'Smartphone fatigue' has eventually caught up with Apple's iPhone

Apple reports record profit but fears first revenue drop in 13 years

Despite achieving record profits in the last quarter of 2015, Apple expects to see the first revenue drop in more than a decade in early 2016 due to slowing iPhone sales.

The technology giant reported a profit of $18.4bn (£12.8bn) for the quarter ending on 26 December. In this period, Apple sold 74.8 million iPhones, over 16 million iPads and about 5.3 million Macs.

However, iPhone sales, which have been driving Apple’s growth for years, have increased by only 0.4 per cent compared to the 46 per cent growth rate in the same quarter last year. The current growth, the slowest in history, indicates that not even Apple is immune to what analysts refer to as smartphone fatigue.

"Our record sales and strong margins drove all-time records for net income and EPS (earnings per share) in spite of a very difficult macro-economic environment,” said Luca Maestri, Apple's finance officer.

"We generated operating cash flow of $27.5bn during the quarter, and returned over $9bn to investors through share repurchases and dividends. We have now completed $153bn of our $200bn capital-return programme."

Apple has not reported exact numbers for Apple Watch but the analysts said the product doesn’t seem to be positioned to replace iPhone as a major sales driver.

For the first quarter of 2016, Apple expects the revenue will drop for the first time in 13 years to somewhere between $50bn and $53bn (£35bn-£37bn), down from $58bn (£40bn) in the same quarter last year.

The slowing iPhone sales are largely influenced by the situation in China, which has been driving up iPhone sales for years. Apple is also facing growing competition from Chinese smartphone makers.

"Most companies would do cartwheels with those kind of numbers but it's Apple, so anything that's not astronomical growth is looked at with some fear and trepidation,” said Ernest Doku, technology expert at uSwitch.com.

"Overall it's a great performance but shows consumer handset fatigue has set in across the board. In a space where there is so little to excite consumers, we're seeing even the biggest manufacturers feeling that pinch."

According to Warwick Business School professor Aleksi Aaltonen, Apple is now at risk of trying to appease investors, which could compromise the firm’s ability to innovate in future.

"Some investors are starting to punish Apple for not being able to do the impossible. The longer the company keeps breaking its iPhone records, the more likely the following quarter shows that the product has finally peaked,” Aaltonen said. “The company could easily start focusing bit by bit on efficiency and shave off costs here and there to keep investors happy for quarters to come. Given the remarkably steady pattern of results for the last five years or so, let’s hope this is not already happening.”

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