Dive Brief:

• Apple's iPhone-dependent quarterly profit dropped 27% in its fiscal third quarter to $7.80 billion from $10.68 billion a year ago, as sales of the iconic device continue to lag due to saturation in the smartphone market and slowing sales in China, the company said Tuesday.

• Apple posted fiscal Q3 revenue of $42.36 billion, down from $49.60 billion in the year-ago quarter for a 14.6% decline. iPhone sales fell Apple plummeted to 40.4 million units from 47.5 million units a year earlier, their second consecutive quarterly drop and the first prolonged dip in iPhone sales since the smartphone’s 2007 debut, according to the Wall Street Journal. Apple is slated to unveil the newest edition of the iPhone in September.

• Speaking to analysts on Apple's earnings call Tuesday evening, CEO Tim Cook confirmed the company will open retail stores in India after receiving the go-ahead from Indian officials earlier this month.

Dive Insight:

Once-invincible Apple is in a rut, but its fiscal Q3 2016 results nevertheless beat analyst expectations for worse: Apple was expected to sell 40 million iPhones during the June quarter, according to a FactSet analysts poll cited by the Wall Street Journal. Shares rose more than 6% late Tuesday, according to the Journal.

Challenges in China—whose once-red hot economy has cooled—present Apple with significant problems. Sales to Greater China including Hong Kong and Taiwan fell 33% to $8.85 billion, compared to an 112% rise in the same quarter last year. Taking out currency effects, China sales fell 2%.

North America accounts for a third of iPhone sales, but China accounts for another third, according to Wired magazine. The strong dollar and economic headwinds in many parts of the world, including outside China, are major factors in the sales decline, but so is the Phone's premium price: Smartphones running Google's Android mobile operating system have drastically caught up in quality, and are far cheaper. While Apple famously has never discounted its merchandise, except for educational sales and refurbished products, new retail strategies may be in order. 

The company was helped last quarter by the release of its smaller iPhone SE, which is the size of the iPhone 5 boosted with many of the capabilities of the larger-screen iPhones 6.

“Our initial sales data tells us that the iPhone SE is popular in both developed and emerging markets, and the percentage of iPhone SE sales going to customers who are new to iPhone is greater than we've seen in the first weeks of availability for other iPhones launched in the last several years,” Cook said Tuesday in a conference call with analysts. “Overall, we added millions of first-time smartphone buyers in the June quarter, and switchers accounted for the highest percentage of quarterly iPhone sales we've ever measured. In absolute terms, our year-to-date iPhone sales to switchers are the greatest we've seen in any nine-month period, and our active installed base of iPhones is up strong double-digits year over year.”

Despite the chill in China, Cook expressed confidence in that market. "We opened our 41st Greater China retail store during the quarter, and we also made a $1 billion investment in [ride-sharing service] Didi Chuxing.… By far, the largest portion of our global channel inventory reduction was in Greater China, so our underlying business there is stronger than our results imply.”

Cook also confirmed expectations that Apple will open its own stores in India, a country that holds much potential thanks to its growing middle class and a young, mobile-first consumer base. "India is now one of our fastest growing markets. In the first three quarters of this fiscal year, iPhone sales in India were up 51% year-on-year," Cook said Tuesday, according to CNet. "We're looking forward to opening retail stores in India down the road and we see huge potential for that vibrant country." He did not divulge the number of stores under consideration or a timeframe for their development. 

India's Prime Minister Narendra Modi formally cleared the way for Apple to open retail stores in the country last week. Modi’s cabinet approved a three-year exemption allowing foreign single-brand retailers with "cutting-edge technology" to temporarily bypass a requirement to source 30% of goods in their stores from Indian manufacturers.

Smartphone sales in India are poised to increase more than 25% this year alone, according to Reuters. Apple products like iPhones and iPads are currently sold in India through third-party retailers, such as Tata Group and Reliance Industries. But a move to construct full-fledged Apple stores could further increase sales and potentially eclipse cheaper, more popular competitors.