Apple Experiences First Drop In Annual Revenue since 2001: A Spotlight on Services and the iPhone 7’s Potential Turn-Around

Apple Inc. recently released its latest quarterly earnings, marking the tech giant’s first drop in annual revenue since 2001. However, the overall earnings were above expectations, offering a silver lining to the slightly tarnished Apple. This positive outlook is primarily rooted in the potential boom in iPhone 7 sales expected in the upcoming holiday season, especially given Samsung, Apple’s leading competitor, will not be releasing a new product.

The earnings report indicated Apple recorded a yield of $1.67 per share, edging out the projected earnings of $1.66 per share. Despite this slight win, Apple’s revenues were marginally short of predictions, standing at $46.90 billion against the anticipated $46.94 billion. In response to the report, Apple shares dipped by approximately 2 percent.

As for Apple’s champion product, the iPhone, the sales report indicated that 45.5 million units were sold over the quarter, marginally beating the expected sales forecast of 44.8 million units. Intriguingly, despite the slightly higher-than-expected sales, overall iPhone shipments fell by 5 percent.

Looking ahead, Apple holds an optimistic vision for the next quarter, boosted by anticipated robust sales of the iPhone 7. Apple CEO Tim Cook expressed confidence in the product, stating, “We couldn’t be more excited about the customer response to the iPhone 7 and the iPhone 7 Plus.”

Apple’s projected revenue stands at $76b-$78b, exceeding the previous estimate of $74.9b at $3.21 per share. The strong trust in iPhone 7’s market performance is magnified by the highly favorable reviews and media praise the product has garnered. Moreover, the enhanced appeal of Apple’s products is underscored by the successful rollout of iOS 10, Apple’s latest operating system.

The software update received remarkable reviews and managed to ramp up the interest in Apple devices. However, a key contributing factor to Apple’s comfortable sales projection is the temporary bow out of the Samsung Galaxy Note 7, a device dubbed by many as the best Android phone ever. The abrupt cease in production after safety concerns may possibly tip the market scales in favor of Apple.

But it’s not only the iPhone contributing to Apple’s hopes for the future. The tech conglomerate also has its eye on services. Apple’s range of services, including the App Store, Apple Care, Apple Pay, Apple Music, and the iCloud, has been gaining steady momentum amongst consumers and investors alike.

This quarter, Apple reported revenue from services at $6.33b, representing a 25% year-over-year increase with services revenue crossing the $6b mark for the first time. In a statement, Tim Cook projected the potential for Apple’s services business to expand to the size of a Fortune 100 company by fiscal 2017.

Lastly, in terms of finances, Apple now has $75.4B in long-term debt, around one-third of its cash reserves, and 91% of Apple’s cash is overseas. Regardless of the debt, Apple maintains a vast reserve of over $240b.

So while the fall in revenue may have initially raised eyebrows, the projected sales of the iPhone 7 combined with consistent growth in services suggest Apple might just have another trick up its sleeve.