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  • Rob, the moment is finally upon us for the first time.

  • Last night, Apple reported that iPhone sales were lower in its most recent quarter than in the same period a year ago.

  • That seems like a very significant moment, some people talking about a blackberry style death spiral.

  • Is it really that bad or is the market getting far too excited over something that we all knew would come at some point?

  • It is a moment, clearly. A symbolic moment. And it is equally true that historically very dominant handset makers.

  • once they start to decline in volume, the wheels have come rattling off.

  • I think in Apple's case, a couple of things have to be kept in mind.

  • The first is that Apple is mid-product cycle, in other words, this first quarter fell between the iPhone 6 and the much anticipated iPhone7.

  • And historically, in these mid-cycle moments, Apple has reported some pretty soft revenues.

  • In the past, revenues have come down to sort of zero growth.

  • This time, we just happened to break the zero barrier.

  • Because of weaker sales in China.

  • Yeah, China was particularly weak this quarter. That's probably macro-economic.

  • So maybe you don't want to make so much of having broken the symbolic zero barrier.

  • The second thing to keep in mind is that the stock is actually priced for a decline.

  • The stock trades at about 11 times earnings if you take out the cash that is sitting on Apple's balance sheet, it's at 8 times earnings.

  • So what the stock is saying is we expect sales to go down from here.

  • And if Apple can prove that all that's gonna happen is a flat lining of sales from here, I think the stock could potentially go up quite a lot.

  • How realistic is that, though? Because I thought that the whole business model of technology companies like this was growth.

  • And it was getting more and more people to buy more and more stuff,

  • and that there are precious few examples of businesses that have turned into this kind of annuity model where you just monetize a very large installed base.

  • And I think that's precisely where that the debate over the stock is at at this moment.

  • So Apple loves to trump at this number that the active installed base is over a billion customers.

  • So you start to do a little bit of math. You say if something over a billion customers is willing to re-up and buy a new Apple product,

  • at a price of say 500 or 600 dollars every say 2 or 2.5 years,

  • it's easy to get to a sales line on Apple's profit and loss statement of 200 billion, 250 billion,

  • in other words, right where we are now.

  • So if you can just keep people buying, renewing again and again, you have an immensely profitable company that could be sort of the ultimate value stock.

  • And I guess the ultimate test of that will come later on this year when we get the much anticipated iPhone7

  • and we'll see if that reinvigorates the momentum.

  • Rob, thanks very much.

Rob, the moment is finally upon us for the first time.

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A symbolic moment for Apple | Lex

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    Kristi Yang posted on 2016/05/04
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