Apple’s First Quarter Earnings Mark Changes for the Company

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Apple’s recent earnings weren’t pretty, but they also weren’t worse than expected after Tim Cook’s letter offering revised guidance a few weeks ago. They simply offered us a definitive confirmation of what many in the tech press and Apple community already suspected. Whether it is due to stagnation, high prices, overall slowdown in the smartphone market, China, or all of the above, the iPhone has plateaued. However, if you look beyond that basic fact, there is more to this story.

China is a big problem for Apple right now

This was known, but now we can see that the trouble Apple is having there is enough to drag down good performance in the US and other Western markets. Apple actually showed growth in both the US and Australia, but China more than offset that. This isn’t good news, because there don’t appear to be any short-term fixes for the company’s problems there.

Wearables passed a milestone

One notable item from the call is that Apple’s Wearables, Home and Accessories category has passed up the iPad in revenue. This shouldn’t come as a surprise, as the Apple Watch has grown exponentially, while the iPad has simply been stable after several years of steeply declining sales. Add in the AirPods from the Accessories and a modest sales of HomePods from Home and you’ve got a solid lineup that is also closing in on total revenue from the Mac. Pretty soon, Services and Wearables together will be bringing home the bacon for Apple.

Silver linings

Amid the 15% drop in iPhone revenue and decline in worldwide profits, other areas of Apple’s business actually grew 19%. This shows just how dependent Apple has become on the iPhone to maintain profitability and growth over the last decade. However, the growth of these other sectors that are still on the rise is a silver lining that points to where Apple is headed. Both Services and Wearables present a lot of additional possibilities for growth and expansion, which means that Apple isn’t going anywhere any time soon.

Apple is NOT in trouble

If you hear anyone compare Apple to Nokia or Blackberry in the wake of this earnings report, ignore them immediately. I won’t say that Apple could never find itself in that situation (again), but it certainly won’t any time soon. While Apple generated less revenue than last year and saw their iPhone sales drop off a surprising amount, there are no burning platforms here, ala Stephen Elop. Apple isn’t losing money. They aren’t growing right now, but they are just making fewer billions than before, not losing them. That difference can’t be emphasized enough. If we could all have such problems. Oh, and Apple also hasn’t given away that entire pile of cash they’ve been sitting on for a decade, so the company has plenty of time to get things figured out, no matter what.

It will be really interesting to see how Apple reacts to this situation. Will they change the way they price and position the iPhone to increase sales. Will this downturn in revenue alter their plans for Services and Wearables? How quickly will they be able to turn things around? What will happen with the iPad and Mac, as their roles seem to be in decline in Apple’s lineup? Time will tell, so stay tuned.

 

 


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