Gadget giant Apple has attempted to focus attention on the bigger picture after revealing flat iPhone and revenue growth in its Q4 2015 numbers.
Revenues for the quarter were up just 2% to nearly $76 billion while iPhone unit sales, which account for over two thirds of that revenue, were up a mere percentage point to 74.8 million units. For any other company this would be amazing numbers, but what has got Apple on the defensive is that this marks the first pronounced loss of momentum pretty much since the launch of the iPhone back in 2007.
Anticipating investor anguish Apple decided to break with tradition and publish some additional supporting data to provide a bit of context. It was keen to stress the effect of currency fluctuations on its top-line, just as Ericsson does every quarter, but in Apple’s case a strong US dollar has diminished the relative value of its overseas sales, which account for two thirds of the total.
“$100 of Apple’s non-U.S. dollar revenue in Q4 of 2014 translated to only $85 last quarter due to the weakening currencies in our international markets,” said Tim Cook on the earnings call. “As you can see, the movement has been dramatic. Last quarter alone, the currency impact has been very large.” Apple reckons that if you adjust for constant currency revenues were actually up 8% in Q4 2015.
In spite of this apparent plateauing, Apple still managed to add another $18 billion of profit, prompting Cook to point out that Apple’s not exactly short of cash. “Our financial position has never been stronger,” he said. “We had the mother of all balance sheets, with almost $216 billion in cash, which translates to nearly $39 per diluted share of Apple stock.” Apple’s shares fell around 5% after the earnings announcement at time of writing to around $95 per share.
The one business segment that did register healthy growth was services, which includes internet services such as iTunes and the App store as well as Apple Pay, and is starting to close on the declining iPad and Mac divisions to become Apple’s second-biggest unit. A big reason for this is Apple’s distinctive business model that means owners of its devices provide it with a captive market. With this in mind Apple announced it now has over a billion active devices in circulation globally.
“To fully comprehend the scale of the services that we are delivering to our installed base and how fast this business is growing, we look at purchases in addition to revenue,” said Apple CFO Luca Maestri. “When we aggregate the purchase value of services tied to our installed base during fiscal 2015, it adds up to more than $31 billion. That’s an increase of 23% over fiscal 2014.” On the other hand Maestri advised there will be a YoY fall in revenues of around 10% next quarter, blaming the macroeconomic environment and unfavourable currency fluctuations.
Aleksi Aaltonen of Warwick Business School thinks Apple needs to resist investor hysteria. “Some investors are starting to punish Apple for not being able to do the impossible,” he said. “The longer the company keeps breaking its iPhone records, the more likely the following quarter shows that the product has finally peaked. Lots of analysts predicting quarterly sales figures and pondering if the inevitable peaking has finally happened diverts attention from what really matters to the company.
“To me, the real reason to worry is if Apple starts trying to appease investors. The company could easily start focusing bit by bit on efficiency and shave off costs here and there to keep investors happy for quarters to come. Given the remarkably steady pattern of results for the last five years or so, let’s hope this is not already happening. Caving in to short-sighted investors would slowly suffocate Apple’s capacity to innovate.”
One thing even Apple can’t control is the maturing of the global smartphone market. Even in relatively under-developed markets such as China most people who can afford a smartphone already have one and the overall global smartphone numbers have been peaking for some time. Whether or not Apple has a new blockbuster product up its sleeve remains to be seen but even if it hasn’t, the plateau it currently occupies is a pretty high one.