High Anxiety

Apple Does Have a Cycle, But It’s Far Less Than Super

Optimism for iPhone sales has been replaced by angst about growth. 

Photographer: Akio Kon/Bloomberg
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There has been a predictable pattern of angst about Apple Inc.'s iPhone sales, and this week is hewing to recent history. The stress is most likely overdone, but it's a sign of the new, more-anxious normal for Apple and its investors. 

Last October, just after Apple started selling the first of two new iPhone models, there was an initial wave of fear that the iPhone 8 wasn't flying off store shelves. Apple's stock price wobbled. By late in the month, Apple watchers moved on to enthusiasm about the other new model, the iPhone X, and they got over their initial panic. 

The same thing happened ahead of Apple's February quarterly report for the period that included the Christmas holiday. The analysts who track Apple's stock pared back their forecasts after news reports that iPhone suppliers planned to make fewer iPhone X models than expected. Wall Street stopped talking about an iPhone “super cycle.” Those moves proved prescient when Apple announced that its December quarter iPhone unit sales had declined a tad from the year-earlier period, and its revenue forecast for the March quarter wasn't grand. Good thing those analysts had scaled back their estimates ahead of time. 

App Anxious

Apple shares fell more than 13 percent during a swoon in January and February as investors recalibrated their expectations for iPhone sales

Source: Bloomberg

You know what's coming next, right? In recent days, the blood pressure of Apple bulls has been climbing as several companies that make iPhones or supply its guts have reported soft sales or forecasts, which outsiders attributed to weak interest in iPhone models. Daniel Ives, the quotable stock analyst from GBH Insights, wrote that Wall Street was in "full panic mode" about iPhone sales for the quarter that ends in June. Predictably, analysts have scaled back their expectations, and Apple shares have fallen.

Apple Angst

Apple shares have declined nearly 10% from a March high

Source: Bloomberg

We'll see what happens when Apple posts its March quarter financial results on Tuesday. Investor expectations may have ebbed to the point where it will be hard for Apple to deliver an unpleasant surprise. But no matter what happens, the underlying trend is clear: It is becoming harder for Apple to grow. 

I have repeatedly written about the broad trend in smartphone sales, which is an industrywide slowdown caused in part by people in established markets like the U.S. holding onto their existing devices for longer. This is a bona fide phenomenon with complicated causes. The smartphone slowdown isn't good for any mobile handset maker, but it's particularly dangerous for Apple because of its reliance on iPhone sales for the majority of its revenue. 

Not Super

Wall Street expects iPhone sales to recover after two lackluster years, but it doesn't look like a supercycle

Source: Bloomberg and Mizuho Securities (for Q2 2018 estimate)

Notes: Apple fiscal year ends in September. The second quarter figure is based on the average of Wall Street estimates, according to Mizuho

Yes, Apple has done a lot of work to offset the trend. It's charging higher prices for several of its smartphone models and introduced ancillary products like the HomePod to deliver fresh revenue.

Still, more analyst forecasts are beginning to predict a decline in iPhone unit sales in Apple's fiscal year ending in September. It would be quite a blow for Apple to sell fewer iPhones during the financial year in which it introduced the most hotly anticipated model since the original one. But like a frog boiling slowly, Apple watchers are getting used to the idea of an Apple with less built-in growth.

A version of this column originally appeared in Bloomberg's Fully Charged technology newsletter. You can sign up here.

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

    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

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