Will Any Amount of iPhone Sales Placate the Apple Pessimists?

Jacob Harper  |

On Sept 23 Apple Inc. (AAPL) announced that they had comfortably beaten analyst expectations of opening weekend 5C and 5S  sales, moving 9 million iPhones, or 3 million more than the consensus. Even taking into account this year's inclusion of China into the intial launch, the number was an imporvement on both the 4S and 5 launches. Concomitant with this year's lauch weekend sales beat, Apple reported that they would hit the top end of revenue projections for the quarter ending Sept. 28, meaning they were looking to hit at around $37 billion in sales.

Not everyone is convinced the new iPhone sales are worth celebrating, however. Even though the sales outpaced analyst consensus by 33 percent is of no concern to Apple bears. What is of concern is that the company has lost its edge.

The “iStone” that is Sinking Apple With its Burdensome Profits

CBS News pointed out the fact that the company did not provide separate sales figures for the 5S and 5C, assuming that means the 5C has underperformed. TechCrunch criticized the decision to even market the iPhone 5C, saying a cheap phone dilutes Apple’s chi-chi brand appeal. Societe Generale responded to the iPhone sales numbers by actually downgrading the stock, ratcheting the company down from a “Buy” to a “Hold.”

Whether the 5C succeeded or failed, though, is not the true crux of the Apple pessimist’s argument. The main gripe concerning Apple is that the company has run out of ideas. They’re just doing an imitation of themselves, and have been since Steve Jobs died, regardless of the cash generated from their flagship product.

ABC’s Sandy Cannold summed up this sentiment when she called the product the “iStone” and wrote that the “era of innovation has given way to an age of incremental change... Steve Jobs wouldn’t have been satisfied to only pocket billions upon billions on tweaked products alone.”  

Apple Needs a New Product, Steve Jobs Needs to Come Back From the Dead, or Preferably Both

The success of the iPhone is irrelevant. The problem is that, no matter the sales numbers, it simply isn’t a revolutionary product, and you can thank leadership not named Steve Jobs for that.

New CEO Tim Cook, by the virtue of not having released a radically new product in his year and a half tenure, is already perceived as a failure, money be damned.

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Because there’s a lot of money, just so much money. Last quarter Apple rang in $35.3 billion in revenue, and this quarter can expect to easily top that.  Notably, the company also topped iPhone estimates by 5 million units.

Despite losing half their value from Oct. 2012 to April 2013, the company has rebounded by virtue of improving earnings and forecasts, and is once again the most valuable company on the planet. In terms of having the capital to fund innovation, Apple has more than anyone. This summer the company engaged in stock buybacks and doled out a $2.77 billion dividend distribution yet will still likely end the year with a cash hoard of $170 billion.

What do they Want? Revolutionary Innovation! When Do They Want it? All the Time!

But the problem fopr the bears isn’t that Apple has the money to do whatever they please. It’s that they’re not totally upending the market with a new product now. Apple was moribund as soon as they threw their mettle behind another iPhone. The iPhone 5C and 5S were inherent disappointments, because they are, unfortunately, still iPhones.

But the iPhone line, regardless of its supposed stale reputation, still accounts for the majority of Apple's revenue. And as stated earlier, that’s a whole lot of revenue. The question then is: if not to generate revenue and profits, what’s the point of the company?

Ostensibly, its innovation. It’s a new product like the rumored iWatch, Apple TV, or the iPad. Anything that is exciting, anything that says “We are a tech company and we make sexy new toys.” Something like a sports car that can run for 400 miles on an electric battery. You know, like Tesla Motors (TSLA) .

That sexy innovation explains why a company like Tesla can trade at around 98 times forward earnings while Apple trades closer to 11. It’s the rosy promises new products can bring.

But for Apple, new products just don’t sell like the iPhone, which does, in bundles. While the concept of the iPad is far fresher, last quarter Apple still sold twice as many phones as tablets, and is expected to move 90 million units of the “iStone” by year’s end.

The iPhone, simply put, is the cash cow. Once they finish milking it (and the sales show they haven’t) Apple can throw down on whatever innovation they see fit. Innovative companies like the $22 billion market-capTesla? With their war chest, Apple could buy seven of them.

But until they quit getting everything they can out of the iPhone, the pessimists will remain unconvinced, no matter how many units they move or how dead Steve Jobs remains.  


(image of Apple's Cupertino, Ca. headquarters courtesy of Wikimedia Commons)

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