AAPL Apple Inc

By Tripp Mickle 

Marking a rare stumble, Apple Inc. on Friday revealed it missed its own annual sales and profit goals for the first time since 2009, putting a dent in Chief Executive Tim Cook's annual paycheck and pressuring the company to deliver a blockbuster with its next iPhone.

Apple fell short of its own projections in part because it mistakenly assumed consumers' appetite for the iPhone 6S, introduced in 2015, would outpace demand for the predecessor device. The Apple Watch, introduced in 2015, and services including Apple Music, iTunes and the App Store haven't been able to offset the iPhone's decline.

Sales volume of the iPhone fell in fiscal 2016 for the first time since the device was introduced in 2007, and Apple posted its first annual revenue decline in 15 years.

A sharp slowdown in China sales in particular cut into total revenue.

The slump took a 15% bite out of Mr. Cook's total annual compensation, which Apple said Friday declined for the first time since he assumed leadership of the company in 2011. His compensation is partly tied to Apple's financial performance.

Apple now is pinning hopes on the iPhone 7, which came out in September, and forthcoming versions, including an expected 10th-anniversary iPhone in the fall. Mr. Cook said in October that demand for the iPhone 7 and the bigger 7 Plus, which feature enhanced cameras and longer battery life, have outpaced supply. Apple won't reveal quarterly sales for those phones until Jan. 31.

The 212 million iPhones Apple sold last fiscal year contributed 63% of the company's revenue.

Since introducing the Apple Watch in 2015, analysts estimate Apple sold more of them in the watch's first year than iPhones sold in the smartphone's first year. Apple doesn't break out sales figures for the Apple Watch in its quarterly report.

Apple followed with the launch last year of wireless headphones called AirPods priced at $159. The product went on sale nearly two months later than expected, and analysts expected Apple to produce 10 million to 15 million units initially. By comparison, Apple shipped 75 million phones in the final three months of fiscal 2015.

Under Mr. Cook, Apple has more than quadrupled research and development spending; it spent more than $10 billion on R&D last year. But it has failed to release a runaway hit like the iPod music player, iPhone and iPad tablet, which together transformed Apple into the world's most profitable company.

Analysts expect Apple to benefit from the introduction of the 10th-anniversary iPhone in the fall. Cowen & Co. analyst Timothy Arcuri expects the phone to include wireless charging and come in three different sizes, making it "arguably the most revolutionary and different looking phone in years," he said.

But most sales of those phones won't come in Apple's 2017 fiscal year, which ends in September.

Apple's downturn last year came amid a lull of iPhone sales in China, where it faced rising competition from lower-priced smartphones sold by local rivals such as Huawei Technologies Co., Xiaomi Corp. and Oppo Electronics Corp. Revenue in Greater China, which includes Hong Kong and Taiwan, fell 17% in the fiscal year, compared with growth of 84% the prior year.

Despite recent struggles, Apple under Mr. Cook is still by far the world's most valuable company, with a market capitalization over $600 billion. And it remains the most profitable U.S. company, with net income of $45.7 billion in fiscal 2016. Its biggest phone rival, Samsung Electronics Co., is struggling after a series of battery fires and overheating incidents plagued its flagship smartphone line.

On Friday, Apple said in a regulatory filing that annual sales of $215.6 billion were 3.7% below target, and its operating income of $60 billion came up 0.5% short for the fiscal year ended Sept. 24.

Mr. Cook's total 2016 compensation dropped to $8.75 million for the year, down 15% from $10.3 million in the year earlier. The decline was tied to his cash bonus, which hinged on exceeding revenue and profit targets set by the board. His base salary rose 50% to $3 million.

Mr. Cook's total compensation doesn't reflect the mega-stock grant he received in 2011 when he took over as CEO, an award valued at the time at about $376 million.

Apple's five-most senior executives also saw their total compensation fall for fiscal 2016, according to Friday's filing, each declining around 9% to about $22.8 million from $25 million in the prior year. Their 2016 compensation included $2.8 million in salary and $20 million in restricted stock. Apple discloses quarterly guidance to investors and analysts, and met those goals in each period last fiscal year, but it doesn't reveal an annual target.

Mr. Cook's annual compensation is lower than that of other Apple executives, but the number is somewhat misleading because of the big restricted stock grant he received in 2011. Last August, 1.26 million shares vested and were valued at about $135 million.

Mr. Cook has an additional 3.5 million shares that haven't vested and are worth about $413 million based on Friday's stock price. About 560,000 shares will vest each year between now and 2021, and the 700,000 remaining shares will vest in 2021.

Shares of Apple closed Friday at $117.91 a share, up $1.30.

--Austen Hufford contributed to this article.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

January 06, 2017 19:22 ET (00:22 GMT)

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