Apple’s (APPL) iPhone 7 and 7 Plus are its flagship smartphones and most important products, accounting for the majority of the tech giant’s revenue. So it makes sense that the slightest drop in sales would set off alarm bells for Apple investors. And that’s exactly what’s happening right now. In fact, the company’s stock slipped 2.8% in after-hours trading.
Apple sold 45.5 million iPhones in Q4 2016, a decline from the 48 million iPhones Apple sold in that quarter last year. In fact, Apple has seen year-over-year declines in iPhone sales for three consecutive quarters.
So what can we make of this? Well, it’s not great news that Apple is selling fewer iPhones versus the same time last year. But it’s not the end of the world, either.
Here’s the thing: Apple typically sells the most iPhones in Q1. And while the last three quarters have been rough year-over-year for the company, we still have to wait to see how Apple’s upcoming Q1 2017 iPhone sales compare to last year’s Q1 2016 numbers.
The first quarter of the year matters a lot to Apple because that’s the first full quarter with its newest iPhone on the market. The iPhone 7 and 7 Plus were only on sale for eight days before the end of Q4 2016, which isn’t much time for people to get to the store to buy new phones.
What’s more, it’s possible that iPhone 6s and 6s Plus sales dropped off in Q4 prior to the launch of the 7 and 7 Plus because consumers who needed new phones were holding out for the latest version. We’d have a better idea of this if Apple released iPhone 7 and 7 Plus first-week sales, but that’s not going to happen.
Sure, Apple had about the same amount of time between the launch of the iPhone 6s and 6s Plus and the end of Q4 2015 and still managed to sell more iPhones during the quarter. But that could be because iPhone 6 and 6 Plus were still relatively desirable phones compared to the 5s, so consumers might have kept buying them rather than waiting for the 6s and 6s Plus.
What’s more, Apple has says that it’s facing supply constraints, which the company claims is hurting its ability to sell new devices. CEO Tim Cook saying that’s especially true for the 7 Plus.
So, while it’s certainly worth taking note of the decrease in iPhone sales year-over-year, the true test will be how well the phones perform in Q1 2017. Not only will Apple have the benefit of a full quarter with its newest devices, but it could also see an additional uptick in sales due to the Samsung’s recent Note7 woes.
In other words, if Apple sees a year-over-year decline next quarter, investors might want to start sounding the alarm bells.
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