Technology stocks are cooling, and that could be bad news for the world’s most valuable company. Apple Inc. warned investors this week that its quarterly earnings report will contain bad news about iPhone sales.
How bad? That remains to be seen. According to its January forecast, Apple’s revenue is set to drop for the first time in more than a decade as iPhone sales slow.
Even though iPhone sales haven’t been great, investors hope the company’s profits, which were to be released this afternoon, are at least somewhat steady. Revenues for Apple’s just-completed quarter are expected to drop to about $52 billion, down from $58 billion in the same quarter a year ago.
Apple is likely to blame slow iPhone sales. The company has already stated that quarterly sales and revenue figures related to the iPhone versus the same period a year ago will be lower than it originally forecast. That would mark the first time in the product’s nine-year history that iPhone sales have declined.
Too Many Eggs in One Basket?
Has Apple suffered from putting so much of the company’s resources into just the iPhone? At least one analyst thinks so. Rob Enderle, principal analyst at the Enderle Group, told us that Apple essentially became a one-product company when the iPhone became its dominant revenue producer, and now it could be paying for that singlemindedness.
Smartphones were undergoing a change when the iPhone became Apple’s main area of focus, Enderle said. “The market had been upheld by a practice of carrier subsidies that assured a regular refresh, and buyers never really understood how much they were paying for the phones,” he said. “In addition, Apple sold a premium product and typical markets place premium products in the top 10 percent of sales.”
Once the carrier subsidy programs started going away, consumers stopped regularly upgrading their iPhones, according to Enderle. That meant that the anomalous sales performance displayed by Apple’s signature smartphone were bound not to last — something it took investors a while to figure out.
The cost is the reason most consumers give when asked why they aren’t upgrading their smartphones, something Apple aims to address with less expensive models such as the iPhone SE (pictured above).
“[Apple is] vulnerable to changes in the carriers, and those changes are driving them slowly to a lower total available market,” said Enderle. “They are responding by building lower-cost phones, but while that may address the market share problem it doesn’t address the loss of churn which now is endemic to the market.”
Technology stocks in general are in decline. Nasdaq, which is heavy on tech stocks, has cooled, and last week Microsoft and Google’s parent company, Alphabet, issued profit reports that were short of investor forecasts.
That decline comes on the heels of a probable slowdown in smartphone sales worldwide. According to Gartner Inc., the growth in global smartphone sales will drop to 7 percent this year, the slowest growth rate since smartphones were introduced.
Image Credit: Screenshot of iPhone SE (and iPhone family) via Apple.