Apple reports more falling iPhone sales

A customer sets up his new iPhone 7 Plus, right, as he switches from an iPhone 6 at the Apple Store on Michigan Avenue. Photo / AP

Apple reported another quarter of falling iPhone sales Tuesday, underscoring worries that the firm relies too heavily on a flagship product that's running out of steam.

Apple sold 45.5 million iPhones, compared with 48 million in the same period last year, a drop of 5 percent. Shares fell more than 2 percent in after-hours trading.

Many analysts expected iPhone sales to be soft, even with its chief competitor, Samsung, dealing with headline-grabbing problems with its Galaxy Note 7 smartphones. But Apple has long-term problems with growth in smartphone sales that can't be offset by a short-term windfall. For example, revenue in China fell 30 percent from the year-ago quarter.

In a statement, Apple chief executive Tim Cook tried to focus attention on growth in the compnay's services sector, which includes iTunes and the App Store.

"We're thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our Services business, where revenue grew 24 percent to set another all-time record," Cook said.

The company reported better-than-expected financial results, with a quarterly income of $9 billion - giving it earnings of $1.67 a share, higher than the $1.65 analysts expected for the company's fourth quarter. Yet the firm posted $46.90 billion in revenue, vs. projections of $46.94 billion.

On a call with analysts to discuss the earnings, Cook highlighted the interconnectivity of Apple's systems - which, in turn, encourage customers to buy multiple Apple products - and the company's ongoing investment in new technologies such as artificial intelligence and voice-activated software.

But the iPhone still makes up 61 percent of the company's revenue, and no other Apple products saw sales growth from the same time last year. Revenue for the iPad unit was flat, while Mac revenue was down 17 percent. Revenue for "other products" - which include the Apple Watch and Apple TV - was down 22 percent.

Some analysts said that investors shouldn't read too much into the slower iPhone sales.

"Some reports will focus on Apple having a weak quarter which ignores the fact that it continues to be the most profitable device maker on the planet and there seems little evidence that will end any time soon," said Ben Wood, Chief of Research at analysis firm CCS Insight, in a note to investors ahead of earnings.

He also noted that Apple had a blowout quarter last year with the introduction of the iPhone 6s, which also accounts for the drop-off in sales as compared with last year. The iPhone 7 was seen as more of an incremental update than many expected, and therefore might not have been as appealing to smartphone buyers looking to upgrade their devices. Many may be holding out for next year's iPhone model; Apple is expected to make significant upgrades to mark the phone's 10th anniversary.

Apple, however, offered strong guidance for the upcoming holiday quarter - which, in its accounting, is the first quarter of the next fiscal year - indicating that it could be having supply issues that it will resolve, analysts said. On the call, Cook confirmed that there were supply issues, particularly with the iPhone 7 Plus. Apple is also gaining an extra week this year for its holiday quarter, which should help sales.

The firm is also expected during an event Thursday to announce new laptops, which many customers may be waiting to see before making their next Apple purchase.