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Apple iPhone Sales Grow at Slowest Rate Ever
Company expects revenue to decline in the current quarter, its first such drop since 2003

By DAISUKE WAKABAYASHI
Updated Jan. 26, 2016 7:25 p.m. ET
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Apple Inc. said iPhone sales grew at the slowest pace since its introduction in 2007 and forecast that revenue in the current quarter will decline for the first time in 13 years, signaling an end to its recent period of hypergrowth.

IPhone sales boomed last year after the introduction of larger-screen models in late 2014, but Apple’s newest iPhones incorporate fewer noticeable changes and haven’t ignited as much enthusiasm among consumers.

Apple also said its results suffered from the effects of the strong dollar and slowing global economic growth. It warned that China, its biggest overseas market, began to exhibit “signs of economic softness” this month.

Apple shares fell about 2% in after-hours trading, suggesting that investors largely had braced for bad news. Apple shares have fallen 16% since the end of October, closing Tuesday at $99.99.

The slowdown in iPhone sales, which account for roughly two-thirds of Apple’s revenue, raises questions about Apple’s growth. Sales of the iPad have been declining for two years, and sales of Mac computers, a recent area of strength, fell in the most recent quarter.

Apple has struggled to launch a highly anticipated streaming TV service. It is working on an electric car, but that project is years away, and its leader is leaving the company.

Kevin Kelly, chief investment officer and managing partner of Recon Capital Partners, said Apple may need to lower prices, and sacrifice profitability, to reignite growth.

“There is going to be a day when Apple needs to compromise its margins or its peak sales,” said Mr. Kelly, who oversees an investment of about 40,000 shares of Apple.

In an interview with The Wall Street Journal, Apple Chief Executive Tim Cook said he remains optimistic, noting that he sees future gains for iPad and continued growth from services such as Apple Music and other projects.

“We don’t live in 90-day quarters, and we don’t invest in 90-day quarters,” said Mr. Cook. “I’m so convinced that the things we are doing are right and the assets we have are enormous.”

The company said it sold 74.77 million iPhones in its fiscal first quarter ended Dec. 26, surpassing sales of 74.5 million units a year earlier. The less-than-1% increase fell short of analysts’ estimates of 76.54 million units in the quarter.

For the current quarter ending March, Apple said it sees revenue of $50 billion to $53 billion, well below estimated revenue of $55.47 billion from analysts polled by Thomson Reuters. At the midpoint of $51.5 billion, that would mark an 11% decline from the same quarter a year earlier, the first decline since March 2003.

Profitability will suffer, too: Apple projected its gross margin, the portion of revenue after production costs, would be between 39% and 39.5%, compared with consensus estimates of 39.97%.

Apple Chief Financial Officer Luca Maestri said the current quarter has the toughest comparisons from the year-earlier period this fiscal year. He also noted that Apple had raised prices in certain markets to offset the strong dollar, which may hurt demand.

To be sure, Apple remains one of the most profitable companies of all time.

For the three months ended Dec. 26, Apple said net income rose 1.9% to $18.36 billion from $18.02 billion in the year-ago period. Earnings per share rose more sharply, to $3.28 from $3.06, reflecting Apple’s active share-buyback program.

Revenue rose 1.7% to $75.87 billion from $74.6 billion in the same period a year earlier. That was the slowest rate of growth since June 2013—just before the introduction of the iPhone 5S—when Apple’s revenue rose 0.9%.

Analysts polled by Thomson Reuters estimated that Apple would post earnings of $3.23 a share on revenue of $76.6 billion.

Excluding the impact of the rising U.S. dollar, Apple said revenue would have risen 8% compared with a year earlier. Two-thirds of Apple’s revenue comes from overseas.

With its shares down and concerns over iPhone sales, Apple on Tuesday sought to change how investors see the company.

For the first time, Apple disclosed that users had “engaged” with more than one billion Apple devices, including iPhones, iPads, Macs and Apple TV, in the past 90 days, by downloading an app, song or movie.


The company said those devices generated 5.5 billion in services revenue in the quarter ended December, up 15% from the same period a year earlier.

Apple hopes to persuade investors that it should garner a premium for its services business as many of its Silicon Valley rivals do. Apple shares trade at about 11 times its trailing earnings, according to S&P Capital IQ, compared with 33 times for Google parent Alphabet Inc. and 97 times for Facebook Inc.

A bright spot for the iPhone has been China, where Apple’s phone serves as a symbol of the country’s newfound prosperity. But China’s rapid growth is cooling.

Apple’s sales to greater China, which includes Hong Kong and Taiwan, rose 14% to18.37 billion, in the December quarter. But that was down from the fiscal year ended in September, when sales to greater China grew 84%.
Apple had its first holiday quarter of sales for Apple Watch, the company’s first all-new hardware product since the iPad in 2010. Apple didn’t provide a breakdown of the Watch’s sales, lumping the product’s sales in with the iPod, Apple TV and Beats accessories in the “other products” category. Sales of that segment rose 62% to $4.35 billion.

Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com