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Comment by bsirkia | Hacker News Reader

Incredible that this is the first time in 13 years that Apple hasn't posted quarterly growth. I'm sure there will be lots of "Apple has lost its ability to innovate" articles based on this, but growing for the last ~52 straight quarters is insane.

And I don't think one quarter without growth is enough evidence to conclude "Apple may be reaching the saturation point among potential customers in some countries" or "other smartphone makers using Google’s Android operating system continue to challenge the company with powerful, lower-price devices."

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There is something fundamentally wrong with our system that "growth" is used as the main metric for assessing business success. It's growth for the sake of growth (and more $), and not deploying business to solve hard customer problems and to make the world a little bit better.

growth for the sake of growth

Working at a small shop now, and seeing this same behavior, it's a little frightening. In our case, and from my perspective coming from a couple of startups more recently, and large enterprises prior to that: terrifyingly frustrating for a number of reasons.

I'm in a great spot to make suggestions from my accumulated past, but the team and management seem terrified to make the jump and have nestled themselves nicely in the niche of "let's just do what's easy for now" while still telling themselves they want to grow grow grow, but I don't think management is quite aware of what this growth is going to mean internally for our ability to solve problems with the toolsets we have (both for support and project management).

Wow, are you me?

Every morning we have a company wide meeting where capturing more market share is a recurring theme. And immediately after that meeting yesterday in a developers only meeting, an inordinately large amount of time was spent on discussing how we can introduce new features yet still accommodate those of our customers who don't have internet access.

Because, as you know, if you want to capture more market share with software in 2016, you want to focus on people who don't have internet.

That was a theme at a place I used to work a few years ago, but it was internally. How can we accommodate employees who don't have Internet access at home. Mainly focused on truck drivers who live a hundred miles away from their distribution center and park their truck at home at night, with the question being "how can they log their miles". So we needed a VPN that could support dial-up, and a trucker logging tool that supported dial-up, but also the helpdesk support tools needed to be able to be used on dial-up so the helpdesk could walk them through any issues interactively. But we didn't want to spend any money supporting it, so we kept a Windows 3.1 server running so we could run the Novell system that truckers used to log into the dial-up VPN with.

We finally put Internet access in all of the warehouses and told the truckers they had to end their night at the warehouse and log their hours there. Several drivers quit because it was too much of a burden to drive that far every day. But then we finally got to upgrade the software to support showing customers where the trucks were at and how long it would take to get to their locations.

It would be awesome if technological progress was more evenly distributed across the population.

My argument in the meeting was that our company has over 15,000 clients who are businesses themselves, and maybe 100 of them don't have internet access. Most of these clients intentionally keep their computers disconnected because "the internet causes viruses".

I understand that any good company wants to provide quality service to all of their existing customers, but dedicating resources and devising workarounds for that small percentage of disconnected customers (to the detriment of the thousands of others) while our mission statement is to "capture market share" seems counter intuitive to me.

I was agreeing with you and trying to provide a complimentary example :) It's hard to grow when you're hindered by the long forgotten past.

Yeah, sorry, I didn't mean to come off as confrontational in my response. Just venting frustration to the aether.

Even at that, it isn't just about making a profit, it is about making more profit (or often just revenue) each quarter. Your business could be operating at a 40% profit margin that but be called a failure and run against on the stock market when that doesn't become a 41% margin next quarter.

Pure exaggeration.

This is not complicated. You buy with the expectations of future profits X. If the stocks fails to meet those expectations, you reallocate your capital by selling to someone else who is happy with <X.

There is nothing nefarious about it. Nobody is a failure. The system isn't broken. This is the free market.

The point is that the free market may not be good for long term R&D because a lot of buyers/sellers are speculators with expectations not aligned with long term company viability.

>The point is that the free market may not be good for long term R&D

How is the long-term R&D of Apple affected by a bunch of shareholders exchanging ownership with new shareholders?

hm, there is a valid criticism to be had but "wrong" isn't the word I would use.

there isn't anything wrong with Apple's stock selling off violently, as much as there was anything wrong with people bidding the shares up so high under the idea of selling it to someone else at a higher price.

there are plenty of companies that are content with steady or even cyclical growth/earnings. in many other countries were local stock markets are not popular venues for speculation and capital formation, it is quite respected to have steady earnings without a drive to quarterly growth.

that being said, many places that are low growth envy the high growth areas, especially how it has been achieved in the US markets.

The high growth of the stock market has largely diverged from the rest of the US so that it hardly reflects the "real world" in any way.

That's a big reason why private businesses are better than public ones. There's no need to push for unsustainable growth at the behest of busybody investors.

Busybody investors? They own the company!

The problem is that a lot of "investors" actually aren't investors; they are traders or speculators. They demand immediate growth and are unwilling to allow the company to eat losses in order to invest in long term, ultimately more profitable R&D / projects.

>They demand immediate growth and are unwilling to allow the company to eat losses

Or...they are unwilling to allow the company to eat losses to pretend to invest in the long term, but are in reality on their way to failure (for example). Let's not act like companies, in general, have this figured out and know what's best. Lots of them fail.

If you want long term growth, you're free to invest that way. But don't impose your preferences on others, or assume their method is wrong. The only way speculators, or anyone, can buy shares is by someone else deciding to sell, uncoerced.

I feel Apple would be better as a private company but it's too late at this point.

Is there a way for a company like Apple to secretly buy back stock? I feel like at one point it would show up in the books...

Don't know about secretly (they could probably set up a stealth LLC and file it under "strategic investment"), but they've had a stock buyback program for a while.

Not really, no. There are laws in place to force transparency in stuff like this, and rightfully so.

that pressure comes from shareholders who want to make money on their ownership stake, whether the company is traded on public markets or not. it's not carl icahn pushing 5-year exit strategies on startups.

Every time you buy a stock in the anticipation that its price will rise, or, for that matter, buy VFINX with the expectation that the total value of the S&P 500 will rise, you are putting money on a bet that companies will grow.

Not necessarily. If a company makes a profit, then theoretically so do your shares, whether in terms of share price increase or dividends.

So, actually, fun fact, this is false!

The stock price doesn't just reflect the amount of money the company has. The stock price reflects the "fully loaded" expected value of that stock. That means it prices in ALL expectations.

If the company you buy performs exactly as expected, then you don't actually make any money because you paid the price that reflected those expectations, so whatever dividends the company issues will only compensate you for the premium you paid. So the stock has to outperform expectations before it's worth buying.

The "expected value" of the company actually discounts dividends and the like, because the value of money in the future is less than the value of money today.

There's an amusing side point to this, which is that a perpetual annuity actually has a finite value [1].

[1] https://en.wikipedia.org/wiki/Perpetuity

I think you're mis-applying the theory here and confusing Return on Risk? No matter what you say, if I buy a stock that expects to earn dividends, and I do earn those dividends, and I've realized a 5% dividend yield, I certainly have made a profit. Now, whether I'm getting return on risk is another thing and very well the answer may be no.

Don't think -so- that I've made a mistake. I can eliminate risk and make the same point:

Suppose you buy a perpetuity, granting $X every year. After 100 years, you'll have 100 times $X more dollars, but you will be worth exactly the same as you were worth before the perpetuity. (This assumes that the market correctly prices the perpetuity so that the expected value of purchasing it is $0).

EDIT:

I'm not talking about "profit" because it's not really a super useful concept here. Having a larger quantity of dollar bills after a period of time does not mean that I've got more value. Trivially, if I have $100 in 1950, and $101 in 2016, I have made a "profit" of $1 but lost a substantial amount in real terms.

I should cite sources and use correct terminology.

Wikipedia provides the following [0]

> The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value.[1] In other words, it is used to value stocks based on the net present value of the future dividends.

[0] https://en.wikipedia.org/wiki/Dividend_discount_model

I still think you may be misapplying some theory. The points of discounted future cash flows, time value of money, and ev are not lost on me. But pointing out that an arbitrary profit figure irrespective of inflation is a "profit" is meaningless.

It's a nice Econ lecture but markets do not actually behave by a manner of collective estimate of dfcf. I would say it's more accurately described as a random walk with an upward inflationary bias.

Well there's also the effect that new money flowing into the stock market as a whole ends up chasing a finite set of stocks thus tending to raise prices.

I concede, however what I was mainly getting at was that this meme of "you only make money when the company grows" is also false.

I believe you would agree with me that a company could exceed expectations while at the same time not growing (by giving out a bigger dividend, or buying up its own shares with its profits).

I'm not saying that you only make money when the company grows. Obviously, you can make money from a consistent dividend, as well.

But that's not really what you're doing when you invest in an S&P index fund, right?

Using that logic you could say it's never worth buying anything. A loaf of bread costs the fully-loaded expected value of that loaf, so it's never worth buying a loaf of bread because it's always going to be worth exactly what you paid for it. But actually trade is a wealth creation mechanism because different people put different value on things: to you the loaf is worth more than the money you paid for it, while to the shopkeeper the money is worth more than the loaf.

The stock will cost a fair market-clearing price for its expected return, risk-adjusted. But often a stock, or a perpetuity, is a good purchase for one or other market participant - no different from a loaf of bread bought at a fair market-clearing price.

You are missing something: the discount rate used in a DCF model is not the "risk free" rate so if everything goes "as expected" you are still making more money than you would buying government bonds.

One can say that this "risk premium" actually reflects the expectation that things don't go as well as expected. But the fact is that in the aggregate and in the long term equity investors are still doing "better than expected" and there is no agreement on why it is so (this has been called the "equity premium puzzle").

It's growth for the sake of growth (and more $), and not deploying business to solve hard customer problems and to make the world a little bit better.

Not sure I understand. How do you grow revenue unless you're producing something that someone wants, presumably because it solves a problem and makes the world better?

If I were a company I'd pay a lot of money to find other ways to grow!

Hard problems though might involve making a 5 or more year bet and investing billions with no guarantee of a return.

Much more of a risk than bumping the iPhone specs.

Yes, if you presume growth results from problem solving, then it's trivial to argue that it must. But it's also fairly trivial to show growth that results from causing problems, too. Like certain kinds of monopolistic behavior.

For example, if my ISP charges my $10 more a month, they aren't necessarily solving any problems, but it's still growth for them.

> There is something fundamentally wrong with our system that "growth" is used as the main metric for assessing business success.

Not only that, if there is no growth in the next few quarters Apple will be considered to be in "bad shape" which is insane when you consider the size of the company and its revenues.

It isn't really lack of growth that's a problem, there are tons of companies out there that post a very consistent profit quarter after quarter that are doing just fine - negative growth, especially in a few of a company's core segments, is just as unsustainable as positive growth year over year is. If you have enough quarters of negative growth, very soon you have nothing. It is a warning sign to investors that things might not be going so well. Is one or two quarters of negative growth bad? Probably not in Apple's case, probably yes in something like AMD's case. The context matters, but there is a reason growth is used as a metric, the market is not stupid.

A recent book that tries to address this (kinda annoying title): http://www.rushkoff.com/books/throwing-rocks-at-the-google-b...

Growth is simply part of the formula that lets you arrive at valuation. It's just math. If growth goes down, so does the valuation

Down voters: valuation = income / ( discount rate - growth rate )

"Apple may be reaching the saturation point (of the products it currently sells) among potential customers in some countries"

Apologies in advance if this is a dumb question.

What is Apple's next move once it saturates the market?

Or, more generally, what is the next move once you've saturated a market?

Product innovation I would think

You make a new product. But without Steve Jobs it's hard..

creating new products and services which will continue to grow or change the markets and get new customers.

You create new product lines. They've done the Apple Watch, Apple TV, Apple Pay, etc..

There's plenty of more options available in both the short (<5yrs) and long term (>5yrs). They've previously had consumer product lines that included cameras, game consoles, laser printers, TVs, etc.. They could revisit those markets again, or push into business markets.

Really they could do anything.

Define your market more broadly. The iPhone itself is an example of this. Desktop computers don't have much growth? Well, what else could a computer be besides a desktop?

a car :)

It’s safe to say that the whole Internet of Things is still in its “feature phone” stage, if not the infancy of that.

A whole new product line. See GE for an example of a company that has figured out how to just keep growing.

They are rumored to be interested in cars

Personally, I wonder who though Apple's growth would never end. This happens to every company sooner or later.

I was at a NASA workshop in Mountain View. An informational placard outside had two plots of growth, one with an unchecked exponential curve, and one with a curve that comes up to a peak and goes down. It asked which made more sense as a growth curve.

My idealized mathematical self thought, naturally, the exponential growth curve, because it expresses what happens when y-dot equals alpha y.

But I asked a passing Caltech astrophysicist, who (not surprisingly) gave a better reply. The curve that flattens out and goes down, he said, because exponential growth is impossible to sustain. Physical limits on some aspect of the system must intervene and impose a new law.

A chart of growth rate might have a peak, but a chart of the thing that is growing is more simply modeled as a sigmoid that has an initial exponential growth portion, then a logarithmic portion which ends in a plateau.

That depends.

Time-delayed negative feedback produces a peak and a crash.

> Physical limits on some aspect of the system must intervene and impose a new law.

Just because Apple didn't become the first trillion dollar public company by marketcap (lets assume that chinese bank ipo for a brief second didn't count), doesn't mean that it would have broken a physical limit on the system.

There was a time not long ago when 100 billion companies didn't exist

and there was a time when private venture capital didn't value new businesses at 1 billion dollars

although I don't see the fundamentals to support such large companies, apple, or another company, isn't breaking anything if it does achieve the ability to grow larger

Might inflation due to quantitative easing, for example, be at least partially responsible for the higher valuations we see today?

Partially, Apple's metrics aren't that outlandish though. You could just use the age old price to earnings ratio and see it isn't wildly inflated, they make bank and speculators value it at 11 times said bank right now

The higher valuations of private companies IMO has little to do with quantitative easing. Despite any bubble talk, very little funding actually goes into these private companies. The S&P 500 returns nearly 1 trillion a year to shareholders via dividends, VCs put like 50 billion into these high growth startups.

Low interest rates from quantitative easing might contribute greatly, but I wouldn't say the inflation targets have much to do with it.

The inflation rate for the last 12 months was 0.9%, and has varied from 0.1% to 3.2% over the past 5 years. [1] So, no, inflation is not responsible for the higher valuations.

Higher valuations come partly from businesses having more cash because they are not spending money expanding, and because the low interest rates encourage companies to borrow money to buy back stock, which increases EPS and dividends, which increases share prices. Of course, there has been some legitimate growth over the past years, too.

[1] http://www.usinflationcalculator.com/inflation/current-infla...

Consumer price inflation is not responsible for the increase in equity valuations, but quantitative easing and bond buybacks certainly do. QE reduces the yield of bonds, making stocks look more attractive and hence resulting in more money flowing into stocks.

It additionally devalues the dollar, which leads to assets to be worth bigger numbers. QE has been mainly flowing to investors and the financial sector, and ts been staying there, hence not translating to consumer price inflation.

So yes QE is responsible and QE caused inflation and inflation is also responsible. This inflation is confined to investment assets.

Inflation should be considered, but for what it's worth, inflation rates, while still positive, have been decreasing (overall) for several decades now - including the most recent, which featured quantitative easing. See: http://inflationdata.com/Inflation/Inflation/AnnualInflation...

Apple is still proportionally smaller than IBM, which achieved like 15% of S&P500 in 1985.

for some reason, I really don't think that particular metric matters.

(for reference, the S&P 500 calculation was around 170 in 1985, compared to 2,098 today in 2016)

OK, let me frame the question as, "continual positive growth in revenue relative to the rest of the market", i.e. outperforming the market, and then either Apple becomes the market in goods, or the rules change.

I'd really like to see this placard. Are you able to find a copy of that placard online?

I tried and failed before I posted. It was a metal sign placed outside "Building 3" (the Spanish-style place) here: http://naccenter.arc.nasa.gov

It's not readily accessible, and there seems to be no street-view coverage there. The photos listed nearby on google maps have a location that is far enough off to be useless.

My guess is most natural growth curves are exponential at early times, inflect, then reach asymptotic behavior.

That was a lot of words to use just to agree with the above. Well played?

>I'm sure there will be lots of "Apple has lost its ability to innovate" articles based on this

Given that people have already been writing those articles for a couple years, i'm sure a drop in their revenue and missed estimates won't make them stop.

Innovation had little to do with this, US cellphone companies stopped heavily subsidizing phones. Apple's profits dropped.

>Incredible that this is the first time in 13 years that Apple hasn't posted quarterly growth. I'm sure there will be lots of "Apple has lost its ability to innovate" articles based on this, but growing for the last ~52 straight quarters is insane.

Not to mention that all the other companies (Microsoft, Amazon, Google, Facebook) have much worse ups and downs (and are also 1/3 or less the revenue and much much less the profits of Apple, Amazon comically less) but you never see "X is doomed" for them...

It's a bad report across the board...

AAPL YOY (year over year, not quarter) : iphone down 18% ipad down 19.5% mac down 9% revs down 13.5% eps down 18.5%

> It's a bad report across the board...

Just to put this into perspective:

> quarterly net income of $10.5 billion

Good point.

"which is about a 12% decline in year-over-year quarterly revenue. It’s officially Apple’s first quarterly decline since 2003."

It is year over year growth that has gone negative and quite significant across the board.

It's got to be largely a zero-sum game between Android and iOS at this stage.

I think that the boomers retiring with no more company-paid cell phone is a small market that is expanding.

IMHO biggest Android advantage is being open. Hardware and software is obviously better on iOS, but being closed platform I keep getting disappointed every week because I can't do x or y.

I doubt that many people base their purchasing decisions on this though.

Ignoring of course the fact that the most important parts of Android is not open source (Google Play Services, which is at the centre of a very misguided EU anti trust case), just because Android is 'open' it doesn't mean you can do more things on it. If something is possible on Android that's because of a design decision that Google took. Besides, what happens when you run iNot someone that you can't so on Android? You going to download the source code and make a change and flash it to your decide? I doubt it.

The fact that you can load anything outside App store means a lot for advanced users. And I am not talking from OSS perspective.

Besides, where have you seen OSS services? It doesn't even make sense.

Yea exactly its one of the reasons why I love Android so much.

Also the argument that Android isn't actually OSS argument is dumb. If it was closed source how have other companies forked it and successfully released their own variants? It doesn't make sense.

"Forked it and successfully released their own variants" is a stretch (Amazon Fire Phone), especially when Google specifically prohibits vendors that get access to Google Play to fork Android.

The fire tablets are very successful. There are a few successful forks in China. There are tons of fan built versions. Thats not a stretch.

Google restrict OEMs from forking, is certainly shitty. But its also a smart business tactic and I hope Google gets more restrictive around letting OEMs use their flavor of Android. Since it leads to a more cohesive experience surrounding Android.

Sideloading is supported since iOS9. Granted it is not that easy as installing an APK.

What? Are you referring to how you can compiling and run apps if you have a developers account?

huh I think the poster was referring to just using the platform. Its one of the major reasons I use Android over iOS. You have a huge amount of freedom. There are several key apps I use constantly throughout the day that could not exist on iOS. This is also coming from a Mac fan that grew up using and loving Apple computers.

Also thats not true. Most important parts of Android are open source, for whatever thats worth. Its the parts that communicate with Googles cloud that are closed as well as Google's branded suite of apps.

I think that the importance of being able to do X of Y depends on what you are lookimg for in a device.

This is my first iPhone as at previous occasions I always used Android (nexus) devices and I found the fact I don't need to tweak it, a positive thing. That and the fact that at it is longer supported than some Android flagship devices.

Ten years ago I had the time (and needs) to tweak my phone, nowedays I just want a good (out of the box) smartphone with long support.

Its not about tweaking. Its about having full Unix shell or ability to change DNS settings.

Apple doesn't innovate terribly much, there were smart phones before the iPhone, the iPhone was just a better one. There were tablets before the iPad and the iPad was just a better tablet.

Apple's strength isn't in coming up with NEW things, I would say quite the opposite as they're usually very late into any given market. Apple's strength is coming up with products that are better than the ones that came before, in their Apple-y way.

And how do you not consider this innovation?

Innovating isn't just about inventing new technology wholesale. It's also about packaging that technology in a way that makes it useful and desirable.

That's actually a really good point, I guess my definition could use some work.

Since when does innovating really mean making something new? I think that already has its own word: inventing.

"Innovating" is a business buzz word. Its not meaningless, but I think that its meaning is far from inventing/creating.

In the past this has been true because their exceptional design skills. But companies learned that skill, it's not unique to Apple anymore. So for example, the Apple watch isn't objectively significantly better than Google's Watch OS.

But Apple still has a lot of resources and capabilities it can deploy to make something a sucsess, like any other big company, so maybe that's what we should except from the current Apple - altough considering the circumstances - this can be very lucrative.

The options prior were half-dead PalmOS, Windows CE devices like the iPaq, and the Blackberry.

The blackberry was the ultimate pager, but didn't have a functional web browser. The Windows device was pretty much awful, and PalmOS was waiting for euthanasia.

> Google’s Android operating system continue to challenge the company with powerful, lower-price devices."

Apples customers barely complained on slow iPhones, and even less at their pricing level, where many knew apple margin is 40%. "Normal" company cannot withstand such high margins because of competition. Jobs achieved opposite where many people just said "oh screw it - it will cost me plenty, but I really want it!"

As of the lack of growth, I agree with you. It doesn't mean they are in serious troubles, just like a light caught doesn't mean you have a throat cancer. But the truth is that their products lost plenty with Job's departure.

Apple growth barely been done due to progress, but rather because of evolution! First mass-scale touch device, first mass-storage music device (I know, there been Palm and others; but ask 10 people - who ever heard of Palm?). Those were steps of evolution. Before you couldn't type with a finger. Before you couldn't store 160GB of your music in your pocket. Etc etc.

Now Apple is all about growth. There is no more evolution! There is faster CPU, if you really needed it. There is lighter phone, if you really needed it. There is faster GPU, if you really needed it. There is more fancy front-facing camera.... BUT none of those things are evolution; its just a progress. And that won't catapult Apple sales into previous levels. It simply can't.

Would we see the same "disappointing" sales numbers had Jobs still be here? Most likely not. By now we would steer the "i" devices with our eyeballs, and mind control that really works and is friendly to a customer would be just around the corner...

As of today under current management... it's funny, but my i device doesn't even have an FM radio built-in.

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