Soft China market to hit Apple as iPhone sales set to drop for first time

As expected, Apple announced that it had sold fewer iPhones in the first quarter as it registered record revenue and net profit. The company also admitted that it has started to feel the effects of the economic softness in its critical Chinese market as it warned that iPhone sales are set to fall.

The tech giant's Chief Financial Officer Luca Maestri said: "As we move into the March quarter, it's becoming more apparent that there are some signs of economic softness. We are starting to see something that we have not seen before."

He admitted the company was operating in "a very difficult macroeconomic environment" and warned that iPhone units will decline in the second quarter. The company was not projecting figures beyond those months, he said.

Apple is projecting revenue in the second quarter to be between $50b (£34bn, €46bn), which is below the $58bn it reported in the same period a year ago. This effectively means, the company is set to see sales fall for the first time in 13 years.

Apple announced that it had sold 74.8m iPhones in the first quarter ending 26 December, 2015. This is the first full quarter of sales of the iPhone 6S and 6S Plus. The 0.4% growth in shipments was the lowest since the product was launched in 2007.

The company's Chief Executive Officer said in a conference call with analysts that iPhone sales are expected to fall in the current quarter over a year ago. Apple's iPhone shipments in the first quarter fell short of market expectations of 75.5m, according to research house FactSetStreetAccount.

Maestri admitted that although revenue in Greater China rose by 14% in the quarter, the company is starting to see a shift in the economy, particularly in Hong Kong. There have been fears that Apple's sales in China, one of its top two markets, would be hit amid a broad economic slowdown led by China.

iPhone shipment during the critical holiday shopping period, recorded the smallest rise since the second fiscal quarter of 2013 when they rose 6.8%, according to data company Statista. Maestri blamed the lacklustre revenue to foreign exchange headwinds caused by the strong US dollar. The forex factor sliced about $5bn off the company's revenue, Maestri said.

Apple's guidance for the March quarter implies iPhone sales of 45 to 50 million units, which would mark the first-ever decline in sales of the gadget, noted Daniel Ives, analyst at FBR Capital Markets & Co.

Apple set records for both its net profit and revenue in the first quarter. Net profit hit $18.36n, up from $18.02bn while revenue grew by 1.7% to $75.87bn.

Greater China accounted for 24.2% of the total revenue, more than all of Europe combined. Revenue from the region nearly doubled in the fourth quarter.

Apple reported earnings of $3.28 per share, which beat the average analyst estimate of $3.23 per share, according to Thomson Reuters.