What's going on?
Apple reported results on Tuesday after the stock market closed and it said what everyone was expecting: iPhone sales grew at the slowest pace since the product was launched in 2007.
What does this mean?
Investors were expecting iPhone sales growth to slow, which is a major reason why the stock is down 24% since July (iPhone sales make up about two-thirds of Apple’s revenues). In fact, iPhone sales came in even lower than analysts were expecting (by a little bit) and Apple CEO Tim Cook said that the current quarter (which finishes at the end of March) will likely see the first ever year-on-year decline in iPhone sales. Despite all this, the stock was virtually flat immediately following the results announcement – probably because this bad news was largely expected.
Why should I care?
The bigger picture: From hardware to services? Two months ago, Goldman Sachs added Apple to its ‘Conviction Buy’ list on the basis that Apple’s ecosystem of services is quickly expanding (think: Apple Pay, Apple Music, Apple TV). Instead of relying on selling devices (like the iPhone and the iPod before that), Apple would make its money by offering ‘services’ – and the income would be a lot stickier (a.k.a. more easily recurring). For the latest quarter, service revenue was up 15% versus the same period in the previous year – but still only accounts for about 10% of Apple’s total revenue.
For the stock: Apple’s revenues are declining. Its future guidance for revenue, also announced on Tuesday, was lower than investors expected – in fact, it points to year-on-year revenue declining by more than 10% for the current quarter. Optimists point to positives like the fact that a record number of users switched from Android to Apple during the quarter – and that should continue to drive future growth. But, fundamentally, Apple needs to figure out how it is going to replace earnings from iPhone sales.