SAN FRANCISCO • Intensifying competition and a slump in the global smartphone market hit iPhone sales, causing Apple's annual revenue to decline - by 9 per cent - for the first time since 2001.

Apple's quarterly profit slumped on a widely expected drop in iPhone sales, falling 19 per cent to US$9 billion (S$12.5 billion) in the three months ending Sept 24. Revenue fell 9 per cent to US$46.9 billion from the same period a year earlier.

The results were largely in line with market forecasts and showed sales of the iPhone - Apple's biggest revenue and profit driver - down 5 per cent from a year ago to 45.5 million units.

Chief executive Tim Cook welcomed what he called "our strong September quarter results".

"We're thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our services business, where revenue grew 24 per cent to set another all-time record," he said in a statement.

Apple closed its fiscal year ending Sept 24 with a net profit of US$45.7 billion on revenues of US$215.6 billion, both figures lower than the prior year.

Mr Frank Gillett, a Forrester Research analyst, said the results show Apple is making progress in diversifying its mix of products and services as smartphone sales stagnate.

The more consumers use Apple applications and services, "the less likely they will switch to a rival," he said.

While iPhone sales accounted for more than half of revenues, services revenue grew to US$6.3 billion as the company expanded services such as Apple Pay and its enterprise offerings.

However, investors were also rattled when Apple said it was caught off guard by how many people wanted to buy its biggest smartphone, the iPhone 7 Plus, and the miscalculation may hit profits this holiday season.

The technology leader is not sure it can make as many units of the iPhone 7 Plus as consumers want in time for the Christmas shopping rush, Mr Cook told analysts.

Apple issued a conservative outlook on margins for the holiday quarter, which were about 38 per cent to 38.5 per cent, versus expectations of nearly 39 per cent, said Ms Mariann Montagne, senior investment analyst and portfolio manager at Gradient Investments.

"You're not able to get that product into the hands of the person who wants it right here, right now," said IDC analyst John Jackson.

The company may have underestimated the number of customers it would win from Samsung Electronics, which recently recalled its own large-format phone, the Galaxy Note7, after a number of them caught fire.

Apple chief financial officer Luca Maestri told Reuters it was "impossible to know" the effect of Samsung halting production of the Note7 earlier this month. "We cannot fulfil all the demand that is out there right now," he said.

AGENCE FRANCE-PRESSE, REUTERS