iPhone Sales Slump May Affect Apple's Earnings

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Apple is expected to report lower earnings for its second fiscal quarter due to a slowdown in iPhone demand.

Apple will discuss earnings for the second quarter of its 2016 fiscal year later on Tuesday, April 26. Industry analysts don't have high expectations for Apple's latest round of financial results, which are predicted to take a hit due to a slowdown in iPhone demand.

Second-quarter results are historically less robust because Apple generates higher sales during the holiday season. This year's March earnings are expected to hit $52 billion, a decline of 10%, according to analysts surveyed by S&P Global Market Intelligence.

Apple's hottest product, the iPhone, which accounts for two-thirds of revenue per quarter, isn't driving profitability as it has in the past. Barclays analyst Mark Moskowitz anticipates sales of the iPhone will decline over the next couple of fiscal quarters, Bloomberg reported.

[Apple tells developers all Apple Watch apps will have to run natively.]

Moskowitz isn't the only one. KGI Securities analyst Ming-Chi Kuo recently published a research note stating Apple's global iPhone shipments will not meet analyst estimates of 210 to 230 million devices throughout the 2016 fiscal year.

Kuo foresees a worst-case situation would involve Apple selling 190 million iPhones during its fiscal 2016 calendar. This would signify an 18% tumble in growth and decline of 3 million units from the number of iPhones sold by Apple in 2014.

His prediction of a best-case scenario would put iPhone shipments at 205 million units for its second fiscal quarter, which would mark a growth decline of 11.6%. Kuo maintains Apple will be the only top-five mobile phone brand to experience a drop in shipments this year.

Considering that competitors Samsung, Huawei, Oppo, and Vivo are not expected to post declines, Kuo suggests the problem is not with the high-end smartphone industry, but with Apple. He believes iPhone sales are slowing due to greater market competition, the need for a design revamp, and more time needed to commercialize new user experience technologies.

An iPhone slump was predicted in January, when Apple reported $18.4 billion in profit during the first quarter of its 2016 fiscal year. Despite reporting its most profitable quarter to date, the first-quarter earnings call was tinged with an expectation of softer sales on the horizon.

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CFO Luca Maestri anticipated the second financial quarter of 2016 would generate between $50 and $53 billion in revenue, marking a 5% to 10% drop year-over-year in constant currency. "We do think that iPhone units will decline," CEO Tim Cook noted, setting the stage for upcoming financial results.

In the same month, a report surfaced detailing Apple's plans to cut back on iPhone production. Sources familiar with Apple's supply chain told the Wall Street Journal that Apple had been cutting back on order forecasts for component suppliers.

Based on recent product announcements and updates from the Cupertino rumor mill, it seems Apple is trying to change the iPhone form factor. However, it remains to be seen whether its efforts will be enough to turn around its sales slump.

The company recently released its smaller, less expensive iPhone SE, which is intended to appeal to new iPhone owners and people who prefer more compact smartphones. However, we'll likely see more significant changes in the rumored iPhone 7, which Apple is expected to unveil later this year.

New reports indicate Apple and Samsung are partnering to create an OLED display, which would make the newest iPhone thinner and improve picture quality. Other rumors surrounding the next iPhone include an all-glass back, AMOLED technology, a Smart Connector to transfer data and power, and a compact camera.

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