After setting iPhone record, Apple forecasts rare sales drop

SAN FRANCISCO (AP) — Apple is bracing for its first sales decline in 13 years, despite selling a record 74.8 million iPhones in the final three months of 2015.

The giant tech company says revenue could fall at least 8.6 percent during the January-March quarter, compared with a year earlier. Analysts say the latest iPhone models are selling reasonably well, but they're not providing the boost Apple needs to match the massive sales growth it enjoyed last year.

The company inched past its previous record, established when it sold 74.5 million iPhones in the holiday quarter of 2014. But Tuesday's forecast implies Apple doesn't expect to match the 61 million iPhones sold in last year's January-March quarter.

Apple's stock has been in a slump for months, as investors worry that the company won't be able to duplicate last year's growth in sales, which were in the double-digit percentages. In an interview, Chief Financial Officer Luca Maestri said a strong dollar helped reduce revenue, as sales made with foreign currencies abroad convert into fewer dollars. He also said the company isn't concerned about what he characterized as a short-term slowing of growth, because it has a large base of customers who can be relied on to buy new devices and pay for other services.

"We think we're in the strongest position we've ever been," Maestri told The Associated Press, adding that the company estimates 1 billion Apple devices — including iPhones, iPads, Apple Watches and Mac computers — are now in active use.

The iPhone, however, is Apple's biggest-selling product, contributing nearly two-thirds of its revenue and a similar share of profit. Despite the introduction of new models, analysts say global demand for new smartphones isn't growing as fast as it has in recent years. Apple is also confronting an economic downturn in China, one of its biggest markets.

The giant tech company is in no financial danger. It earned $18.4 billion in profit for the October-December quarter, up 1.8 percent from a year earlier. It had $75.9 billion in revenue, an increase of 1.7 percent. Earnings amounted to $3.28 a share, which beat the $3.23 average forecast among analysts surveyed by FactSet. Revenue fell short of analysts' estimates, which averaged $76.7 billion.

No one expects Apple to match those results in the current, January-March quarter, as sales traditionally drop after the holiday shopping season and the introduction of new models. But Apple's forecast, which calls for revenue between $50 billion and $53 billion in the current period, means the company will likely fall short of the $58 billion it had a year earlier.

That would be Apple's first year-over-year sales decline since the January-March quarter of 2003 — long before the company began selling iPhones and iPads. Back then, Apple was a fraction of its current size, reporting quarterly revenue of just $1.45 billion.

While the iPhone has been a phenomenal success, analysts say it's difficult to match the sales surge that Apple enjoyed last year, after it introduced the first iPhone models with significantly larger screens to compete with big-screen phones from rivals like Samsung, which were hugely popular in Asia.

Analysts say last September's release of two more big-screen phones, the iPhone 6S and 6S Plus, made less of a splash because they were viewed as relatively similar to the previous models, despite some new features. Analysts say the slight increase in sales for the December quarter came in part because Apple began selling the newest models several days earlier in key markets such as China.

Apple is expected to release the next iPhone models, with new features, later this year. That could fuel another surge in sales. Along with first-time buyers and people who switch from competitors' phones, analysts say Apple can count on a loyal base of iPhone owners who will buy a new model every two years or so.

Skeptics, however, note that Apple hasn't come up with a blockbuster product to replace the iPhone. The company's latest report showed sales of Mac computers and iPads both declined in the previous quarter.

Apple has introduced new gadgets like a larger iPad for business users and the Apple Watch, along with new online services like Apple Pay, Apple Music and other apps. In a report this week, analyst Colin Gillis of BGC Financial warned that "the big issue for Apple" is whether the company can garner significant amounts of revenue from those new products.

Tuesday's announcement was not a surprise to customers outside the Apple store in Palo Alto.

"I think they've topped out and everyone's got an I-phone," said Todd Waibel of Palo Alto.

"A lot of people did expect them to announce it was going to be a tough quarter but I think people may have been surprised by how much they expected it to decline," said Bob O'Donnell of Technalysis Research.

O'Donnell said saturation in the smartphone market could be to blame. He said most people already have smartphones and may be less compelled to upgrade after Apple developed bigger screens on the I-Phone 6.

"What this represents is a new era for Apple," said O'Donnell. "We are entering an era where the expected growth that's always been there and can't be counted on."

"I think what Apple is getting into is a more stable growth cycle," said Tim Bajarin of Creative Services.

Bajrin has been covering Apple since 1981. Bajarin said other things to bear in mind are world economic conditions and currency fluctuations in China and Europe that have impacted profits.

"If currencies were natural and normal they would have shown an $8 billion in profits this quarter," said Bajarin.

Apple's financial report sent shares down slightly in after-hours trading. Waibel's family has stock in Apple and still plans to invest in the company despite the risk of I-phone sales slowing down.

"Whether or not their stock drops, in my opinion sometimes bad news makes the stock go up," said Waibel.