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Shudeep Chandrasekhar
Shudeep Chandrasekhar
Articles (120) 

The Apple Is Losing Its Shine. Can It Reclaim Its Magic?

Apple has lost ground on nearly every product and in nearly every market this past quarter. Can it ever recover? And what’s Plan B?

July 19, 2016 | About:

After growing at a rapid clip for the last 10 years, supported by constant upgrades to its smartphone lineup, MacBooks and other products, Apple (NASDAQ:AAPL)’s second quarter 2016 earnings were a shocker to many, and 2016 could possibly be the first time in a decade that Apple reports sales declines.

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During the second quarter, Apple reported $50.55 billion in sales, lower by 12.8 percent compared to the $58 billion posted during the same quarter last year. The decline was not related to one particular region: Nearly all the operating regions America, Europe, Greater China and Asia Pacific reported a slowdown except for Japan.

That is proof enough that it was not a region-specific problem but more of a product-specific one. Though the company blamed lower iPhone sales and weakness in most foreign currencies relative to the U.S. dollar, there is no hiding from the fact that their products especially the newer iPhones — are actually starting to look boring. We have not seen anything truly innovative or path breaking from the company’s flagship brand, and that was the one thing that made the iPhone the world’s most sought-after smartphone for nigh on a decade now.

With the new iPhone 7 launch right around the corner, can it still dazzle millions of users around the world, enticing existing and new users alike? I doubt that very much. But let’s look at the hard numbers around the world that are bothering Apple investors right now.

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The worrisome part is that it was not just iPhone sales that were down this quarter. According to Macrumors, both iPad and Mac PC sales were much softer than during the year-ago quarter:

“Mac sales were 4.03 million units, down from from 4.56 million units in the year-ago quarter. iPad sales were also down once again, falling to 10.25 million from 12.6 million.”

The entire PC industry is going through slow decline, but it is not dead. With 10% of Apple’s net sales coming through Mac sales, this is an important category that Apple needs growth from, and that need is now stronger than ever with iPhone sales starting to show signs of weakness.

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According to another report from IDC, Mac sales dropped from 4.8 million to 4.4 million during the second quarter of this year compared to the prior year, a drop of 8.3%.

IDC-Mac-Q216

Irrespective of the accuracy of the numbers or the methodology for collecting the information, one thing is clear: There are major signs of trouble at Apple.

“Apple fell behind ASUS to finish as the fifth-largest PC vendor by shipments worldwide, with 7.1 percent market share through late June. Apple had 7.4 percent share in the second quarter of 2015 comparatively, according to IDC's data.

Apple has not updated the MacBook Pro in over 400 days. The hope, supported by multiple rumors, is that it will release a redesigned MacBook Pro with faster Skylake processors and Thunderbolt 3 with USB-C in the second half of 2016. The top-of-the-line model could sport AMD's new 400-series Polaris graphics chip.

Overall PC sales totaled an estimated 62.4 million worldwide in the second quarter, a year-over-year decline of 4.5 percent, as the PC market continues to decline. Nevertheless, North American PC shipments increased for the first time in five quarters, reflecting the strength of the U.S. dollar and "relative market stability."

- Macrumours

PC sales have indeed been on the decline for the past several years as people gravitate towards more mobility in the form of tablets and high-end smartphones that pretty much have most of the capabilities of a regular PC. That does not mean there will not be any PCs around five or ten years down the road, but it does mean that Apple needs to focus more on Mac sales now than ever before.

I cannot imagine getting my work done on a tablet or a smartphone, no matter how expensive it might be or how good a resolution it might have. A 6- or 10-inch screen just does not cut it when you have to spend hours in front of the monitor five days a week. A laptop might do the trick but in most cases, a large screen is the only thing that will work, especially if you are at your desk that many hours a day, day in day out.

Apple has somehow managed to escape giving its Macbooks the attention they needed for a really long time. Their rollicking iPhone sales possibly took its attention away, but bad things always tend to come together in a bunch. A declining Mac market share is the first warning sign for Apple that it needs to get its act together and cannot continue to rely on what it has accomplished in the past.

Upgrades are not what the world’s Apple users need. We need solid products for the future, now. That is what Apple became famous for and, unless they recapture some of that magic, they’re going to become “just another tech giant” that has to fight for market share, revenues, share of mind and profits. I do not want to see them going through what IBM or Oracle are going through at the moment. That would be the saddest tribute to Steve Jobs ever.

Apple needs alternate revenue streams for sure, and Apply Pay is one bet that may pay off down the road. This is something I’ve written about in a previous article here on GuruFocus. But it needs to do it faster than it is losing traction in the market. Can it make that happen in the next few quarters? If it does, it will be no less miraculous than Jobs standing on that podium back in 2007 holding the world’s first iPhone in his hand.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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