Apple yesterday (26 January) announced financial results for its fiscal 2016 first quarter ended 26 December, 2015. iPhone sales fell for the first time since the product was introduced to the market in 2007. The company's earnings were stronger than expected, although revenue fell below expectations, despite achieving a new quarterly record. Apple also reported an increase in margin. 

Financial Highlights

– The Company posted record quarterly revenue of USD$75.9bn (£52.9bn) and record quarterly net income of USD$18.4bn (£12.8bn), or USD$3.28 (£2.29) per diluted share.

– These results compare to revenue of USD$74.6bn (£52bn) and net income of USD$18bn (£12.6bn), or $3.06 (£2.13) per diluted share, in the year-ago quarter.

– Gross margin was 40.1%, compared to 39.9% in the year-ago quarter.

– International sales accounted for 66% of the quarter’s revenue.

“Our team delivered Apple’s biggest quarter ever, thanks to the world’s most innovative products and all-time record sales of iPhone, Apple Watch and Apple TV”, said Tim Cook, Apple’s CEO. “The growth of our Services business accelerated during the quarter to produce record results, and our installed base recently crossed a major milestone of one billion active devices.”

The Apple Watch and Apple TV have diversified Apple's business and opened up new revenue streams in terms of hardware sales, advertising and content distribution. Last week, ExchangeWire reported strong growth from content streaming competitor Netflix. Growth in Netflix's business will fuel growth of the major streamers – Roku, Apple TV, Chromecast, Amazon Fire, and Android TV. CNET offers a comprehensive guide to the pros and cons of each.

The interesting question is whether Netflix et al. will introduce an ad-funded content model alongside their paid-for services. If they do, there could be lucrative data deals on the horizon for the streamers that have the ability to bring to the party online behavioural data in order to (hopefully) increase the relevancy of such advertising. This will likely rely on a cross-device ID or login.

“Our record sales and strong margins drove all-time records for net income and EPS, in spite of a very difficult macroeconomic environment”, said Luca Maestri, Apple’s CFO. “We generated operating cash flow of USD$27.5bn (£19.2bn) during the quarter, and returned over USD$9bn (£6.3bn) to investors through share repurchases and dividends. We have now completed USD$153bn (£106.7bn) of our USD$200bn (£139.5bn) capital return program.”

The company also reported that it sold 74.8 million iPhones in the quarter, below expectations of about 75.46 million, according to StreetAccount.

Mac and iPad sales also came in below expectations. iPad sales missed the mark by almost two million, with 16.1 million units sold in the quarter, compared to an expected 17.93 million. Macs recorded 5.3 million, compared to estimates of 5.8 million.

It is not surprising that tablet sales are falling, larger smartphone screens and better access to online content via smart TVs and streaming devices has significantly reduced the need for an 'in between' product.

The company "remains incredibly strong" despite the many challenges across the world, Cook said, revealing that the company saw a record number of switchers from Android to iPhone in the quarter.

The rivalry between Apple's closed iOS ecosystem and the open source Android keeps the smartphone market competitive.

Shares in the company have fallen nearly 20% in the last six months.

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