Apple (NASDAQ:AAPL) shook market confidence on Jan. 3 when it blamed the more than 100% revenue decline occurring in Greater China across iPhone, Mac and iPad. The problem is bigger than that. The weakness in China compounds Apple’s weak sales in the U.S. Consumers no longer want to spend $1100, subsidized by carriers or not, for incremental upgrades.
Apple’s game plan for the iPhone X-series was to upsell the device to those who could afford it. Those who could not could settle for a year-old iPhone 8 or a two year old iPhone 7 for significantly less. That is insulting to customers. Why should they buy old iPhones but still pay for the upgrade? An premium Android offers double the technology power at the same price.
Samsung (OTC:SSNLF) started the $1000+ smartphone upsell but it already warned investors of weaker sales. So when Apple said last quarter that it would not report unit sales, investors should have read between the lines that smartphone sales were falling.
Services Revenue Soaring
Bulls point to the double-digit, record-making services revenue to justify Apple’s value. Yet if iPhone users leave the ecosystem, it hurts service revenue down the road.
Takeaway
Apple is a true value play on a P/E level. Buying the stock is still risky. Those who want proof of a recovery should wait for at least two straight quarters of hardware revenue growth before buying the stock.
