Apple iPhone sales and revenue finally decline

The company still made a ton of money and sold a ton of phones, just not like last year.

The inevitable has finally happened. After years of continually growing iPhone sales (and corresponding revenue growth), Apple has hit a bump. The company just announced its fiscal Q2 2016 results, and the company sold 51.2 million iPhones, a 16 percent decline from the 61 million it sold one year ago. It's the first time iPhone sales have ever declined year-over-year. Similarly, revenues of $50.6 billion were down 13 percent from the $58 billion it made in Q2 2015. The company warned on its last earnings call that this was likely to happen, but it's still quite notable. Apple has describing its quarterly revenue as "record-breaking" for so long that it's hard to remember the last time it had a down quarter. (The Wall Street Journal says it's been an incredible 13 years.)

On the earnings call, CEO Tim Cook gave some context for the iPhone sale slump. Specifically, he said that while iPhone 6S upgrades were outpacing those when the iPhone 5S launched, it hasn't been able to match the "accelerated" upgrade cycle the company saw when it launched the iPhone 6 in 2014. He said the two other main sources of iPhone buyers come from switchers from other smartphones like Android as well as first-time buyers. In both of those regards, Cook says the business is healthy. The last six months have seen more switchers from other smartphones than at any other six-month period. And emerging markets are helping drive first-time buyers; for example, iPhone sales in India grew 56 percent this quarter.

As for Apple's other main product lineups, iPad sales continued to slump: the company sold 10.3 million iPads in the quarter, down 19 percent from the 12.6 million it sold a year ago. Mac sales were also down, with 4.03 computers sold -- that's a 12 percent decline from the 4.6 million Macs sold in Q2 of 2015. This led to an overall drop in profits, which came in at $10.5 billion on the quarter, a 23 percent drop compared to a year ago. Of course, it's worth noting that the new 9.7-inch iPad Pro and iPhone SE both launched at the very end of this quarter, so we'll have to wait three more months to see what effect they have on Apple's business.

Just as Tim Cook predicted last quarter, however, Apple's services business continues to thrive. The services category made $6 billion in revenue, up from $5 billion a year ago. In fact, that makes the services unit bigger in terms of revenue than both the Mac and iPad. As a reminder, services encompasses things like the App Store, iTunes Store, Apple Pay, iCloud and so forth. Cook noted on the investor call that App Store revenue increased 35 percent year-over-year and Apple Music subscribers now exceed 13 million.

Similarly, the "other products" category that includes the Apple Watch, Apple TV, Beats headphones and a number of other hardware products is also growing. Revenues for the quarter hit $2.2 billion, up 29 percent year-over-year. We still don't know how many Apple Watches the company has sold, but it seems like the category is doing well enough to continue growing. Cook did note that he expects the Apple Watch sales cycle to be similar to that of the iPod, which historically had 40 percent of its yearly sales in the holiday quarter.