Apple Sees First Annual Revenue Fall Since '01

Apple posted its third consecutive decline in quarterly revenue and profit Tuesday, as the company searches for a way to offset falling sales of its flagship iPhone.

The results also marked Apple's first decline in annual revenue and profit since 2001.

For the fiscal fourth quarter, ended Sept. 24, Apple said net income fell 19% to $9 billion, or $1.67 a share, from $11.1 billion, or $1.96 a share, in the same period a year earlier. Analysts polled by Thomson Reuters had expected earnings of $1.65 per share.

Revenue fell 9%, to $46.9 billion, mostly ahead of the launch of the iPhone 7, which went on sale a week before the end of the quarter.

Still, Apple remains the most profitable U.S. company, with net income of $45.7 billion for the fiscal year it just ended.

Tim Cook, Apple's chief executive, said improvements in the company's services business and the introduction of its flagship iPhone in particular were improving the company's outlook for the coming quarter.

"The customer response has really been off the charts," he said "We couldn't be more happy with how it's been received."

Apple issued a bullish forecast for the current quarter, which includes both the holiday-shopping season and sales of its new phone. The company said it expects revenue of $76 billion to $78 billion in the quarter, which would be an increase from $75.9 billion in the same period a year earlier. Before Apple's announcement, analysts had been expecting revenue in the current quarter of $74.9 billion, according to FactSet.

Apple also projected gross margin, a closely watched measure of profitability, of 38% to 38.5%, even to slightly up from 38% in the just-completed quarter.

Neil Cybart, an independent analyst who follows Apple, said the revenue projection for the current quarter implies that Apple expects iPhone unit sales to increase more than 5% from a year earlier, when the iPhone 6S was its newest model.

The iPhone accounted for 63% of Apple's revenue in the just-completed fiscal year, but growth in the smartphone market has slowed recently and consumer buying habits are changing. In the fourth quarter, Apple said it sold 45.5 million iPhones, 2.5 million fewer than a year earlier.

The company reported holding $237.6 billion in cash and investments, up from $231.5 billion three months earlier.

Apple is running out of large untapped markets where it could reproduce its breakneck success in China in recent years. Sales in greater China, which includes Hong Kong and Taiwan, declined 30% to $8.8 billion in the most-recent quarter. In the same quarter a year earlier, Apple sales to the region grew 99%.

UBS Securities LLC says 80% to 90% of China's potential high-end smartphone buyers already have a phone.

Mr. Cook hopes India, where iPhone sales grew by more than 50% during the most recent year, will prove to be another giant market.

"We still believe we're just kind of scratching the surface there," he said. Apple includes India in its Asia Pacific region, which reported $2.7 billion in sales, roughly even with a year earlier.

Apple's shares fell 1.5% in after-hours trading following the release. Apple shares are down 0.7% over the past 12 months through Tuesday's close, but have risen more than 20% since its last financial results were reported in July, as expectations rose for sales of the new iPhone and rival Samsung Electronics Co. recalled its Galaxy Note 7 smartphones following reports of battery fires.

Sales of the company's Macintosh computers declined 17% to $5.7 billion. Apple is expected to update the Mac line on Thursday.