The 15th version of the iPhone has been officially unveiled. And it’s not bad. While it’s not more powerful than the iPhone 14, an improved camera and the addition of USB-C ports certainly have their appeal. The starting price of $799 is also acceptable, in line with the prices of other recent iPhones.
If you think the upcoming availability of its smartphone is a reason to buy Apple‘S (NASDAQ: AAPL) stocks, but you might want to reconsider. iPhone unit sales have largely declined since 2016, reigniting the downward trend after 2020’s short-lived surge. Total iPhone revenue appears to have peaked in 2021. In the absence of a new breakthrough feature for the phone, there’s no reason to expect the iPhone 15 to dramatically reverse this weakness; Several analysts do not expect this anyway.
And that’s a problem for Apple stock, since more than half of its revenue still comes from iPhone sales. Now company sales are starting to stagnate.
Are we at – or even past – the peak of the iPhone?
Current Apple shareholders don’t need to panic. This is still the largest and most profitable company in the world. It will survive.
However, there’s no denying that the iPhone-specific headwinds undermine the growth-based thesis for owning stocks. The chart below shows total iPhone shipments as of the end of 2014 part of the story. Despite the launch of several new iPhones during this period, overall sales have fallen rather than increased.
Much of 2020’s strength can be attributed to the circumstances of the COVID-19 pandemic, although at least some of that demand has increased since 2019. Be that as it may, the number of units has fallen since that surge, marked by a dramatic decline since the crisis. last quarter of last year.
Data source: IDC. The figures are in millions.
For a short time, Apple was able to offset declining iPhone sales with higher prices. That is no longer the case. The best quarter ever for the iPhone (in terms of revenue) was the last calendar quarter of 2021. Since then, it has stagnated and even declined over the past three quarters.
Data source: Apple Inc. Figures are in millions.
Now overlay that data across Apple’s entire top lines for the same time frame. With just over half of Apple’s revenue still generated from sales of the popular smartphone, the company’s overall revenue has also fallen since the start of 2022.
Data source: Apple Inc. Figures are in millions.
Connect the dots. As much as Apple tries to shift its dependence from iPhone sales to profit centers like services, this is still very much an iPhone company. If that specific device is struggling, so is Apple as a whole. And the device is ultimately still on the defensive, according to more than a handful of analysts.
CCS Insight’s chief analyst Ben Wood is among these doubters, saying: “The lack of notable updates will disappoint some, but is not a surprise given the maturity of the iPhone and Watch.” He adds: “It reflects how sophisticated the iPhone and Watch devices are and how difficult it has become to deliver truly disruptive updates every year.”
Evercore ISI analyst Amit Daryanani writes: “Overall, we view the event as mildly disappointing given that bulls were looking for a price increase for the iPhone Pro model and blood pressure monitoring functionality for the Watch.”
Rosenblatt Securities analyst Barton Crockett echoed both sentiments, explaining, “The stock reaction reflects a lack of wow in the features and a lack of meaningful price appreciation.”
Time to start asking tough questions
To be clear: not every observer is a doubter. Wedbush Securities analyst Daniel Ives notes: “Apple’s iPhone 15 launch was an impressive event overall, which we believe lays the foundation for a major upgrade cycle in the coming year that will positively surprise the Street.”
Gene Munster, managing partner of Deepwater Asset Management, agrees, stating: “While most of these updates were incremental, they are enough to attract the 400 million iPhone owners with phones over four years old, which Apple should deliver revenue growth again in the December quarter.”
Both Munster and Ives make good points. However, none of these Apple bulls address the overarching concern here. That is, current iPhone owners are holding on to their devices longer and longer, lengthening the upgrade cycle. At the same time, all smartphone manufacturers, including Apple, are running out of new consumers to sell their products to.
It goes without saying that the major overhaul that Munster is talking about for the final quarter of this year will leave the company in the same position it has been in for the past decade once the upgrade wave has run its course, with a weakening unit sales and declining pricing power.
If you’re a current or prospective Apple shareholder, it wouldn’t be unfair to ask (or continue to ask) tough questions about the company’s handling of increasingly inconsistent iPhone sales. It’s such a big profit center that it’s now dragging down company-wide sales.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Apple. The Motley Fool has a disclosure policy.
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