It is certainly disappointing for any company executives to be surprised by a sudden decline in revenues. No spin can hide it and setting records in different areas does not erase the fact of Apple missing their own revenue guidance. One can argue that the nearly 40% decline in Apple’s stock price from October high to January low was an appropriate reaction to this disappointing news. At the same time, Apple is certainly not at risk of going out of business and the majority of Apple’s revenue sources have continued to grow in most of the geographic regions. We can take last quarter as a wake-up call for Apple’s executives. We continue to hold Apple shares and we believe that it’s time to focus on the future and evaluate how the company is responding to the challenges ahead. As an investor, I am very happy that Apple has finally forced the analysts to stop obsessing on how many of what kind of iPhones were sold in each quarter, attempting to shift attention to the entire company and the increasing diversification of Apple’s revenue sources. Next, I hope that Apple will be able to move even further away from selling devices – towards expanding the services ecosystem and bringing even non-Apple device users into the ecosystem. Growing services business based only on the existing base of devices and users will likely reach growth limitations and disappoint investors in the future. I believe that the recent CES announcements of iTunes Movies App coming to smart TVs from several manufacturers was a step in the right direction. I see introduction of new services in combination with opening of the ecosystem as necessary for Apple’s long-term success.
While Apple continues to recover from increased competition and challenges of producing evolutionary rather than revolutionary devices and services, the global political and economic risks remain. Apple’s international sales were 62% of revenues and the 27% revenue decline in China was a sharp reminder of the likely effects of trade wars we might have to incorporate in our outlook at least during the current US administration.
Lastly, a little less of a funeral like vibe during the earnings conference call would be nice. After all, Apple did have $84.3 billion in revenues, their second best first quarter ever!
Some of my comments were quoted in a CNET story by Ian Sherr: Apple's iPhones hit a wall. Now we know how bad it is. The company's got a lot of problems to fix and in Politico Morning Money on 1/30/2019.