Apple Is Still Great, But Clearly Not Infallible
Whether or not Apple (AAPL) did well or did poorly last quarter is largely a matter of perspective. Its earnings rolled in higher than anticipated, but revenue fell short of analysts' estimates. Perhaps more important, sales of iPhones and iPads came up short of estimates, sending the stock down roughly 6% on Wednesday.
On the flipside, with shares down nearly 30% from their peak price hit in the middle of last year, it's possible all of this disappointing news was already priced into AAPL shares.
The numbers: Last quarter, Apple earned $3.28 per share on sales of $75.9 billion. Analysts were only calling for a profit of $3.23 per share, but revenue of $76.61 billion. Overall revenue was up approximately 2% on a year-over-year basis, although it would have been up 8% had it not been for the oddly strong U.S. dollar. Also, per-share earnings were up compared to the same quarter from a year earlier.
All the same, Apple missed sales estimates for its all-important iPhone and its semi-important iPad. The pros were calling for sales of 75.5 million iPhones, vs. the actual number of 74.8 million. As for the iPad, Apple sold 16.1 million of them, vs. an estimate of 17.9 million. Indeed, Apple said the current quarter would drive less revenue than the same quarter from the previous year did… The first year-over-year sales drop in over a decade. The bulk of that weakness should stem from the tepid iPhone sales.
The numbers underscore concern that started to surface earlier in the month that Apple may have finally reached its maximum capacity for iPhone sales in any given quarter.
The market is mixed on what to make of it. Most agree that the iPhone 7 will either confirm or deny the brewing suspicions. Realistically speaking, though, even the next iteration of the iPhone doesn't solve the bigger problem, which is the fact that Apple is running out of new plausible customers, and the upgrade cycle is slowing because each new version of the iPhone takes a slightly smaller leap forward than the previous one did.
In a more philosophical sense, the point of saturation was inevitable, and a slowdown ultimately reflects the fact that competition has had time to catch up with Apple, and the fact that the company has it introduced a new kind of product in years. All of its "new" products of late have been revamps or reworks of existing products. The introduction of a cable television choice announced early last year could have been something of a game-changer, but Apple didn't actually launch such a service last year as originally suggested.
It may all be a sign that Apple has lost its Steve Jobs flair. If that's the case — and if Apple doesn't fix it soon — that could make AAPL just another tech stock.
Don't think for a minute it can't happen, despite Apple's celebrity-like status. Nokia and Dell used to be "the" names in cell phones and computers, respectively. Few ever imagined either could lose their edge. Both did. Ditto for Yahoo! (YHOO).
Maybe we should take off Apple the pedestal… if only for precautionary reasons.