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Apple Q2 Results Reveal First-ever Drop in iPhone Sales

Alex Spencer

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Apple has reported revenues of $50.6bn (£34.6bn) for Q2 2016, down 13 per cent year-on-year – its first drop in revenues since Q2 2003. Profits followed suit, down 23 per cent year-on-year to $10.5bn.

These declines were driven by the first-ever drop in iPhone sales, with units down 16 per cent to 51.2m.

I think that the smartphone market is currently not growing,” said Apple CEO Tim Cook on the company's earnings call. “However, my view of that is that's an overhang of the macroeconomic environment in many different places in the world. And we're very optimistic that this too shall pass and that the market, and particularly us, will grow again.”

With iPad sales also dropping 19 per cent, only two areas of Apple's business saw growth in the quarter. The first was 'other products', which includes the Apple Watch as well as Apple TV, iPod and Beats headphones. Revenues for this segment rose 30 per cent to $2.2bn, though as Apple doesn't break this figure down – and still hasn't shared any official sales figures for the Watch – it's unclear how much each product contributed.

The other grower was 'services', which grew 20 per cent and overtook iPad and Mac to become the company's second biggest revenue stream, bringing in $6bn. This category includes the App Store, Apple Music and Apple Pay, and Cook shared new figures for each of these services on the call.

App Store revenues were up 35 per cent quarter-on-quarter, a new record; Apple Music now has more than 13m paying subscribers; and Apple Pay adds 1m new users each week.

If smartphone sales have reached saturation – temporarily or otherwise – this could be a vital area for Apple going forward.

“The Services business is powered by our huge installed base of active devices, which crossed 1bn units earlier this year,” said Cook. “Those 1bn-plus active devices are a source of recurring revenue that is growing independent of the unit shipments we report every three months.”