Call it the case of "peak iPhone."
Apple (AAPL) today said it sold a record 74.8 million units of its flagship iPhone during the last three months of 2015. Sounds impressive. But that's below the 76.54 million unit estimate from analysts polled by Fortune magazine and marks the slowest pace of growth since the device was introduced in 2007. To top it off, Apple said revenue in the current quarter will come in lighter than had been expected, marking the first year-over-year quarterly sales decline since 2003.
Concerns about Apple's growth have sent its shares tumbling in recent months, pushing the stock below the $100 mark (it closed at $99.99 in regular Monday trading). It's not only facing increasing competition from upstarts like Chinese smartphone maker Xiaomi, but also a glutted marketplace. Most consumers who want an iPhone already own one. Since it remains Apple's most profitable product, a sales slowdown may spell trouble ahead.
"We know that conditions in China have been a source of concern for many investors," said Chief Executive Tim Cook on a conference call to discuss the results. "We began to see softness in greater China earlier this month, mostly in Hong Kong."
Newer products and services, like the Apple Watch and Apple Music, haven't come anywhere near the meteoric rise of the iPhone. Yet Cook and Chief Financial Officer Luca Maestri devoted much of the post-earnings release conference call to discussing Apple's recurring revenue from services such as the App Store and iCloud. Revenue from its services business grew 15 percent in the quarter, while purchases from current Apple customers amounted to almost $9 billion, an increase of 24 percent.
While the executives may be trying to convince investors that there's more to the Apple story than smartphones, they also noted that the world is in a "weakening" macroeconomic environment, which has implications for all of its lines of business. The strengthening dollar is helping crimp Apple's results, turning every $100 of Apple's non-U.S. dollar revenue into the equivalent of $85 U.S. dollars today.
But there's just no escaping the iPhone's importance for Apple. The device represented about two-thirds of Apple's $234 billion in revenue last year, compared with 50 percent only three years ago. That reliance explains why investors are so attuned to any minute changes in the iPhone's fortunes.
For the quarter ended Dec. 26, Apple reported per-share earnings of $3.28, which were above the consensus forecast of $3.23 per share. Revenue, though, was $75.9 billion, falling short of Wall Street's expectations of $76.6 billion.
But more important is the company's forecast for the current quarter. Apple said it expects revenue of between $50 billion to $53 billion, below analysts' forecasts for $55.6 billion.
China's economic slowdown has created questions about its impact on Apple, given that the company has seen strong growth there in past quarters. Fears were intensified when Japan's Nikkei Asian Review said Apple would cut production of some iPhone models by 30 percent in the current quarter.
Despite the concerns about slowing growth in China, Cook said he's a believer in the country, given its rapidly growing middle class. "Our expansion plans in China have not changed," he said. "We are not retrenching."
The recent decline in Apple's stock indicated that investors were preparing themselves for a let-down in the company's March forecast. Wall Street had been expecting the company to ship 58.5 million units during the current period. As of 5 p.m. Eastern, Apple shares were trading down 0.5 percent, or 53 cents, to $98.46. Not long after the conference call ended, the aftermarket price slumped by 2.3 percent, or $2.34, to $97.65.