Apple shed more than $40 billion in market capitalization in mere minutes on Tuesday afternoon as the company reported its first revenue decline in more than a decade and its first iPhone sales decline ever. But Apple didn’t just report declines, it reported huge declines and missed Wall Street’s earnings estimates by a shockingly wide margin.
iPhone sales plummeted to 51.2 million units from 61.17 million in the same quarter last year. Earnings per share fell to $1.90 while analysts were expecting $2.00 or more. Revenue sank by nearly $7.5 billion on-year.
There were no bright spots in Apple’s report — it was gruesome through and through. But what does all this mean for Apple’s future?
First things first: no, Apple is not doomed. There’s no denying that Apple’s March quarter was a big disappointment, but this is not the beginning of the end despite what you’ve been reading and what you’ll continue to read in the coming days.
That said, it’s equally important to note that this isn’t just a little bump in the road for Apple. Even Drexel Hamilton’s Brian White, the king of all Apple bulls, cut his price target on Apple shares from $200 to $185. This is the end of a period of rapid growth that the company achieved by completely reinventing the smartphone in 2007. It created a core business that no one saw coming, and that led to unprecedented growth for the better part of a decade, but it couldn’t last forever.
Is Apple’s iPhone business done growing? No. But it likely is done growing for a period of time. In fact, we might continue to see year over year sales declines for several quarters to come, including the quarters following Apple’s upcoming iPhone 7 and iPhone 7 Plus launch. There was so much pent-up demand for iPhones with larger displays that the iPhone 6 and 6 Plus accelerated sales too quickly. Apple had to use some clever tricks to top its sales records last year following the iPhone 6s and 6s Plus launches, but that was only a Band-Aid and it wasn’t going to stick forever.
Recent rumors paint a somewhat troubling picture of Apple’s upcoming iPhone 7 launch. There is absolutely no question that sales of Apple’s next-generation iPhones will be strong, but growth is anything but assured. One of the most accurate Apple insiders in the world even stated that Apple’s iPhone 7 might be a “boring” update that leads to further sales declines.
Apple will indeed see declines in the final calendar quarters of 2016 if the iPhone 7 and 7 Plus are anything but revolutionary, simply because the bar has been set so high. Of course, even a moderate upgrade will still lead to massive sales and Apple’s iPhones will remain the best-selling smartphones in the world by a wide margin.
What comes next is crucial.
Smartphone upgrade cycles may be getting longer. The high end of the smartphone market may be getting saturated. But there is still room for growth regardless of what you read. The issue is that hype will no longer carry Apple’s iPhone line. Great phones won’t even carry Apple back to meaningful growth. Only innovation can really move the needle now in Apple’s iPhone business. Only exciting new designs and features can rekindle the flames.
Can Apple deliver?
Nothing is guaranteed, but the potential is certainly there. Innovation is not dead at Apple and iOS is still the best mobile platform in the world. There are also rumblings that Apple is getting ready to make some pretty big changes to its iPhone strategy. Internal upgrades simply might not be enough to keep things moving in the right direction each year anymore, so Apple might even ditch its “S” models and launch brand new, completely redesigned iPhones in 2016 and again in 2017.
Beyond that, we have some pretty strong indications that Apple is working on a number of exciting new features for its iPhone lineup. In fact, one of the company’s upcoming new iPhones might be the biggest game-changer the world has seen since the original iPhone launched in 2007.
Don’t expect things to turn around tomorrow. Don’t even expect them to turn around in the next few quarters, necessarily. But Apple absolutely can still turn things around and return to growth. The company has a massive cash hoard of $233 billion, it’s on the hunt for acquisition targets, it has plenty of talent led by a great CEO, it has exciting new iPhone features in the pipeline, and it’s getting ready to enter new markets.
We have without question reached a new chapter in the book of Apple, but the story is far from over.
Dollars and Sense is a recurring column by BGR Executive Editor Zach Epstein. It offers insights on subtle changes in and around consumer electronics with the potential to have a broad impact on companies that drive the industry. Contact the author at z@bgr.com.
