Apple has Wall Street fretting. Last week, Apple’s stock price dropped to its lowest closing price in a year. The company has lost about a quarter of its market cap since hitting a record high eleven months ago, in a slide that began even before the jitters that have plagued the market as a whole in 2016. Yes, tech stocks weren’t off to a great start, following a broader market trend spurred by a weaker-than-expected manufacturing figures from China. But Wall Street analysts seem worried about Apple in particular, especially iPhone sales. These include even those analysts who are usually bullish on the Cupertino company. So, what’s going on?
In short, Wall Street is worried that the demand for the iPhone has finally surpassed its peak. To be sure, morsels of evidence point to that possibility, and in the stock market’s parallel universe, that’s a big problem. But for everyday Apple fans, that hardly means the company is in trouble.
Investor anxieties about Apple that surfaced in early December grew more acute following rumors last week that the company had ordered manufacturers of iPhone parts to cut production. The real worries began after a report from the Japanese newspaper Nikkei that was seemingly corroborated by The Wall Street Journal. Shares began to slide.
That’s despite Apple’s oft-stated admonishment that the public—and investors—shouldn’t try to read too much into supplier comments, since no vendor has a complete picture of Apple’s complex and massive supply chain. But then some harder data started to emerge that seemed to indicate Apple might actually be decreasing production of the iPhone.
Cirrus Logic, Qorvo, Dialog Semiconductor and Foxconn—all well-known cogs in the Apple supply chain—recently clipped their revenue forecasts. Equity research service Seeking Alpha does point out that Apple isn’t directly dependent on at least two of those companies, and that the revised guidance actually shows only a more conservative projection (Cirrus would still end up with a 16 percent year over year increase) or flat growth (Qorvo). But it’s getting harder and harder to ignore analysts who say demand for the iPhone seems to be topping out.
“We think the most likely reason for a shortfall is that the upgrader portion of unit demand has stalled significantly in recent months and is failing to meet Apple’s own expectations,” financial services company UBS firm wrote in a note to clients. In other words, most people who want an iPhone probably already own one—and the one they have is probably good enough, features-wise, that those folks don’t feel an urgent need to upgrade. Another firm, Pacific Crest Securities, was harsher on Apple leadership: “Management’s confidence now looks highly likely to be misplaced, which suggests that it was either ignorant of the challenges it faced or deliberately overstating underlying trends,” it said.
A Star That Doesn’t Shine as Brightly
All of this may seem like cause for concern, since the iPhone has for so long been the star of Apple’s show. Last quarter, the iPhone accounted for nearly two-thirds of Apple’s total revenue. And Apple has never reported a decline in iPhone sales. Ever. So it makes sense that the prospect of the company seeing flat sales—or, god forbid, a slight dip—has unnerved shareholders. Everyone is used to a universe where Apple and its iPhone rules.
But to Brian Blau, research director of consumer technology at industry research firm Gartner, the iPhone’s slowdown in growth—and the slowing of the smartphone market in general—is not news. “We’ve [long] known that the penetration of smartphone devices would eventually reach a point where the very impressive growth that we saw earlier was just not going to be sustainable,” Blau says. “When you look at a maturing market like this, you do have to have realistic expectations.”
And even if the star that is Apple’s iPhone “doesn’t shine as brightly,” he argues the company can still sustain itself on its other products—especially nowadays, where the point of buying a smartphone isn’t to talk on the phone, but to be connected. “[After you buy a phone], you want to get value from it,” Blau says. “Apps and services turn the phone from a piece of electronics to something that’s meaningful, an integral part of their lives.” Apple still plays a huge part in that enabling such personal experiences—which the company now extends into other areas, from music to television to news.
Apple’s Rules of Relativity
Precedent is also in Apple’s favor. Throughout its history, Apple has navigated so many shifts in technology—from the PCs to portable music to inventing the mighty smartphone—in an absurdly successful way. That’s easy to forget as the currently myopic view of the company’s prospects takes hold. But Apple’s story is one of a colossal, unparalleled success. “Think of it not as an existential crisis but a midlife crisis,” says Frank Gillett, a principal analyst at Forrester.
Most importantly, in its midlife, Apple has stocked up on reserves and resources that should help it clear the hurdles that come its way. Today, Apple’s cash hoard is in excess of $200 billion, and that grows substantially every quarter, even if its sales start to flatline, since the company’s margins remain so wide. That’s how Apple works.
Certainly, it’s easy in the boom-and-bust world of Silicon Valley to become inured to a climate of transient success and failure. But it’s good to step back and remember the rules of tech industry relativity that hold Apple to an alternate universe of standards. Objectively, Apple is still one of the most mind-blowingly profitable companies of all time. And even if we learn that Apple sold “only” 74 million iPhones during its last quarter—the same number it sold a year earlier—that’s still a smash-hit success by anyone else’s measure. Only judged by Apple’s uniquely astronomical scale does that look anything like a failure.