Apple reports first revenue decline in 13 years

Dive Brief:

Apple reported its first decline in quarterly revenue in 13 years in its Q2 earnings report on Tuesday.
The tech company reported revenue of $50.6 billion in Q2 2016, down from $58 billion in the same quarter a year ago.
Apple reported its first-ever dropoff in iPhone sales since the 2007 debut of the signature mobile device. Apple also reported declines in iPad and Mac sales.

Dive Insight:

Apple's soaring growth over the last 13 years led it to become the world's most valuable company. That growth story was driven by the emergence of connected mobile devices, from smartphones and tablets to music players. Apple played a huge role in commercializing these devices, making them accessible to everyday consumers (not just early adopters), and nurtured the booming mobile application economy, effectively creating a new revenue channel for many retailers.

Now Apple is facing its most serious obstacle in many years: The possibility that demand for its iconic iPhone is slowing down. Apple reported this quarter that fewer users upgraded to the latest edition of the smartphone, and it projects another dropoff next quarter. Rival mobile device makers and chipset manufacturers also have indicated that demand for smartphones is indeed slowing, according to Bloomberg.

A new iPhone model isn't coming for several months. Investors and observers will then have the opportunity to better understand whether the slowdown is a sustained trend in the marketplace, or whether an updated iPhone will spark a surge in demand for its mobile devices. However, reports suggest the new edition of the iPhone won't be a particularly impressive upgrade over the last version, leading at least one leading Apple analyst to forecast significant declines in iPhone sales overall this year.

The smartphone market “is currently not growing,” CEO Tim Cook said on an earnings call with analysts. Cook blamed the lack of growth on "the macroeconomic environment in many places in the world.”

Because of the slowdown in growth, Apple is looking to develop new products and enter new categories, according to Cook. Acquisitions may help Apple accelerate these maneuvers, and it has plenty of cash on hand to make any acquisitions it deems necessary for growth. Bloomberg reports that investors are wondering where Apple will turn to for growth next, with virtual reality devices, self-driving cars, and a live TV service all being mooted.

One area where Apple is looking to gain a foothold is the services business, which, as Fortune points out, would be "a recurring revenue stream, unlike hardware sales." As with PCs, analysts suggest that users will change mobile devices less quickly, making a move into services a natural next step for a company with 1 billion devices out in the world.

While CEO Tim Cook sought to assure investors that this is a momentary speed bump in the Apple growth story, the market was not so sure, sending Apple stock tumbling about 7% in morning trading.