Apple feels the heat; iPhone sales drop for the first time

Apple declared its financial results for the second quarter that ended a month ago, revealing a drop in revenue and quarterly net income for the first time since the iPhone was launched.

The news was somewhat expected after research firm TrendForce claimed that Apple could manage to sell just 42 million iPhones in the quarter compared to 74 million in the previous quarter.

Even though Apple continues to rake in revenue to the tune of billions of dollars, the company managed just $50.6 billion in the last quarter compared to $58 billion in the same quarter a year ago. Similarly, quarterly net income in the last quarter was $10.5 billion compared to $13.6 billion a year ago.

While iPhone 6s and 6s Plus introduced several new features and powerful engines that were not available in iPhone 6 and 6 Plus, what Apple decided not to alter was the form factor of the new iPhones. Both iPhone 6s and 6s Plus look exactly like their predecessors and existing users of iPhone 6 and 6 Plus, which are also pretty capable handsets, were not really swayed by the new iPhones.

At the same time, Samsung introduced probably the most good-looking handsets in history- the Galaxy S7 and Galaxy S7 Edge. Offering brilliant performance and user experience at the same time, the two new phones catapulted Samsung's share in the smartphone market from 21.4 per cent to 27.8 per cent in a single quarter. As per TrendForce, Samsung sold 82 million smartphones in just three months compared to 42 million iPhones sold by Apple.

Apple's poor showing also coincided with the emergence of Chinese smartphone makers like Huawei, Lenovo, Xiaomi and Oppo. These manufacturers are doing to Apple what the Ottoman Turks once did to the invincible Byzantines. In the last quarter alone, the top five Chinese smartphone makers sold 95 million smartphones, more than double the number of iPhones sold by Apple.

In China, the home base of phone makers like Huawei and Xiaomi, Apple suffered 11 per cent drop in sales but at the same time, sales of iPhones rose by 53 per cent in India which is now the third largest smartphone market in the world. However, the number of iPhones sold in India is still not enough to turn around Apple's fortunes on a global scale. Apple is now betting on the cheaper iPhone SE to make further inroads into the Indian phone market which is dominated by low-cost and budget smartphones.

However, the overall picture isn't rosy to be honest. Despite the launch of premium phones like Samsung's Galaxy S7 and S7 Edge, Huawei Mate 8, Xiaomi's Mi 5 and LG G5, overall smartphone sales globally dipped from 400 million in Q4 of 2015 to just 291 million in Q1 of 2016. Apple CEO Tim Cook commented on the overall picture to explain Apple's performance in the last quarter.

“Our team executed extremely well in the face of strong macroeconomic headwinds. We are very happy with the continued strong growth in revenue from Services, thanks to the incredible strength of the Apple ecosystem and our growing base of over one billion active devices,” he said.

Apple has also forecasted its financial performance for the current quarter. The company estimates that it will earn revenue between $41 billion and $43 billion between April and June and maintain a gross margin between 37.5 percent and 38 percent while spending between $6 billion and $6.1 billion in the period.

With Samsung dominating the smartphone market with its latest premium handsets as well as a range of competitive mid-range phones, it will be interesting to see if Apple will be able to bounce back and turn around its disappointing performance in the second quarter.

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