Apple’s fiscal Q2 earnings were the company’s ‘worst ever’ of the last decade in terms of year-over-year growth, but not in terms of actual commercial activity during the first three months of 2016,” Daniel Eran Dilger writes for AppleInsider. “While CNBC lines up pundits expressing their surprise about Apple not beating its record quarterly sales and earnings reported in the year ago quarter, the real surprise should be that Apple didn’t perform worse. ”
“After all, over the past quarter—and back into last December, before Apple had even reported its fiscal Q1 results for the end of 2015—reports had been rolling in from Japan’s Nikkei, as echoed in the Wall Street Journal, that based on supply chain rumors, Apple was cutting iPhone production by 10 percent in the December quarter, and 30 percent in the March quarter,” Dilger writes. “Those supply chain rumors didn’t materialize in any sales shortfall in the December quarter—iPhone 6s actually sold slightly better than the blockbuster iPhone 6 cycle had at the end of 2014, even despite unfavorable economic conditions including very ugly currency headwinds across most of Apple’s international sales regions.”
“In March, iPhone sales were below the previous year, but not anywhere near the reported 30 percent supply chain cuts. They were, however, well above the previous iPhone 5s cycle, showing that the anomaly in Apple’s consistent pattern of global growth wasn’t so much this year, but last year,” Dilger writes. “Apple’s ‘very bad’ quarter was its second best Q2 in history.”
“It will be important for Apple to more clearly articulate going forward that not only does it have a vast hardware business that operates like a wildly profitable version of Samsung (x4), but that it also has a Services business twice as profitable as Facebook, and is building out new cloud infrastructure to feed that enormous audience, rather than speculatively building commodity cloud infrastructure like Amazon,” Dilger writes. “If Apple can communicate that it isn’t just a commodity hardware business like HP or Samsung, it demand a valuation that reflects that its past growth wasn’t just a fluke of being in the right place at the right time, and that it didn’t just accidentally end up with $10 billion in quarterly free cash flow.”
Much more in the full article – recommended – here.
MacDailyNews Take: Ahh, perspective. More, please!
SEE ALSO:
Apple’s $10 billion quarterly profit is not enough? – May 2, 2016
Perspective will not change the overall wall street narrative that has been in place for most of Apple’s history.
So, if Apple hadn’t had such amazing results with the launch of the iPhone 6 they wouldn’t be having the problems they are now? Crazy that this sort of success is a failure.
Perspective? Give me a break… the whole point is for Apple to transcend these other ‘tech’ companies. They shouldn’t even be mentioned together in the same sentence. The moment they bundle Apple with the likes of Samsung or Facebook… that means something’s rotten in the state of Denmark.
I’m not sure why is everyone so angry at the Wall Street for the current valuation of AAPL, claiming that they are “clueless” and just want to “manipulate the stock”. Anyone who understands how stock markets around the world operate has never been surprised that much by AAPL’s current valuation.
First, let us not forget which company has the largest market valuation in the history of the world. Clearly, from that angle, Wall Street has rewarded AAPL stock with the top spot, not just today, but of all time (and at one point, when it was $132 last year, it was an all-time high even after adjusting for inflation).
Second, once AAPL reached that top spot, the stock can no longer be treated like a small-cap growth stock. This is why its PE, which used to be in the upper-teens, is now inline with Shell Oil, P&G, GE, Berkshire & Hathaway and other traditional large-cap stocks. There can be no expectation of profit-doubling growth for the next ten years (that would require planetary population of 60 billion people, all potential buyers of the latest iPhone). In other words, Wall Street realistically assesses how far AAPL can grow is business over the next five to ten years with the existing product lines.
If Apple launches a new product in a market space that offers huge growth (as was portable musical players in 2002, and mobile phones in 2007), there is no doubt that AAPL (the stock) will quickly reflect this in its valuation. But for now, where all the existing product lines are established, and the only new-market entry is Apple Watch, Wall Street is essentially saying: “We are rather skeptical about the potential for the Watch to drive doubling of profits”. So the stock continues floating around $100 for the next few years, perhaps slightly adjusted to follow the incremental profit growth.
Bottom line: when you are a fast-growth company, the stock does not reflect current profit growth, but the potential future profit growth. Once you are the largest cap, the same rules apply, but the with future potential largely gone from speculation, the value becomes a reflection of the current state.
But I think Gene’s point is that certain analysts, who should know better, are citing anomalous quarterly results (not trends) — and that reeks of manipulation.
That may be the case, although I have always been very, very skeptical regarding stock manipulation when it comes to very large stock (such as AAPL).
By the way, I think MDN’s quoting Daniel Eran Dilger, and not Gene (Munster, I assume).
Yes, thanks. Sometimes my notes fly off unbidden, and nest in the wrong tree. Gene’s article is nearby (in MDN sequence space)
Gene Steinberg, to be precise…”Apple and this ‘The End is Near’ nonsense”
But Mac sales have a huge opportunity for growth. That should be factored in.
Argument can be made that the PC growth is over. After all, competition is losing share, with declining numbers of shipped PCs, so the total addressable market space is actually shrinking. The only way to grow in such market space is to take share from others. We already know that in the market segment of $800 + computers, Apple dominates, so there is no space to grow there. Since Apple practically doesn’t compete in the sub- $800 market space, since there is no way to preserve profit margins there, the opportunity of growth simply does not exist; certainly not the kind that would drive the profit growth of the entire company at the levels that iPhone did for the past (almost) ten years.
Currently Apple is making more money from services than it is from Macs, but in order to grow this it needs to maintain or increase the market share of Macs. Services are largely dependent on the Mac for which they provide added value.
I can’t see any way they can increase share without entering lower price points. OK not the bargain basement, but lower than currently. If they are to keep their premium aura, the only way to do this is either by licensing to one or two top tier vendors, or to cannibalise their own business by setting up a separate wholly owned subsidiary company.
Let’s call it ‘Fruit Computers’. This company would manufacture Apple compatible desktop machines without the leading edge design but at lower price points. There might be opportunities for economies of scale with components, but key is that control would remain with Apple.
Sony did something similar years back with (I think) Aiwa. Sony did the premium line and Aiwa did quality but lower priced gear thus keeping any profits within the Sony group whilst offering a broader spread of products at differing price points
Might be a way of expanding both Apple’s market share and crucially, its services business.
@DustyMac: Yes, it’s this year that’s the anomaly since last years figures were skewed with the arrival of larger iPhones.
Not only can Wall Street not see into the future, it also refuses to look into the past. A simple analysis of Apple’s last few years reveals quite clearly that last year was an anomaly and this year is right on track and only looks bad when compared to last year’s large blip.