Market Insight

Cracks appear in Apple as iPhone shipments decline for first time

April 27, 2016


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Apple announced its quarterly financial results for calendar Q1 2016. The key points include:

  • $50.6bn of revenue; down from  $58bn in Q1 2015
  • Q1 2016 operating margin dropped nearly four percentage points to 27.7%
  • 51.2m iPhones were shipped; down 32% from the previous quarter and down 16% from last year.
  • iPhone average selling price (ASP) dropped by nearly $50 to $642
  • iPad shipments dropped to 10.3m units down 18.8% from last year.
  • Service revenue was flat quarter on quarter and up 20% from last year at just under $6bn. Services made up 12% of Apple’s quarterly revenue.
  • Revenue guidance for Q2 2016 between $41bn and $43bn
 
Our analysis
 

iPhone shipments in Q1 were a solid 51.2m units. This is down 16% from last year, and is the first ever year on year decline in iPhone shipments.  Revenue in Q2 2015 was $49.5bn, so the best case scenario is a drop of 13%. The end of 2014 and early 2015 were times of extraordinary growth for Apple on the back of the iPhone 6 launch so a fall was expected. Despite the overall slowing smartphone market, iPhone shipments remained quite strong.

Apple’s Q2 revenue guidance of between $41bn and $43bn is worrying though and will likely point to iPhone shipments falling again to close to 40m units. The average selling price of the iPhone dropped dramatically in Q1 to $642 from $691 in Q4; a drop of 7%. This is likely primarily the result of currency headwinds, but iPhone ASP is likely to decline further in Q2 with the release of the iPhone SE.

iPhone shipments are likely to pick up again towards the end of the year with the launch of the iPhone 7. As the two year iPhone 6 contracts expire, a very large cohort of users will begin upgrading their devices en masse. Apple has proved adept at retaining customers, but the relatively poor performance of the company overall this year will put the success of the iPhone 7 under even more scrutiny. IHS expects Apple to ship 215m smartphones in calendar 2016; a decline of 7% from 2015. 

 

Geography
USA
Organization
Apple Inc.
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