Apple’s Hot iPhone Quarter Masks a Behind-the-Scenes Slowdown
bloomberg.com
bloomberg.com
If a company doesn't show growth, it is quickly labelled as "in trouble" or "dead". Why? Why can't we have an Apple that is the size it is now, but concentrates on making better products?
If you look at the last 10 years of Apple products, it is clear that many decisions were made to favor growth (e.g. revenue) over customer satisfaction. Their products are often made worse and delight us less, because someone decided that growth is more important.
I run my own business and growth is not my #1 goal. But I have the comfort of being able to make that decision, as it is my (self-funded) business.
I wish we could ease up on the pressure to grow.
EDIT: the replies are completely missing my point. No need to explain how the stock market works. Just please consider, for a moment, a world where companies don't have to prioritize growth over everything else.
that's how it works.
Apple also doesn’t need that many investors at the moment, so why should it care much about what investors want?
Also, as I said, share prices don’t need to go up to make investors happy. for example, the typical pension fund is perfectly happy with an investment that will never win them the jackpot, but also is extremely unlikely to lose them everything, and very likely will regularly pay dividends.
So, a majority of Apple’s shareholders may be perfectly happy with the status quo.
The board is the one that has the power to fire the CEO not shareholders.
And yes shareholders are involved in deciding the composition of the board. But unless there is some egregious governance issue or a complete breakdown in financials no one is going anywhere.
For over a hundred years now, realized gains (i.e. the difference between what you paid for a stock and what you sold it for) have been taxed at different rates depending on how long the investment was held.
Over the decades, the definition of "long-term" and it's special treatment has jumped around ALL OVER THE PLACE (i.e. 6 months, 2 years, 10 years, etc). During the Reagan administration (believe it or not), the special treatment for long-term capital gains was abolished. It was brought back around the turn of the century under Clinton (believe it or not).
So it's possible that a middle-aged investor during the 1980's and 1990's grew accustomed to the conventions of an era without a long-term capital tax rate. And never adjusted their mindset or investment strategies when the long-term rate returned. However, the 80's and 90's are a historical aberration.
Although the definition of "long-term" has been one-year for quite awhile now, the special rates for long-term gains were continuously lowered during the 2000's. So that it's now EXTREMELY more advantageous to accrue long-term capital gains rather than dividend income. Those rate changes have been one driver for recent share buyback programs (the far greater driver has been the availability of cheap money under post-2007 Federal Reserve policy). However, it's worth noting that even the lowest capital gains rate today is higher than when the tax was first introduced.
This isn't public transportation.
I only bet on high-growth companies. I'm not interested in making money the slow-and-steady way.
That is a very common sentiment, but badly misguided. What you should want as an investor is a good return on your investment. You can't eat customer satisfaction, but you can eat profits and profits can be produced by satisfying customers.
In fact, the only thing that should matter to you as a rational investor is the price of the investment relative to the profits you expect the company to make in the future. There is a price at which even a rapidly growing company will no longer produce a good return relative to alternatives, and there is a price at which a company that is profitable but not growing will produce a good return. That is what should matter, not growth per se.
The reason people are attracted to growth is that growing companies are priced with a risk premium that produces outsized investments in some cases. But survivorship bias makes investing in a growing company appear more attractive than it actually is. In the long run, the market incorporates all information into the price and regresses to the mean.
And growth has all kinds of unpleasant externalities too. It really should not be pursued for its own sake.
Sure you can still go to Russia or China but these companies really want to take that risk?
In practice, I agree with you, even when a company is treating investors well via dividends they still get hammered on "slow" growth.
Lets be clear here though, Apple is not contracting in their size, they're simply just not growing at the same gangbuster rates they have been for over a decade. Can't last forever
Because of the stock market. Current prices today reflect growth expectations. That's why people are paying so much for Tesla shares – they are trying to get a 'bargain' today, assuming the company will grow to immense numbers in the future. If that doesn't work, share prices will implode and be adjusted to reflect things like revenue and inventory. They will be valued just like the bakery next door.
Private companies also have an expectation of growth but, until they start issuing shares, the expectation is nowhere near as high.
Of course, no company can keep growing forever. At some point reality catches up and they will either slow down growth significantly, or they just crash under their own weight.
Growth is what happens when there is technological change.
In certain circles there's this idea that technological growth requires more damage to people and the environment, but that's exactly wrong, and the past decades have shown it to be a competent fallacious assumption.
We need dramatic, massive growth of new technologies to supplant the damaging ones. Confusingly, some people refer to this as "degrowth", but that's why growth/degrowth is a barren framework for analyzing the world. Because growth is not one thing, it's a high-dimensional direction of many many different attributes.
Growth to a railway is better logistics so things are directed more accurately, more energy efficiency, more efficient use of labor, etc. They can also increase their sales, but I think your comment was implying those are stagnant industries.
All technology is ultimately making improved outcomes at lower cost. That is what technological advancement is.
It is the government-run subways that are stagnant, smelly, late, broken down because no one in the entire org has any incentive to do anything other than the bare minimum to avoid getting fired.
Total number of TEU delivered within x% of scheduled time with y% loss rate.
If the company is doing a job well, these should go up over time. Sure, you can add on more conditions (i.e. with z max pax/sq.m., with p max wait to board) but ultimately, if the thing is doing its job right, there should be growth. It should be getting more people to places.
Every successful subway system shows growth. Taiwan Metro and TfL are both well renowned and both show continuous growth.
Growth is Good.
You are discussing technological development and advancement, which should be talked about separately from financials. Endless drive for profit and economic expansion seems to be an end to itself, whereas technological advancement for lower pollution and greenhouse emissions are necessary.
I don't think anyone is arguing against the word growth in a general sense... Clearly we can "grow" our knowledge, or undertake "personal growth", or whatever.
The people who argue against "growth" are, in a way, agreeing with you: They're saying "GDP is a terrible metric to optimize and we should find a way to stop optimizing for it. It creates perverse incentives. Digging oil out of the ground and burning it to make a ski-slope in the desert increases GDP. Selling houses to each other for ever-increasing prices increases GDP. Those things suck.
They're saying that perhaps we could make the world better by changing the metrics we optimize for... Perhaps that's population happiness, quality-adjusted life years per person, projected climate change impact, world biodiversity, etc etc. And they're saying that maybe if we optimize on those things, GDP is going to have to drop. And that should be OK. But with the system we have built, it's not OK. So we're in a bind.
Apple is valued at $1T and all the nice things that come along with that (huge salaries) only if they deliver growth.
It's 100% fine to not have growth, but then they have to get a different set of investors (or buy themselves out) etc. where those expectations are different.
With 0% growth their equity price is near 0. Which is again, fine, if those are the terms being made.
But it means less money for speculation, investment, R&D, expansion etc..
Every investor is allocating capital based on the opportunities in front of them.
If some other team can consistently do better, well, money will follow that.
To a great extent - we want this.
Usually corporate growth means 'surplus' for the rest of the economy and especially consumers.
For every $1 in APPL profits, probably they have created more than that in surpluses. In other words: our lives are materially improving, specifically by more than we are giving apple as consumers. Hopefully.
These economics don't always work well, esp. when there are monopolies or for where economics work differently, like healthcare. (FYI capitalism and certain fundamental realities exist in Healthcare, just that the context is different).
It remains to be seen if Apple will find other ways to grow, my bet is they are not out of tricks just yet.
Oh. My. God.
How much would you pay for something that has X% (where X > 0) risk, and 0% growth?
You would likely pay $0.
Because you can put your money in a 'risk free' investment, like a bank account, and get a minimum return.
There is the 'enterprise value' which would include assets (i.e. maybe Apple has $20T in cash in which case, obviously their stock is worth whatever their assets are worth, but at some risk-premium discount). Most companies have some assets but usually not a ton relative to their value.
Of course, 'risk free rate' may be negative (not common, but could happen), and so 'losing money' on a stock that doesn't grow would be better than keeping it under your mattress or in the bank, but we're not there yet.
But otherwise, a company that doesn't grow is fairly worthless to most investors other than for some other strategic logic, because they usually have other, better places to put their money.
Surely at least book value, in case that risk is not infinite?
> a company that doesn't grow is fairly worthless to most investors other than for some other strategic logic, because they usually have other, better places to put their money.
A company is a money making machine. If it doesnt work it produces each year the same amount of money. How can that be worthless?
A non-growing company with annual profits around $100bn is obviously worth much more than $0.
Go ahead and invest in companies with 0% growth and see how well you do with your retirement.
Yes, companies can have a positive 'book / enterprise' value that must be heavily discounted by all kinds of risks, and future 0% growth cash flows even much heavily discounted, in which case, theoretically, yes, there are a few companies around that might have giant pools of liquid assets that might be worth something ...
... but in general, companies that don't grow are worthless.
Owning a quickly evaporating pool of cash vs. one that is growing, compounds quickly over time.
The rest of this thread is talking about y/y revenue and profit growth.
If profits are sustained at $100 BB annually every year perpetually, and I own 0.01% of the company. They can afford to (and can be made obligated to) pay me $10 MM annually through dividends or equivalent stock buy backs.
This is a useful company, and I would buy its stock for the right price.
It might be useful if you got it for free, but in that case you should sell it to a bank or someone who can actually use a fixed-income asset.
As the Beatles would say, to get you money to buy you things.
A black box that spits out one dollar bill (after tax, if that’s your concern) every hour is a useful product to anyone even if there is « no possible upside ». Don’t you see the point in getting one if the price is right? Wouldn’t you pay $10000 to get one? $1000? $100? $10? $1?
> But it means less money for speculation, investment, R&D, expansion etc..
Well, they're still making billions in profits. Their stock price won't affect that.
EDIT: I've just realised that VW spun off Bugatti - my comment is no longer valid.
And I tend to agree with you that we would be better off if companies could define “enough” and maybe disband at that point rather than stagnating.
The thing lurking in my mind that maybe makes this a pipe dream is the Red Queen hypothesis.
I skimmed the article and it doesn't seem to suggest apple is in trouble, or that it is dead, it is merely commenting on why certain revenue figures are lower year over year.
In fact, it seems explicitly to convey that the sky is not falling.
The company is owned by shareholders who want growth or a massive dividend. If AAPL can't grow then return profits to shareholders through stock buybacks or increased dividends.
> I run my own business and growth is not my #1 goal.
If you own your own business then do what you think is right for you. As an AAPL shareholder all I want is increased value in my shares.
“If you want me to do things only for ROI reasons, you should get out of this stock.” -Tim Cook
> If you look at the last 10 years of Apple products, it is clear that many decisions were made to favor growth (e.g. revenue) over customer satisfaction. Their products are often made worse and delight us less, because someone decided that growth is more important.
The shareholders care about making money and little else: they don't care about releasing better products. If worse products will make them more money, the shareholders will demand the company make its products worse, and they'll get their way.
Nothing wrong with a steady state company. There are plenty of them. But that has implications that companies need to live with.
In an open market I would assume that better products drive new users and/or increased revenue. The way Id measure that is probably something like units sold, ASP, LCV, etc which should all feed back to top or bottom line. And if revenue or profit is increasing id call that … growth?
So it seems a bit tautological. UNLESS you mean to measure better products some way besides revenue, units sold etc. And then Im really interested in what that quantification would be, and why it would lead to different outcomes.
I recently switched from a 4 years old X to and iPhone 13 Mini and to be perfectly honest I can’t experience any difference, it’s basically the exact same phone in a smaller form factor. Hadn’t it been for the size of the X being an issue, I probably could’ve stayed on it for 4 more years.
Great from a consumer (and environmental!) standpoint, not so great from a quarterly report standpoint.
https://www.macrumors.com/2022/06/06/apple-announces-multi-d...
This is why companies are trying to break into it. Hardware is the main gap at the moment but Apple is the best hardware manufacturer in the world. The M chips are a step in this direction (high performance, low power).
I imagine you will still use the internet in AR, otherwise how will you get information? What you probably meant is a web browser on desktops and phones.
100% but Apple always follows others leads and then makes a better product. Right now AR/VR leans heavily into gaming as for the audience is already built in. AR has so many applications I think eventually it will destroy the VR market usability wise. Im just saying for Apple it stands a better chance than their car efforts.
In the case of VR/AR, we know Apple has been working on VR products since at least the early 90s but those never made it very far other than a few things like QuickTime VR. As we can see from the rest of the field it was only until the last half-decade that people were getting things like the visual quality or especially latency to acceptable levels and battery life / weight still seem to be a substantial problem.
If you look at the numbers for VRChat it shows there is a market outside gaming.
AR is more complicated: there are some neat ideas but the form-factors are brutal in terms of hardware design and there is weak consumer demand. Apple has one of the most popular AR products now (AirPods) but that took a while to mitigate the compromises forced by the physical limits. I'm expecting some additional hardware from them soonish based on the references in recent developer builds but will not be at all surprised if that takes a while to find popular adoption. I think it's easy to underestimate just how hard it is to deliver an application which is compelling enough to get people to pay non-trivial amounts for. VR has been educational in that regard going from something which was too hard / expensive to fairly available but not yet having found mainstream demand.
Obviously VR is the hope but I think we're pretty split on whether we want that. I can't really see Google Glass type thing replacing the iphone. There's some intresting stuff in this microsoft future of computing video about surfaces and glass, but It doesn't feel like one revolutionary consumer leap to get there:
Microsoft’s platform has never been weaker. For all the growth in phones, every professional worker on the planet is sitting in front of a PC.
Or a Mac, or a Chromebook, or an iPad. It's hard to talk about this as a monolith since there are pretty distinct groups — most of the people I know who get to choose their device are using Mac or Linux (which is admittedly an atypical crowd of developers, scientists, lawyers, architects, etc.) but there are a ton of people who have professional jobs where that's not the case (e.g. everyone I know who works in healthcare uses some kind of Windows device which is so locked down that it might as well be an iPad, and I know some people at government agencies who are favoring ChromeOS for security reasons since you can lock those devices down so hard).
I make that distinction because it doesn't help Microsoft very much strategically if the cashier at McDonald's is sitting in front of a Windows box because they're interacting with a single application and will use whatever their next employer has standardized on when, say, they go somewhere which uses Square. Someone who uses Office is a bit more but as an increasing percentage of people aren't doing anything which they couldn't do in a browser, that's not as strong as it used to be. None of that means that Microsoft is going away but I think it does leave them really wondering how to avoid falling behind the next trend like they did with mobile devices.
Humane (some ex-iPhone people) is working on some sort of projection like UI, but they have put out very little detail about it.
Apple is working on some sort of AR related heads up display. If the hardware can work well for that, the benefits there seem obvious if you can get the UX right. Looking at the world and pulling up information in your visual field would be really useful. Could still pull up flat 'screens' in your visual field for normal text/web interaction.
It's hard to do well given latency issues (need very low) and no real ability to draw black (AR uses ambient light), but if it can be pulled off I'd expect that as the next platform/device shift.
Paper's never going to be replaced but I have definitely wished countless times for something that could copy a paper for storage instantaneously.
(Given Wacom's technology with cintiqs, I'm actually surprised this isn't a thing already.)
The reMarkable is probably close to what you're describing. People who use them love them, but I'm still a fan of real paper and ink.
The reMarkable was supposed to replace notebooks, but I gave up on my reMarkable 2 after a month.
WWDC sessions https://developer.apple.com/wwdc22/sessions/ https://developer.apple.com/wwdc22/sessions/ https://developer.apple.com/videos/wwdc2020/
Apple has a patent for a tunable and foveated lens systems allowing it to accomodate glasses, contact lenses etc.
https://appleinsider.com/articles/22/01/11/apple-glass-could...
Everybody working in the AR field now is starting too early. In 2003 the iPhone was impossible, while by 2007 it was inevitable.
In 2010-2019 it was rarely above 20 and it even went below 10. The decade average was 15.
The large environmental devices would be 100% securely sharable and be in private homes, hotels, offices, metro stations, etc. With either my Watch or iPhone, no matter where I am, if I need to, I would have my work life, entertainment life, etc. at my fingertips.
iPadOS 16 beta has StageManager that is sort-of OK for providing a more general desktop environment. I would expect my Watch or iPhone to trigger whatever I need in my environment.
I get so tired of being "sys admin" for my digital devices. I want to spend as close to zero time doing this as possible. Similarly, my Dad is having his 101 year old birthday next month and although he has always been very good with computers, it is frustrating trying to help him remotely. So:
In addition to what I mentioned above, I would like to have VR/AR for quick telepresence to help him and other family members who might be 100s of miles away physically.
I don't think we should put too much thought (as the article seems to) into their quarter-to-quarter results in the Land of Lost Devices. The point there isn't to sell lots of devices, it is to either try new ideas (which will probably fail because we only get like one big new device class per generation) and have a foundation to quickly try and catch up if their competition finds the Next Thing.
* They should pay out more in dividends- share the wealth with the owners.
* They have been borrowing money for stock buy-backs. This is weird to me- they could just use their cash to do this.
https://www.barrons.com/articles/apple-bonds-stock-buybacks-...
The reason the system is flawed is that you have workers, who actually produce value, struggle to even rent a place to live (buying is increasingly out of reach) while shareholders have parties on their private jets.
Apple shouldn't be paying any dividends and instead of it should pay bonuses to the workers.
Never underestimate corporate spenders.
They are quite happy to have people on older devices so long as (a) they buy a subscription and (b) they buy another Apple product in the future. Numbers to date show them succeeding on both fronts.