Apple Inc’s unhappy year is over. The next one is starting off on the right foot, but expectations may already be ahead of reality.

Apple’s market value touched a record earlier this week of more than $1.1 trillion. Share gains have outpaced the S&P 500 since June as Wall Street started to feel more encouraged about Apple’s prospects after what has been written off as a lost fiscal year that ended in September.

That year ended with a bummer. Apple said that revenue from its star product, the iPhone, fell 9 per cent in the fiscal fourth quarter. For the year, total company revenue declined 2 per cent as growth in Apple’s expanding line-up of products other than the iPhone weren’t enough to offset a $22.5 billion decline in smartphone sales compared with fiscal 2018.

Analysts are not predicting a drastic revenue surge for Apple next year, but they figure that the company’s decision to lower prices on one model of its latest iPhone line-up will spur more sales. They also believe that Apple’s debut of more and more products — from new wireless headphones to its coming web video service and mobile video game subscription — will juice revenue growth.

Better numbers to come

That’s probably all correct. Apple’s forecast for the December quarter implies nearly a 4 per cent increase from the holiday quarter of 2018. That’s not fast growth coming off a down year, but it is a sign that new iPhones and other products are gaining traction. Apple has also been posting strong rates of growth in its non-iPhone hardware category, which includes its wireless AirPods headphones and the Apple Watch.

The company’s structural challenges remain. Apple has been pulling every lever it can to give its fans more products at a wider range of prices and features, but the easy growth is gone. There are no simple ways to change that reality.

Nor is Apple’s essential character changing as much as optimists hope.

Sales ease up

Smartphones have reached a saturation point in many countries, sales of new devices are declining across the industry, and the pockets of growth are in countries or market corners that Apple can’t crack easily. This story has been playing out for the last several years, and it’s understood fairly well now.

In that time, Apple’s market value has continued to climb with some interruptions. Its cash flow, while significantly below a 2015 peak, continues to be prodigious. Apple is not going to fall flat on its face.

Nor does anyone expect the company to grow by leaps and bounds — or even at the healthy clip of its big tech peers.

That would be fine, if investors didn’t get ahead of themselves and start to value Apple like a software company rather than one still highly dependent on the stagnant smartphone market. Apple’s stock is now more expensive, relative to the company’s expected earnings, than it has been in years.

On average, analysts now expect Apple’s revenue to recover a bit next year — essentially back to the level of fiscal 2018. Net income is expected to be below fiscal 2018 levels. It says something about the company’s prospects that a step back counts as success after Apple has expanded its product line-up and tried to get more people off the fence about buying a new phone.

There will be a lot of headlines and giddiness about Apple TV+, its Netflix-like video service debuting on Friday in some countries. New offerings like this will help lift the company’s top-line, and it was smart of Apple to effectively position TV+ as a way to spur iPhone sales.

In general, though, hopes may be too high for Apple’s internet add-ons like TV+. Significant chunks of Apple’s revenue, sales gains and profits from its non-hardware products come from long-standing offerings such as commissions on apps, payments from Google and the company’s device warranty programme.

Apple has been savvy about making tweaks to boost revenue from those programmes, but newer offerings have uncertain consumer appeal and profit potential, and they will have limited appeal to people outside of Apple’s fan base.

The coming year will be a time to come to grips with Apple’s essential nature. The company is extremely competent at making products, and now it’s milking its fan base to try to sell it more products.

Apple is doing many of the right things, but investors have to be careful not to get overly excited about the company making the best from a muted new reality.