Apple reports iPhone sales down, 1st revenue drop since 2003

Apple sold more than 51.2 million iPhones in the first three months of 2016 - while racking up $10.5 billion in quarterly profit. That was more than many analysts expected, but still fewer than the 61 million iPhones sold a year earlier.

The company is battling perceptions that its latest iPhones aren’t dramatically different from previous models, as overall smartphone sales are slowing around the world. Apple also sells iPads, Mac computers and other gadgets, but nearly two-thirds of its $50.6 billion in quarterly revenue came from iPhones.

Revenue was down 13 percent from the January-March quarter of 2015. And the company surprised analysts by forecasting another revenue drop of 13 percent or more in the current quarter.

Despite the decline, Chief Financial Officer Luca Maestri said in an interview, “we continue to believe the iPhone business is very strong.” But he added that Apple is expanding its other businesses. The January-March quarter includes $6 billion in revenue from online services, apps and other software, which was up 20 percent from a year earlier, but just 10 percent of overall revenue.

Many were hoping the Apple Watch would be the company’s next big hit when it went on sale one year ago. Apple hasn’t revealed sales figures for the watch, but most analysts estimate the company has sold 12 million or more, producing well over $5 billion in revenue. That’s more than twice the number of iPhones sold in the first year after the company introduced its signature smartphone in 2007.

But even as some owners say they’re delighted with the Apple Watch, others have voiced disappointment that it doesn’t do more. And critics say it hasn’t ignited consumer passions, in the way the iPhone became a “must-have” product.

“They need to come out with that next great product,” Angelo Zino, a financial analyst with S&P Global Market Intelligence, said in an interview before Apple released its earnings report Thursday. While he’s optimistic about the company’s future, Zino added, “Apple absolutely needs to start diversifying their revenue base.”