Apple Reversed Its iPhone Slump. But What's Next?
By Michael Liedtke. Updated February 01, 2017.
Apple has snapped out of the first sales slump in the iPhone's decade-long history, although the modest upturn doesn't mean that it has broken out of its innovation funk.
If anything, the numbers Apple released Tuesday highlight the company's growing dependence on the iPhone, whose sales tower above Apple's other current offerings. The company hasn't managed to come up with another breakthrough product since its chief visionary, Steve Jobs, died in 2011.
Meanwhile, Apple's rivals have been rolling out new products in other promising fields such as augmented reality, virtual reality and artificial intelligence. Apple currently trails in those areas, although many analysts believe the company may try to catch up with products featuring those trendy technologies later this year.
No matter what's coming down the pike, the iPhone remains a huge moneymaker. Its success is the main reason Apple boasts a market value of $640 billion -- more than any other company.
The iPhone is also driving the rapid growth of Apple's services division, which makes money from fixing devices, selling music streaming subscriptions and commissions on sales of mobile apps. Apple's services revenue surged 18 percent to $7.2 billion in the past quarter, putting it on pace generate enough annual revenue by itself to rank among the world's largest companies.
iPhones on the Rise Again ... Barely
But selling more iPhones has been getting tougher as more people hold on to older models for longer periods and competitors such as Samsung and Google entice customers with sleek devices running on Android software. The trend led to three consecutive quarters in which iPhone sales fell compared to the prior year, causing Apple's total revenue to sag as well.
Apple bounced back in the quarter ending in December, buoyed by a positive response to the late September release of the iPhone 7 and 7 Plus. That device featured a better camera, which drew rave reviews, and no jack for headphones, which irked some consumers and befuddled others.
Apple shipped 78.3 million iPhones in the latest quarter, a 5 percent increase compared to the previous year. It benefited from a year-end quarter consisting of 14 weeks, one more than the previous year period. If not for the calendar quirk, the iPhone sales slump might not have ended. Apple sold an average of 5.6 million iPhones per week in the latest quarter compare to 5.7 million iPhones per week in the previous year.
The Cupertino, California, company also was helped by a recall of Samsung's Note 7 phones, which were plagued by battery fires. That problem drove some people switch to other models such as the iPhone.
This Year's iPhone
About 17 percent of all iPhones are now 7 models, according to Localytics, which tracks activity on mobile devices. Most of the rest are older iPhone 6 or iPhone 5 models. Apple could have sold more of the iPhone 7 Plus, which boasts a bigger screen and an extra camera, but the company misgauged demand and didn't make enough to meet customer demand, CEO Tim Cook said during a conference call.
IPhone sales could slip yet again. Anticipation is building for the expected release of a 10th anniversary iPhone of some sort this summer or fall. Many smartphone owners could hold off until they get a good look at this year's iPhone, says Daniel Ives, a senior vice president for the mobile research firm Synchronoss Technologies.
"It's like a drum roll while everyone waits for the curtains to roll back to unveil the next iPhone," Ives says. "There is a lot of pent-up demand out there, so this has the potential to be a game changer."
Cook promises there are still many iPhone advances yet to come that will win even more fans.
"The smartphone is still in the early innings of the game," he said. "I think there's lots more to do."
Apple Phone Inc.
The iPad, a tablet that became a smash hit after its 2010 debut, remains mired in a three-year sales slump, further magnifying the iPhone's importance to Apple. The company shipped 13.1 million iPads in the past quarter, a 19 percent drop from the previous year.
"Remember when Apple called itself Apple Computer Inc.?" says BGC Financial analyst Colin Gillis, harking back to the company's identity until 2007. "They may as well call themselves Apple Phone Inc. now."
Propelled by the iPhone, Apple Inc.'s revenue edged up 3 percent to $78.4 billion in the quarter. But its profit dipped 3 percent to $17.9 billion.
It was Apple's biggest quarterly revenue in its 40-year history, but it doesn't erase the question that has nagged Tim Cook since he succeeded Jobs as CEO nearly 5 1/2 years ago: What's next?
Cook touts a smartwatch that Apple introduced as a huge success, but most analysts still view it as more of a novelty.
In interviews, Cook has hinted Apple is exploring opportunities in augmented reality, which casts holograms and other digital images onto the real world around you. Apple also has been buying companies and hiring engineer specializing in artificial intelligence, a niche focused on teaching computers to think and talk more like humans.
Gillis believes Apple already has wasted too much time trying to figure out its next big move.
"When your iPhone juice runs down, you should already be ready to ramp up your next product," he says. "What have we gotten after all the billions that Apple has spent on" research and development?