Apple is still producing record profits. So why isn't Wall Street happy?

For more than a decade, Apple has posted quarter after quarter of spectacular financial results, dazzling Wall Street and pushing Apple's stock to record highs. But that all changed on Tuesday, as the company reported that revenues for its most recent quarter — running from October to December of 2015 — were up just 2 percent from a year earlier. Profits also grew by just 2 percent. Sales of iPhones increased slightly, while sales of iPads and Macs were down.

Many on Wall Street and in the media were disappointed by the results. Apple's stock price fell about 2 percent in after-hours trading on Tuesday, and the stock is down by 12 percent over the past three months — a bigger decline than the broader stock market. Yet it's important to remember that Apple's latest financial results are a disappointment only compared with the incredibly high bar set by the company's recent growth.

That growth was fueled by the iPhone, which accounts for two-thirds of Apple's revenue. To continue that growth, Apple would need to create another massive, iPhone-caliber hit. None of Apple's more recent products, such as the iPad and the Apple Watch, have fit the bill.

But it was never reasonable to expect Apple to replicate the iPhone's success. And so we shouldn't be surprised that after a decade of rapid growth, Apple's revenue and profits are leveling off.

The iPhone is a truly massive hit

Photo by Andrew Burton/Getty Images

To get a sense for the magnitude of the iPhone's success, it's helpful to look back at Apple's financial picture nine years ago. In January 2007, the same month Steve Jobs unveiled the iPhone, the company reported that it had sold 1.6 million Macs and 21 million iPods between October and December 2006, generating $2.4 billion and $3.4 billion in revenue, respectively. That was considered a big success and an impressive turnaround for a company that was close to bankruptcy when Jobs took over in 1997.

Today, of course, those figures look puny. Between October and December 2015, Apple sold 74 million iPhones, generating $51 billion in revenues — about 15 times as much revenue as the iPod generated in its heyday. In addition, Apple sold 16 million iPads and 5 million Macs, for another $14 billion in revenue.

For any other company, a product like the iPad would be considered a big success. But the rest of Apple's product portfolio has been totally overshadowed by the iPhone, which generates twice as much revenue as all of Apple's other products and services put together.

What we learned on Tuesday was that the era of rapidly increasing iPhone sales may have come to an end. The number of iPhones sold last quarter was up less than 1 percent from a year earlier. But it's still one of the most successful and lucrative products in the world — and is likely to remain so for years.

Apple's slowdown is a global phenomenon

A lot of Apple's recent growth has been driven by China. Apple's quarterly revenue from China grew 70 percent between late 2013 and late 2014, compared with just 23 percent in the Americas and 20 percent in Europe.

The Chinese economy entered an economic slump in 2015, so you might have expected that to be a major factor in Apple's slowdown. But surprisingly, China is the only part of the world to see robust growth. Apple's China revenue grew 14 percent over the last year, compared with 4 percent in Europe, a loss of 4 percent in the Americas, and a 12 percent decline in Japan. Apple now gets more revenue from China ($18.3 billion) than it does from Europe ($17.9 billion).

In a conference call following the results, Apple said that weakness in foreign currencies was a significant factor in its weak results. Two-thirds of Apple's business happens overseas, and major currencies — including the Canadian and Australian dollars and the British pound — have been losing value over the past three months. That means that Apple's overseas sales are worth less once they're converted into dollars.

Apple Watch sales are up, but we don't know how much

While Apple's top products all saw stagnant or falling sales, there was one bright spot in Apple's financial results: the catchall category called "other products." Revenues from these products grew 62 percent last quarter compared with a year earlier, from $2.6 billion to 4.3 billion.

The company says that the category includes "Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories." Apple doesn't break down this catchall category into individual products, so we can only guess what is driving the growth.

And the most obvious candidate is the Apple Watch, a new product that — anecdotally, at least — seems to be catching on with consumers. But so far, Apple has been tight-lipped, saying only that it set a new quarterly record for the company.

Apple also says it had the "best quarter ever" for Apple TV sales, but didn't give specific numbers.

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