Apple iPhone Dive: First Decline in History

Broken iPhone (Andrew Mager / Flickr / CC)
Andrew Mager / Flickr / CC

Despite record worldwide shipments of 403.1 million smartphones in the last quarter of 2015, Apple’s iPhone suffered its first year-end sales decline in history, according to the world’s leading tech advisory firm.

Apple Inc.’s (NASDAQ: AAPL) sales of iPhones to customers dropped 4.4 percent to 71.5 million from the prior year’s 74.8 million. As a result, Samsung’s market share jumped from 19.9 percent in 2014 to 20.7 percent in 2015, while Apple’s share plunged from 20.4 percent to 17.4 percent, according to Gartner, Inc. (NYSE: IT).

Gartner’s numbers are far below the 74.77 million sales of iPhones that Apple, Inc. reported for the three months ending December 26. But Apple employs the controversial accounting policy of reporting shipments into dealer hands as “sales for accounting purposes.”

In the tech business this is sometimes referred to as “channel stuffing” and can seriously distort the true picture of customer demand. If iPhones go unsold on dealer shelves, they can be returned to Apple for a refund or serve as “stranded inventory” that clogs up reorders by dealers.

If Gartner is correct, Apple’s suffered almost a 15 percent loss of market share compared to 2014, and sales of iPhones to customers dropped for the first time–in the typically booming last three months of a year.

Breitbart News reported in July that “Wall Street’s Love Affair with Apple May Be Over.” With the stock trading within pennies of the all-time-record price of $132.54, it was clear that the “upgrade cycle for the newly released iPhone 6 and iPhone 6 Plus was only about 20 percent, almost a third lower than previous cycles after two quarters.” We added, “It would appear that the Apple iOS ecosystem is being challenge.”

With 80 percent of Wall Street analysts calling the stock a buy, and an average target price of $165, such talk by Breitbart at the time was considered tech blasphemy. But the stock closed on Feb. 18 at $96.26, down 27 percent since Breitbart’s warning.

Michael Blair at Seeking Alpha estimates that Apple added 2 million iPhones to “channel inventory” from July through September, and another 3.3 million iPhones to channel inventory during the holiday quarter from October through December. He believes the current iPhone “channel inventory” is about 21.8 million, up from 16.45 million in July.

Apple has stated on conference calls that that its “plan” is to sell 4 million iPhones per week and carry five to seven weeks of inventory. But a 5.3 million increase in channel inventory indicates Apple has a significant shortfall in customer sales. That would more than justify Gartner’s call that iPhone customer sales and market share are shriveling.

Channel stuffing has led to numerous corporate scandals in the tech world. The biggest recently was the shake-up at Toshiba Corporation, where legendary CEO Atsutoshi Nishida, and his successors Norio Sasaki and Hisao Tanaka, are alleged to have pushed division heads to achieve unrealistic sales and earnings targets, according to Reuters.

To keep their jobs, Toshiba division leaders employed an array of questionable accounting tactics for at least seven years, according to an investigation by Japan’s Securities Exchange and Surveillance Commission. Toshiba is expected to soon admit it used channel stuffing as a tool for accounting fraud and erase years of profits by restating them as earnings losses.


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