Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

For more than a year, Apple investors have been looking ahead to what comes next. They're still waiting, and the longer they wait the longer it takes to come to grips with Apple's new, less-turbocharged reality.

The company's revenue rose a relatively pedestrian 7.2 percent in its third fiscal quarter compared with the awful quarter a year earlier, and Apple's forecast implies an up to 11 percent revenue increase in the three months ending in September. That was all a sideshow because the only thing that matters is the next iPhone models coming this fall, with one completely reinvented (and very expensive) version. Apple watchers say growth is relatively mundane now because people are holding off on iPhone purchases until they can buy the new magical models. 

Slow Lane
Apple's revenue growth has shifted from turbocharged to fine
Source: Bloomberg
Note: Quarters shown here reflect Apple's fiscal year, which ends in September

Maybe that's true. But investors have been trained to look ahead to Apple's future for so long, they're overlooking the company's relatively pedestrian present. 

Remember that when Apple Inc.'s revenue fell in early 2016 for the first time in 13 years, that was no big deal because a magical new iPhone generation was coming soon. When that iPhone line didn't provide much of a lift, the story shifted. The next magical iPhone would lead a growth revival. Since then, expectations have built that this late 2017 iPhone debut will unleash a sales "super cycle." The anticipation has pushed up Apple's shares and multiple of earnings to near-record highs. In after-hours trading Tuesday, Apple brushed past its all-time stock price.

Apple Apex
Apple's stock valuation is near its highest point in at least five years, largely because of enthusiasm for the next generation of iPhones
Source: Bloomberg

This super cycle is on hold for a bit. Apple's growth forecast for its fiscal fourth quarter indicates it's possible at least some iPhones will go on sale in the typical mid-to-late September debut for Apple's newest smartphones. The sales timing is and has been a bit of a wild card.

Even if the the next iPhone models start selling in September as usual, the biggest sales surge will fall out of Apple's current fiscal year into the holiday season at the earliest. And maybe not even then. There are already expectations that Apple won't be able to make enough of the most magical (and most expensive) of the next-generation iPhones to meet demand. If there are shortages, bullish Apple watchers will be able to give the company a pass again for any softness in iPhone sales.

That's a lot of waiting and waiting and waiting for a significant growth surge. Meanwhile, Apple's sales growth in the nine months ended July 1 was 4.7 percent, or lower than that of more mundane companies Comcast and Costco. (To be fair, those companies are half the size of Apple or smaller.)

Apple vs. Apples
Apple is growing more slowly than Costco or Comcast
Source: Bloomberg

Sales in Apple's most important growth market of recent years, the region that includes China, have fallen for six consecutive quarters, including a 9.5 percent decline in the latest three months. It has been losing market share to other companies in China, and the country's technology market has changed so much that iPhones aren't the must-have technology in China that they were when the blockbuster iPhone 6 models went on sale in late 2014.

Expectations are that Chinese smartphone buyers are eager for the next magical iPhone and will give a big lift to Apple's sales. But what if the super cycle is less super and more temporary than bulls expect? What if today's Apple is the real Apple -- or close to it -- rather than the one that is expected to grow 14 percent in the year ending September 2018, according to the average of analyst estimates compiled by Bloomberg.

Sales of iPhones are the understandable focus given they generate more than half of Apple's revenue. But smartphone makers aren't the ones leading the technology future anymore. Apple is like a movie studio leaning on its popular comic book superhero. It keeps putting out films featuring its leading character that are big hits but get slightly less popular and less relevant each time.

To compensate, Apple is finding ways to charge more for iPhones, and it's doing things large and small to boost revenue from apps and digital music subscriptions. Apple is also working on potential promising areas including health care, technology that mixes virtual images with the real world, driverless cars and more.  

It's not clear any of these areas will ever be big enough to carry the world's most valuable public company or to make Apple the impossible combination of growth and profits that it once was -- and that Google and Facebook are at the moment.

Even a slower-growing Apple is still a highly profitable titan with widely used products and cash stockpiles it's doling out regularly to investors. It's Microsoft. And that is perfectly great, if Apple and its followers change expectations to embrace this new reality.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. (These estimates have been very wrong so far ahead of Apple's fiscal year.) 

     

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net