San Francisco: Apple Inc’s decision to stop reporting how many iPhones it sells landed with a thud. While some pundits praised the move as a way to highlight a potent new business model, many analysts complained it was an attempt to hide the pain of a stagnant smartphone market. The stock fell more than 6 per cent in extending trading on Thursday, putting the company’s $1 trillion (Dh3.67 trillion) market valuation at risk.
“Big companies often clam up when numbers turn sour,” said Neil Mawston, executive director of the global wireless practice at Strategy Analytics. Motorola, a once-formidable industry player, reduced public reporting of mobile phone shipments when things turned bad a few years ago, he noted.
Apple has been praised for being one of the lone major technology companies to break out how many of each of its major products it sells each quarter. When iPhones were the hot new thing, like in 2015, it was easy for the company to tell investors it shipped 46 per cent more of the devices.
Now, the smartphone market has matured and growth is harder to find. Global shipments fell 8 per cent in the third quarter, compared with a year earlier, leaving the industry “effectively in a recession”, Strategy Analytics wrote in a research note.
In its fiscal fourth quarter, Apple said iPhone unit sales were about the same as a year earlier. Starting next quarter, Apple will no longer report that number, or similar statistics for iPads and Macs. Those two product lines saw declines in unit sales.
Reporting 90 days of unit sales no longer presents an accurate picture of Apple’s performance, Chief Financial Officer Luca Maestri said. CEO Tim Cook likened reporting unit sales of products to disclosing how many items are in a shopping cart at the grocery store versus how much the items cost.
Some analysts were unimpressed. “No one saw that coming. What are they hiding?” Neil Campling, head of tech, media and telecom research at Mirabaud Securities Ltd, wrote in a note to clients.
Others saw the change as a strong signal that Apple sees itself becoming more of a services business with digital subscriptions anchored to an installed base of more than 2 billion active users of its devices. “Apple is trying to shift the discussion to services and recurring revenue, because the more recurring revenue, the higher your valuation becomes,” Shannon Cross of Cross Research said.
Apple throws a spanner into analysts’ workings
At one point in after-hours trading on Thursday (November 1), Apple’s stock was down 7.7 per cent, a decline that would mark the worst performance off the back of an earnings release in more than four years. At the centre of the reaction on Wall Street was a two-pronged debate: Why is the world’s biggest company going to hold back some sales data? And are there lingering concerns about growth for Apple in China and other emerging markets?
Here’s what analysts are saying about the results:
Dan Ives, Wedbush Securities
“It’s definitely something that came out of left field. As they’re going through this massive product cycle, it’s a surprise for investors because transparency is sort of key here. Not breaking out unit sales is going to be a pretty controversial issue.”
Julie Ask, Forrester Research
“Because devices have been Apple’s history for so long, there’s a set of expectations around those sort of products. But growth in the future is going to be slower in some ways.
“When you look at the upgrade cycles, those are slowing. You have to be a user of games, or what I would call the more demanding applications on the phone, to really need that upgrade. I don’t need an iPhone X to do e-mail, but you do if you want to play the latest video games.
“When they do get a customer, especially for a subscription service, that’s steady and that goes long term. But services are a lot more dependent on ecosystem partners. So whether it’s Apple Pay, or it’s music, or it’s media, Apple can’t just flip a switch and make that all happen. It’s grinding that out day by day to sign up for partners, negotiate deals, get more services. It’s something that grows much more slowly and more organically, it’s not about a big bang ‘Wow, I have to have that new product once a year.’”
Horace Dediu, Asymco
“We’re a little disappointed on the guidance. It looks to be, perhaps, indicating emerging market or China slowdowns and frankly, considering the product mix they have, it’s a flat forecast with zero growth in the iPhone.
“We are seeing a little bit less enthusiasm from management. Just two days ago we had new products — meat and potato products — these products that are middle of the market. Not to see that reflected in guidance is a little disappointing.
“There’s a question around whether the XR will be a home run or not.”