Apple’s ‘poor’ results
Apple has posted the financial results for the second quarter of fiscal year 2016. Compared with the same period last year, unit sales and revenues are down almost across the board.
Overall revenue was $50.6bn, down 12.8 percent on the $58bn made in the second quarter of 2015; net income was $10.5bn, down 22.8 percent on the $13.6bn income the company posted last year.
In short, Apple’s revenue has declined for the first time in 51 uninterrupted months: that’s 13 years of continuous growth. The company isn’t losing money, it simply didn’t make as much as it did compared to the same period last year. The reasons are clear enough: the smartphone market is mature, if not to say saturated, and is one where the action is at the cheaper end of the market. But the iPhone continues to drive the company: it makes up to 75 percent of products sold and 63 percent of sales.
The eight years since the launch of the iPhone have been a golden time for Apple, making it the world’s most valuable company, but the segment it dominates is not growing like it used to because people aren’t upgrading their smartphones as frequently as they used to.
Then there’s the Chinese market, the biggest in the world, and where Apple is launching a major push by increasing its presence in stores and through marketing. The iPhone is still very much a desired item in China, but the simple truth is that people there are buying fewer than expected.
We also have to take into account Apple’s dreaded products cycle: this is a company that specializes in redefining already existing segments. The personal computer, the iPod, iPhone, Apple Watch, etc, are all examples of products that previously existed but were redesigned by the company, making them its own.
This allows the company to squeeze the most out of a segment, but also forces competitors to position their alternatives aggressively. This leads to ever-shorter cycles, meaning the company is increasingly dependent on new categories where it can launch new products.
The return of Steve Jobs highlighted this approach, with the company launching a number of successful products, but he’s now gone, since when it seems it’s been stuck in a “now bigger, now smaller, and now more of the same” dynamic. But this analysis jars with the evidence that over the last two years Tim Cook has been able to enter the smartwatch segment, as well as offering a range of services through the App Store, which along with music, now generates more revenue than the sale of computers.
Should the company be worried that it is headed into rough seas? I don’t think so. A lot of companies would love to have Apple’s problems: earning a lot of money each quarter, sitting on top of a mountain of cash it doesn’t know what to do with (which explains the seemingly conservative moves for the benefit of shareholders such as share buybacks or dividend payments), and still in a position to reinvent segments such as virtual reality or even the motor industry.
It doesn’t look to me like Apple has much to worry about over results that show it isn’t losing money but simply that it is going to be growing more slowly from now on. For the moment it is still a company capable of attracting the best talent.
By adapting to a growing market, Apple may have overlooked the premium segments, which demand more cutting edge products, and in turn its image may have been harmed: there used to be segments that were hooked on its products, but Apple seems to be finding it harder to differentiate itself and justify its prices.
It’s not easy to enter bigger segments while holding on to niches that set consumer trends, and the compromises required to do so can be painful. Apple’s real problem down the road may not be so much that it is growing less, but that it isn’t growing in the right way. We’ll have to wait and see, but either way, there are interesting times ahead for Apple.
(En español, aquí)