By Jason Snell

Picking apart Apple’s Q2 2016 numbers

So that’s what a bad quarterly result looks like for Apple.

Here are a few ways in which it was not bad:

It was a bad quarter in which Apple made $10.5 billion in profit. That makes it Apple’s 10th most profitable quarter of all time—it’s just that Apple’s five previous financial quarters were all better. If you ignored Apple’s staggering calendar-year 2015, in which it made $54 billion in profit, it was actually pretty great. The last time Apple made less money in a quarter was only a year and a half ago. Seasonally speaking, it’s Apple’s third most profitable second quarter of all time. Unfortunately, 2015 was more profitable, as was 2012.

It was a bad quarter in which Apple generated $50.6 billion in revenue, a number that’s been eclipsed in the second quarter only once before… again, last year.

Apple sold 51.2 million iPhones, a number that would have been record setting as recently as early last year. It’s the most iPhones Apple has ever sold in a quarter—other than three of the previous five quarters.

Apple’s Services revenue line increased 20 percent over the year-ago quarter, showing the power of Apple’s installed base of a billion devices to generate money for the company outside of hardware sales.

Bolstered by Apple Music, Apple’s music business reached “an inflection point” after several quarters of shrinking, and the company suggested that they expect music revenue to resume growth in forthcoming quarters.

Apple Watch sales “met expectations,” Cook said, while scrupulously avoiding any actual sales figures. He did suggest, however, that Apple believes the Apple Watch will be a seasonal product in the vein of the iPod, with a lot of holiday sales.

Revenue in Japan was up 18 percent versus the year-ago quarter!

Apple entered the quarter with $233 billion in cash and only $72 billion in long-term debt.

Okay, so there’s the silver lining. Now let’s look at the dark cloud:

Growth is the most important metric to Wall Street, and Apple didn’t grow this quarter. Revenue was down $7.5 billion versus the year-ago quarter. It’s the first time Apple has gone down in revenue versus a year-ago quarter since… well, my spreadsheet only goes back to 2006. I’m going to guess it was roughly around the time the iPod came out. A long time.

All of Apple’s product lines shrunk year-over-year. The iPad’s been down in the dumps for a while now, but Mac sales have been down for two consecutive quarters, this quarter by nearly 12 percent. And the iPhone’s growth, which stalled last quarter, went into reverse for the first time ever, with sales down 16 percent over last year’s second quarter.

I almost put this under “not bad,” but I can’t bring myself to do it. iPad sales only fell 19 percent over the year-ago quarter, perhaps giving some sign that while it hasn’t necessarily reached rock bottom, it perhaps can see the bottom from where it is now. During his phone call with analysts Tuesday, Apple CEO Tim Cook suggested that “in the June quarter we expect to see our best iPad revenue compare in over two years,” which is worth analyzing despite the horrifying use of compare as a noun. (Is “comparison” too highfalutin?) Cook also said, “We expect seasonal sequential declines in… iPad sales.” Hmm. In the third quarter of 2014, iPad revenue only declined 8 percent, the best it’s done in ages. So I suspect Cook is really saying that iPad revenue will be down by single digits for the first time in two years. That’s still not quite hitting bottom, but it beats the yawning abyss.

Next quarter’s not going to be better. Apple is predicting revenue between $41 billion and $43 billion, which will be another decrease from the $50 billion in sales during the third fiscal quarter of 2015. That’s not surprising given the fact that the third quarter has been 17 percent smaller than the second quarter, on average, over the past three years.

Citing the current economic environment, Apple’s reducing inventory—iPhones in particular—worth about $2 billion. I assume this will mean making fewer high-end iPhones and possibly doing more promotional pricing in order to sell what they’ve got. As a result, Apple suggests that the average selling price of the iPhone will drop next quarter, thanks to the inventory reduction and the introduction of the iPhone SE, which is the cheapest iPhone on the market.

So in other words, if you like profits and strong sales, Apple has that. They’re not what they were last year—and that’s not a great sign for Wall Street. But don’t let someone tell you that Apple’s in trouble, or that it lost money, or that iPhone sales are cratering, because none of that is true. What is true is that after many years of growth, some of it staggeringly inflationary growth, Apple didn’t grow this quarter. If you’re an investor, that may be quite painful. If you’re a user of Apple’s products, it probably won’t affect you much at all.

One final little silver lining: If you pretend 2015 didn’t happen at all, this quarterly result looks entirely boring. During the call with analysts, Apple executives pointed out that the iPhone 6S upgrade cycle is actually a little bit better than the one for the iPhone 5S. The iPhone 6, however, was a spectacularly huge upgrade cycle. Perhaps Apple finally embracing a larger phone drove a massive amount of sales all at once? Regardless, if I delete 2015 from my spreadsheets and look at the numbers, nothing crashes to earth—it just shows the continued cooling off of the iPhone’s previously rapid growth.

Which is not to excuse this quarter—2015 happened, the iPhone 6 happened—but to recall that it’s going to be very difficult, all year, for Apple to compare its 2016 business to 2015. The silver lining is that, come 2017, Apple won’t be comparing its business to 2015—but to this year. And at that point, 2015 may be seen more as a remarkable aberration than a portent of future explosive growth to come.

If you appreciate articles like this one, support us by becoming a Six Colors subscriber. Subscribers get access to an exclusive podcast, members-only stories, and a special community.