Apple Inc. (Cupertino, Calif.) has announced its first quarterly profit decline in a decade.
The company reported that net income fell 18 percent in its second quarter ending March 30, though revenue rose 11 percent. A few months ago, the company warned that profit could decline as much as 20 percent in the quarter and forecast revenue of $41 billion-$43 billion. (In fact, revenue was $43.6 billion.)
Reportedly most significant to investors, Apple’s gross profit margins fell to 37.5 percent. A year ago, they were 47.4 percent. This is the fourth consecutive quarter of declining gross margins at Apple, the longest stretch of such declines since 1993
Sales of iPhones grew only 3 percent. The company has warned that new products like the iPad Mini have lower profit margins than older items like its full-size iPad sibling. It is also selling more of its older model smartphones, like the iPhone 4, which have lower margins.
Apple is thought to be preparing a new low-cost version of the iPhone, to compete more aggressively with smartphones based on Google’s Android operating system. A cheaper device could hold special appeal in huge, lower-income markets like India and China.
But catering to budget-conscious consumers with lower-price products, though helping sales, could further erode profits.
The next challenge for Apple, according to industry watchers, is developing a breakthrough product in a new category, like television.
“Our teams are hard at work on some amazing new hardware, software and services that we can’t wait to introduce this fall and throughout 2014,” Apple ceo Timothy Cook told analysts in a conference call, dropping a hint about “exciting new product categories” that Apple could enter, suggesting the company is preparing a move into a new market.