Last week, however, Apples shares surged on a 15% decline in revenues, falls in sales of iPhones, iPads and Macs, and a 33% drop in Chinese revenue.
Has Wall Street lost its bearings, or does it know something other people dont? After all, it is unlikely that the iPhone will ever repeat the red-hot growth of 2014, when larger-screened models drove the companys biggest-ever quarter for revenues and profit. Smartphone sales generally have cooled. Unlike 2010-12, when annual growth rates for all handsets were between 60% and 90%, so far this year worldwide sales growth has been below 1%.
Apple has underperformed the market, recording two successive quarters of falling iPhone sales amid fears that consumers will not flock to upgrade when Apple launches new models in the autumn. Asked about those concerns last week, Apples chief executive, Tim Cook, said the non-hardware part of the business would take the strain. Cook said he expected the services unit to be a star performer, through iTunes, app and iCloud storage sales. We think [revenue from] services will continue to grow very briskly, he said.
Nonetheless, despite their positive response last week, investors are understandably keen for Apple to unearth another big seller, with the iPad and the Watch failing to match the iPhones success. Could Project Titan the codename for Apples electric car project be the new smash hit? Or might virtual reality headsets, or some augmented reality product akin to Pokmon Go, prompt a new reason for overnight queues outside Apple stores? Analysts are sceptical. With a billion iPhones sold since the handsets 2007 release, it is the most successful consumer product ever, generating almost $625bn (475bn) in revenues in just nine years. Apple will struggle to come up with a concept or a category that matches the iPhone what other hi-tech product could you potentially sell to everyone in the world?
There are 2.5 billion smartphone users around the world, calculates Benedict Evans, an analyst at venture capital firm Andreessen Horowitz. That will rise to 5 billion over time. He estimates there are 630 million iPhones in use worldwide, and another 250 million iPads; outside China, there are about 1.35 billion phones made by the likes of Samsung and HTC that use Googles Android system as well as 175 million Android tablets. Inside China, about 450 million phones and 200 million tablets use Android software albeit without access to the Google search engine.
Both Apple and Android have sufficient scale for their [smartphone] ecosystems to be viable, Evans notes. No one else does.
The likely buyers of the next 2.5 billion smartphones will not be typical iPhone customers. Most of these people are in emerging markets, and most will be buying phones for under $50 and certainly under $100, says Evans. In other words, the high-value users Apple has always targeted have mostly been picked off. Any future growth will come from those on comparatively lower incomes in emerging market countries, and switchers from Android.
But with so many iPhones in use, the combination of replacement sales, adjunct sales (such as its Watch, which currently needs an iPhone to function) and services its newest focus has enough momentum to keep Apple profitable. Cooks reference to services is part of the companys new narrative, where its future profits come from users buying a mix of hardware upgrades and content of some sort, such as apps, music or TV shows. The latter will include James Cordens Carpool Karaoke, after Apple bought a distribution licence for the viral smash hit from CBS. That wont make the stock rocket, but former stock analyst Neil Cybart, whose Above Avalon consultancy focuses on Apple, says the character of the people and institutions owning its shares has changed.