Tim Cook. Apple’s CEO made it official. Growth has ended. Revenue and profits for Apple are going down, and not just down from the recent record holiday quarter, but down year-over-year. Apple’s own projections and stock market guidance say that next quarter will be less than the same quarter last year. What happened?
Song, Meet Dance
It’s not math but it seems to be a financial axiom of sorts. What goes up, must come down. Apple has been riding a giant up for a decade or so thanks to the iPhone, the iPad, the iPod and iTunes, and, of course, the Mac, and now it’s time for that growth to come, well, down.
As with every quarterly financial results, Apple’s Tim Cook patted himself on the back ad nauseam thanks to record revenue, record iPhone sales, and record profits (not much less in one quarter than Google and Microsoft will earn all year). Numbers were lavished upon those listening to the analysts call.
74.8-million iPhones. 34,000 iPhones an hour, 24 hours a day, for 13 weeks. No company has ever had that kind of success and profits like the $18.4-billion Cook announced. Whew. There was almost enough good news to make you forget that both iPad and Mac sales went down. The iPad has been doing that for a couple of years while the Mac has not.
After the good news Cook launched into a song and dance unlike anything Apple watchers and stock analysts have seen from Apple in years. Many years. Cook talked about economic turmoil, currency exchange problems, China’s slowing growth, and all the issues that led up to what Apple has not done in many years.
Cook forecast falling revenue and profits, year over year, for the next quarter.
Interspersed with new of economic and currency issues throughout the world, Cook peppered his time with Apple positives; iPad Pro, Apple TV, Apple Watch, OS X El Capitan, Apple Pay, Apple Music, Apple Stores, a melody that combined current successes, albeit without numbers of any sort, with the horizon ahead; a future filled with turmoil, weakening currencies, competition, and a general malaise in markets once robust and growing.
Tim Cook put the handwriting on the wall but covered it up somewhat with a litany of what Apple is doing right and how the company will come out of the coming economic downturn stronger and better than ever.
Apple’s gifted CFO, Luca Maestri, echoed Cooks medley of facts and future with more numbers highlighting the positive aspects of AAPL, Apple, and the company’s recent and future performance, but heavily laced with a growing list of economic problems elsewhere around the world, problems that will make it a challenge for Apple to return to growth any time soon, all while pointing out how loyal Apple’s customers were, how large the installed base has become (over one billion active customers), and the value that poses during tumultuous financial times to come. Both Cook and Maestri spent an inordinate amount of time tell analysts about the company’s operations, initiatives (deals with IBM and Cisco, for example), all in an effort to cover up the obvious.
Apple has peaked.
What’s next? AAPL armageddon? No. Apple’s top executives laid out a compelling storyline of success, problems encountered, and opportunities on the horizon. The company has enough money to buy France and Spain and a powerful Asian country to be named later (South Korea). 1-billion highly satisfied customers is a huge number, made even more so because of the loyalty factor.
Clearly, though, Apple has peaked and the next peak may be years away. Consider this. Apple would not announce numbers sold for Apple TV and Apple Watch for a reason. They’re accessory items, not full-fledged massive revenue and profit generating product lines the likes of Mac, iPhone, iPad.
Let’s say that Apple launched Apple Car this year, a self-driving vehicle with a blistering array of communication technology the likes of which even Tesla’s engineers only dream. And, let’s say that by the end of 2016 Apple has managed to sell 100,000 such vehicles at $75,000 each (not many manufacturers at that price range sell that many vehicles). That’s total revenue of a mere $7.5-billion, or about what a full year of Apple Watch may bring in (according to those who guesstimate such things).
That’s a massive new business, yes, but it’s not the heady growth and profitability of Apple from yesteryear. Apple has peaked. It’s not the end of the world, but it means the future will be a different beast.