Apple Has Peaked and Will Continue Heading Lower

Apple (AAPL) reported its Q2 earnings report yesterday. Heading into earnings, all the bad news was probably already priced in the stock as Apple was bracing itself for a 10%+ revenue decline. However, Apple surprised everyone yesterday when it reported the worst quarterly earnings report in its history and the stock unsurprisingly fell a little over 7%.

The Cupertino giant missed the consensus on both revenue and earnings and also guided much lower than expectations. Even the high end of Apple’s Q3 guidance was 10% lower than what the analysts were hoping for.

Has Apple Peaked?

The ‘S’ cycle in the iPhone doesn’t generate much hype probably because it only involves major software upgrades while the hardware remains almost the same.
The iPhone 6S was destined to be a lackluster performer as it was impossible for it to beat the sales of the iPhone 6.

Before the launch of the iPhone 6, there was a huge pent-up demand for larger-screened iPhones, which is probably why the device sold as well as it did. However, Apple set the bar too high for itself and following the launch of the iPhone 6S, it was certain that Apple’s sales will fall year-over-year.

That being said, with Apple expected to launch the iPhone 7 this year, investors shouldn’t bet on it to receive similar success as the iPhone 6 because the smartphone market is saturating in most parts of the world.

To make matters worse, Samsung played its cards perfectly with the Galaxy S7 and has seen a massive sales boost this year. Hence, Apple has an impossible task at hand of growing sales in a maturing market when one of its major competitors has already taken a giant leap forward.

There’s only so much you can offer on a mobile phone that can compel consumers to upgrade their devices every year. And it now seems that Apple has done all it can with the iPhone. The smartphone market will likely head in the same direction as PC market, and Apple needs to find other revenue streams.

Given that Apple right now generates about 65% of its revenue from the iPhone, I can see the stock struggling even after the launch of the iPhone 7. Remember, Samsung has already increased its market share considerably this year, and if Apple doesn’t have a groundbreaking update to the iPhone 7 (which it likely won’t) investors can expect the sales to drop next year as well.

Two consecutive years of sales decline will be disastrous for Apple. Henceforth, I think investors should stay away from Apple for the time being.
Published on Apr 28, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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