Where do you put your money when the world’s blueblood stocks are no longer safe? Investors must be asking that question as Apple’s forecast numbers, already putting some trepidation into the stock, came true in the worst possible way at the wrong end of all of its estimates.
Apple forecast a poor quarter, but delivered an awful one. US investors reacted by doing almost nothing and although the stock fell, had this been another stock without absorbing $578 billion of investment funds, the stock would have fallen a lot further than the 1% that it dropped yesterday. It dropped another 8% the day after. As investment strategies emerge which can accommodate not holding Apple stock, the price will fall further.
Apple’s key staples all failed. The iPhone sold just under $33 billion in the quarter, compared to $51.6 billion last quarter and $40.3 billion a year ago this quarter; iPad sales dropped to $4.4 billion from $7 billion last quarter and $5.4 billion this quarter a year ago. Mac sales fell to $5 billion from $6.7 billion last quarter and $5.6 billion in the year ago quarter. Even services and other revenues fell, raising issues for iTunes and the AppStore. The iPhone sold 23 million less devices than last quarter, at 51 million, and 10 million down from this time last year.
Let’s face it, the world cannot fall out of love with Apple too rapidly. People who know how to use an iPhone feel tetchy when given an Android, people used to a Mac, tut at how tricky it is to get Windows to work. But these numbers tell us that the smartphone revolution is over – everyone who needs one has one, globally; and the fight now is to keep them, and for Apple this means ensuring those people rely on the Apple eco-system. Slowly the Apple cachet will erode and as each rival puts more and more effort into closing the device design gap with Apple, less and less people will remain loyal.
Total revenue for the quarter was still $50.5 billion, a drop of $25.8 billion from last quarter and a fall of $8 billion from this time last year. Net income of $10.5 billion compared to this quarter last year of $13.6 billion.
Faultline forecast this type of fall to happen last year, and we were a year too early, and now the price erosion in the stock has begun, the world will slowly fall out of love with a company that used to define innovation, and which has now come to be the company standing in innovation’s way.
In order to keep investors onboard, Apple will now buy back $170 billion of its own stock, but its guidance for the coming quarter is just $41 to $43 billion, with a 37.5% gross margin. The party is over.