The tech firm made the gloomy prediction after reporting the slowest ever sales growth for the iPhone for the final three months of last year.
It sold 74.8 million in the quarter – a record, but only slightly higher than the 74.5 million sold the same time the previous year.
But Apple said it expects to see the first ever decline in iPhone sales in the current quarter, compared to the three months of blockbuster sales at the start of 2015.
“We do think that iPhone units will decline in the quarter,” Apple chief executive Tim Cook said.
The announcement was followed by a 4% decline in its share price when markets opened on Wednesday.
It comes after years of rocketing growth for the market-leading iPhone, which drives two-thirds of Apple’s revenue.
The slowdown is largely in line with expectations that sales of iPhones had peaked and Apple needs to find a new source of growth.
But Mr Cook said the firm still planned to keep investing in smartphones.
“There are still a lot of people in the world who will buy smartphones and we ought to be able to win over our fair share of those,” he said.
Despite the iPhone faltering, Apple still managed to post the largest single quarter profit in US corporate history.
Its net profits last quarter were $18.4bn (£12.8bn), up 2% on the same period in 2014.