Apple reported “all-time record” earnings on Tuesday, in the words of CEO Tim Cook, who is fond of superlatives. “Our team delivered Apple’s biggest quarter ever,” he added, “thanks to the world’s most innovative products and all-time record sales of iPhone, Apple Watch, and Apple TV.”
That is all strictly true, except for the “most innovative” part, which is a matter of opinion. And it’s not an insignificant achievement, given that Apple is the world’s most valuable company and has set rather high bars for itself. It brought in some $76 billion in revenue and $18.4 billion in profits in the three-month period that ended in December. Those are very large numbers. Indeed, that quarterly profit figure is the largest ever reported by any company.
And yet Cook’s enthusiasm rang a little hollow.
After all, Apple is supposed to set “all-time records” each year. If it ever stops doing so on a consistent basis, that will imply that it has passed its peak as a money-making machine, and its loss of the “world’s most valuable” title will soon follow. Don’t get me wrong: It will not mean that Apple is dead, or dying, or doomed. It will simply mean that it is no longer following the stunningly consistent upward trajectory that has made it the most successful business of the 21st century so far.
So, how close did Apple come to not setting all-time records in the most recent quarter? This close: Its revenues and profits surpassed the highs set in the same quarter last year by roughly 2 percent each. This after a five-year span over which Q1 revenues had exploded fivefold, including a 30 percent jump between 2014 and 2015. So, while the company’s revenues are still growing, that growth just screeched to a near halt.
By next quarter, it may be history: Apple is projecting that its revenues for Q2 could be lower than those it posted in the same period last year. That would be its first year-on-year decline since 2003—four years before it introduced the iPhone.
Speaking of which, iPhone sales growth—the driver of the company’s unprecedented run of financial success—has slowed to 1 percent, thanks in part to softening demand in China. Cook’s unshakable optimism notwithstanding, the phrase that dominated the headlines from Tuesday’s earnings report was “peak iPhone,” as in: “Have We Reached Peak iPhone?” The Verge’s answer to that question is, appropriately, “It’s Complicated.” If the Chinese luxury-goods market regains its momentum, there’s a good chance that iPhone sales will do the same.
And, to be fair, Apple’s impending plateau is attributable at least in part to what CFO Luca Maestri called “a very difficult macroeconomic environment.” The company’s revenues might have been significantly higher in the most recent quarter if not for the strength of the dollar relative to foreign currencies. This is all taking place, meanwhile, at what appears to be a transitional period in Apple’s product cycle. The iPhone is reaching maturity; the iPad is too, albeit far sooner than Apple had hoped. Meanwhile, the new products that could fuel future growth—especially Apple Watch and Apple TV—are in their infancy.
But even if iPhone sales do eventually rebound, a bigger and more foreboding question now looms: Have we reached peak Apple?
Insofar as the company’s products are likely to continue to be ubiquitous, and to dominate their respective markets, for the foreseeable future, “peak Apple” might seem like hyperbole. The New York Times’ Farhad Manjoo makes a fairly convincing everybody-chill-out case in an article headlined, “No Need to Fret, Apple Is Doing Fine.” Go ahead and read it if you’d like to be reassured.
But suppose you’re a worrier. Suppose you’re looking further out than just the next few years, as Ben Thompson did in a recent Stratechery newsletter. Suppose, in other words, that you’re an Apple investor: “Fine” isn’t the bull case you were hoping for with a company that you’d hoped might be the first to reach a market capitalization of $1 trillion.
Suppose, finally, that you’re looking beneath the sales numbers at the freshness of Apple’s products, the quality of its services, the thoughtfulness of its design. Those leading indicators are subjective, of course. But, in my view and the view of a growing chorus of others, they’re trending down.
It’s far too soon to call the Apple Watch or the Apple TV a bust; sales of the iPhone and iPad started relatively slowly, too. But it’s not too soon to call them underwhelming in comparison to their illustrious forebears in Apple’s product line. I’ve worn an Apple Watch off and on for six months, and while it has its merits—which I have detailed in the past—the phrase “off and on” should tell you how essential I’ve found it. Apple TV, meanwhile, has the disheartening feel of a “me too” entry into a category that Apple mystifyingly allowed others to pioneer, despite having the technology and know-how to dominate from the outset. Apple News feels unfinished; Apple Music is hit-and-miss. Broadly, Apple’s software and services, including Music, Siri, and iCloud, remain distressingly glitch-prone even as the company places ever more emphasis on them.
To suggest that we’ve hit peak Apple, then, may be speculative, but it is not hyperbolic. And it may already be true, in at least two important senses—even if the iPhone does rebound, and the company’s revenues along with it.
First, we may have already hit peak Apple when it comes to the company’s hold on the popular imagination. The more this brilliant company tries to do, the less brilliantly it seems to be doing it, and even its cultists are bound to notice sooner or later.
Second, and more concretely, we may have already hit peak Apple when it comes to the company’s perceived overall value, as evidenced by the price of its stock. The company’s market capitalization reached a high of about $770 billion in February 2015. From there it roughly plateaued until July, after which it began to drop more or less steadily. It now stands at about $525 billion, meaning the company has shed $245 billion in paper value in less than a year. That’s not the sort of all-time record Cook is likely to crow about.
From that vantage point, the notion that we’ve hit “peak Apple” as of January 2016 doesn’t look premature. It looks belated.