”



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