3 Things Apple Isn't Shouting From the Rooftops


The consumer tech giant impressed investors this quarter, but some hard realities are hiding in plain sight.

Shares of Apple (AAPL 2.20%) initially moved higher after posting fiscal second-quarter results on Thursday afternoon. A slim beat on both ends of the income statement was boosted by a dividend hike and the board authorizing a record $110 billion in share buybacks.

It also helps that the stock has been a laggard to the rest of the consumer tech titans. Apple shares have risen just 2% over the past year, down 10% through Thursday’s close. Things could get better for investors at this point, but let’s dig deeper into the update from the class act of Cupertino. There are some things in the numbers that Apple isn’t exactly bragging about.

1. Earnings didn’t really set a quarterly record

It doesn’t take long to do a double take in sizing up Apple’s latest report. The second bullet under the press release headline is promising:

  • EPS sets March quarter record

However, by the time you work your way to the actual numbers, something darts out at you. Revenue declined 4.3%, sure. Then, you see that net income declined by 2.2%. How can earnings per share (EPS) set a new record when the earnings figure is actually lower than it was the year before?

The mystery is easily solved by the PS in EPS. Per-share profitability hit a new high because Apple’s fully diluted share count declined 2.4% over the past year. Net income dipped, but fully diluted EPS still rose a penny above the prior fiscal year’s record second-quarter profitability. It’s not pretty or ideal, but maybe this week’s gargantuan stock buyback program is a way to keep EPS going, even as net income itself is not going along for the ride.

Bus passengers on their phones.

Image source: Getty Images.

2. China isn’t Apple’s biggest problem

The iPhone was the top dog in China a year ago. Third-party research suggested that it was barely clinging to the bronze medal podium this past quarter. One source claimed that iPhone sales in China plummeted as much as 19% in the quarter, a problem since smartphone sales are growing again in the world’s second-most populous nation after sliding for most of the two previous years.

Reality wasn’t as cruel. Apple reported that net sales of all products in the Greater China region fell 8% — more than double its total top-line decline — but it could’ve been worse. More importantly, it wasn’t even the worst of the five geographical regions Apple uses to break down its business. Net sales in Japan plunged 13%, plummeting 17% for the rest of Asia Pacific outside China and Japan.

It’s true that Apple’s net sales in China are more than the sum of the other two regions. However, the $2.3 billion combined decline in Japan and the rest of Asia Pacific is more than the $1.4 billion year-over-year slide in Great China.

3. Apple’s three-year cycle is broken

You can love Apple products all you want, but it’s just not built to be financially steady and consistent. Over the past dozen years, Apple followed a pretty basic pattern. It has a monster fiscal year of growth, fueled by a major iPhone refresh. The next two years would be duds, with negative single-digit growth in net sales. You have to go all the way back to fiscal 2012 to find the last time Apple posted back-to-back years of double-digit growth on the top line.

The problem here is that the machine is busted. Let’s go walking through the walls of time.

  • Fiscal 2012 revenue growth: 45%
  • 2013: 9%
  • 2014: 7%
  • 2015: 28%
  • 2016: (8%)
  • 2017: 6%
  • 2018: 16%
  • 2029: (2%)
  • 2020: 6%
  • 2021: 33%
  • 2022: 8%
  • 2023: (3%)

The trend suggests that fiscal 2024 would be a big year for Apple. It’s not shaping up that way. Net sales are down nearly 1% through the first half of the fiscal year. If you’re looking to invest in Apple as a growth stock, you may want to pack some patience. Analysts see a flat performance for the rest of the year and single-digit top-line growth in fiscal 2025. If Wall Street pros are right, it will be at least five years between double-digit growth. The iPhone still represents half of the sales mix at Apple, but it’s never been hungrier for a new hit product to feed the growth machine again.



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