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CEO Tim Cook announced record revenues and record profits for the most recent quarter, but you could hardly tell that from the resulting hand wringing by market analysts. Pundits wailed warnings of a market sea change. The sky is falling, Apple has hit a wall. The iPhone era is over.
Nonsense.
While it’s true that some market analysts were disappointed that Apple didn’t post year over year double-digit growth, the fact is that Apple is doing just fine. However, there are some analysts who apparently aren’t paying attention to the realities of the economy or the realities of the technology business who have developed some insane expectations that are causing ructions in the stock market and shaking investor confidence in Apple’s prospects.
Let’s start with a little perspective, which is something missing from market analysts in this case. A year and a half ago, Apple introduced the iPhone 6 and 6 Plus. These models had larger screens than the previous 4-inch screens of the iPhone 5, and in the process tapped into some significant pent-up demand among people who might have been iPhone buyers, except they didn’t like the tiny screen.
With the larger screen, millions of buyers who had been putting off buying an iPhone, suddenly bought one. This resulted in the hottest market Apple has ever seen for its phones. Sales exploded. Tens of millions of people who had been using other phones were now iPhone customers, including me. I finally gave up my tried and true BlackBerry and joined the ranks of iPhone owners.
A year later, Apple introduced the iPhone 6s and 6s Plus. In my review of these models after they came out, I noted that while there were many differences, they weren’t necessarily obvious to most customers. In fact, the differences were so much below the surface that Apple had to describe the differences on its Website.
To a geek like me, the new features in the iPhone 6s and 6s Plus were worth having, but most people aren’t geeks like me, and the differences weren’t obvious to them. As a result, there wasn’t a lot of reason to trade in your shiny new iPhone 6 for a 6s. This meant that the usual frenzy that comes with a new iPhone was diminished, and sales didn’t grow as fast.
Adding to that diminished frenzy, many, perhaps a majority of existing iPhone users, didn’t like the larger size and as a result didn’t upgrade. When the rumored new 4-inch iPhone comes out in the spring, featuring the technology of the 6s in a smaller handset, I wouldn’t be surprised if the iPhone sales jump again.
Slower Apple Handset Sales Don’t Signal the End of the iPhone Boom
The difference between the people willing to upgrade from a 6 to a 6s and the people willing to upgrade from a 5s to the projected 6e (assuming that’s really the name for the new smaller iPhone) is that there’s a much bigger difference between the older 5S and the new phone.
One of the differences is the pressure-sensitive screen, which works nicely and there are a couple of cool things that users can do with this feature. However, few apps took advantage of it and there wasn’t much in iOS 9 that made it compelling either.
Likewise, most people have little reason to care about the faster processor or the faster fingerprint recognition. As nice as the better camera was, the camera in the earlier models was already good enough for selfies and snapshots.
What this boils down to is that few actual users (besides us geeks) really felt any burning need to drop everything and upgrade. I realized this at the time the 6s came out and said so. So did many others who wrote about this product. So it should be no huge surprise that iPhone 6s sales didn’t explode as they did with the iPhone 6.
Likewise, other Apple products didn’t really set the world on fire, either. The iPad Pro, which is without question the best iPad ever, didn’t fit the needs or the pocketbooks of many users. With a cellular capable iPad now costing over $1,000, there’s a big affordability gap.
All of these factors are plainly visible to anyone who is even slightly familiar with Apple’s product line. So why did the financial analysts persistently predict huge growth for Apple’s revenues? The reason is simple. They looked at sales charts and made the assumption that past performance will predict future market behavior.
If that sounds familiar, it’s in the disclaimer on basically every financial prospectus circulating in the market. When you buy stock or mutual funds, there’s always a warning that past performance is not to be relied on for future market performance. Yet, the analysts for the same firms that include that disclaimer simply ignored their own advice.
What this means is if Apple’s stock price (or any other company’s price for that matter) is important to you, then do your own due diligence. The analysts are frequently looking at last year’s charts and numbers, not the reality of today’s market.
It doesn’t mean that the days of big iPhone sales growth are over. The release of a couple of new phones, including a smaller iPhone 6, and the iPhone 7 next fall, will probably spur sales. Meanwhile, it was still a record quarter and it’s hard to fault that. Unless you’re one of those analysts with misplaced expectations.