Apple disappointed last night and the stock price cratered. After hours the price fell 7% from $104 to $97
The key take away is that iphone sales fell for the first time.
One of the key themes of apple bears has been over the years that without Steve Jobs apple would not come up with any news mega hit products. With jobs apple created a string of such wonders in a way no other company in history has managed to do.
These magical product were the driver of the Apple legend but at sometime the magic would end.
Incredibly the magic of Jobs didn’t crumble quickly. The ‘Jobs DNA backed into Apple’ mantra seemed to be real as most company quickly implode without charismatic leadership.
Yet as the years have passed the only potential new magic product was the Apple Watch, a dud that sound a third of the analyst predicted sales of $18 billion.
Selling $6 billion of watches is a huge success in watch making terms and a huge success in terms of any product launch, but it is not enough to project the Apple dream of a trillion dollar market cap.
Sales were down 13% on the equivalent period in 2015. That’s bad of course, but the core problem is the key iphone product sales is down even more at 16%.
In a sense the percentage is less relevant than the direction.
As the mega hits products go into decline what is to stop Apple doing the same.
A revision of Apple to the mean, is what the naysayers have been predicting and in a way so has the market by undervaluing Apple with a p/e of around 10.
So the question becomes what now?
For me the key thing is the apple ecosystems. The key App store, iTunes and iCloud are platforms with massive hidden value and business inertia. Even if apple hardware was to become ho-hum, these platforms are a bulwark against competitors who have been unable to match App Store and iTunes and haven’t seemed able to threaten their position yet.
However if the iphone is going to wane, its hard to see where that might end up. How the company manages this normalization is impossible to guess.
With Apple so massively analyzed, the market should give a good steer and the trend that develops in the coming months should give an indication of how such a regression will pan out. Apple could do a Blackberry or could turn into a Samsung. It is still only one new mega hit product away from stopping the rot.
None of these outcomes is impossible and with nearly half of the companies market cap planned to be returned to shareholders in the next two years it’s a tricky job to judge whether to hold of fold.
The chart doesn’t look so non-commital.
The fall in sales of the iPhone seems to have been predicted in the recent performance of the stock price. This is what efficient market hypothesis would say should happen. Untill Apple breaks out of this down trend it looks very bearish for the company.
Apple’s new phone this autumn will need to be something special this autumn. If any company can pull that off its Apple and with its famous secrecy, that might not be already in the price.