Apple Is Slipping Yet Continues to Stay Profitable

TAKE A PEEK at the stock market today, and you might get the impression that Apple wasn’t one of the most mind-blowingly profitable companies of all time.

The company’s stock price fell by as much as 4 percent on 8/4/15 to about $114—its lowest close in more than six months. And shares are down more than 14 percent since right before reporting its earnings late last month. Such a steep decline for such a successful-seeming company is a little tough to fathom. But these days Apple occupies its own universe, where the normal rules of stock market physics don’t seem to apply. Success, it turns out, is relative.

The drop began after Apple slightly missed analyst predictions for iPhone sales last quarter—a mere 47.5 million units sold versus 48 to 50 million expected.

Then, little more than a week after its earnings call, where Apple execs acknowledged they weren’t going to reveal exactly how many of its new Watches were sold, more nuggets began to surface that suggested the answer was “not that many.” The latest hint comes from Taiwan-based supplier Advanced Semiconductor Engineering, which crams Apple Watch sensors into their compact cases. According to the Wall Street Journal, a company subsidiary said during an investor conference call that Apple did not reach its “break-even volume” of two million Watches per month during the second quarter of the year and didn’t expect it to hit that mark during the third quarter, either.

Apple didn’t immediately respond to a request for comment on the Journal report. But the company has repeatedly warned the public against reading between the lines when it comes to supplier comments since, Apple has said, no one vendor has a complete picture of its multi-phase supply chain.

“This isn’t a matter of not being transparent, but a matter of not giving our competition insight,” Apple CEO Tim Cook said during the earnings call of not releasing specific Apple Watch figures.

While anything less than a blockbuster launch into a new product category might make investors anxious, perhaps of more concern is any sign of weakness in Apple’s biggest success. According to a report from industry research outfit Canalys, the iPhone dropped from the top spot for smartphone shipments in China, falling to number three behind homegrown companies Xiaomi and Huawei. That’s notable because the story of Apple’s success in China has been pretty consistent recently: it’s massive. (In January , Apple reported that for the first time that it had sold more iPhones in China than in the US.)

Still, though Wall Street handwringing has knocked billions off Apple’s market cap in little more than a week, Apple is the company that always seems to bounce back. Despite losing market share in China, it still more than doubled its revenue there in the last quarter, even as the country’s maturing smartphone market shows signs of saturation. As the iPhone’s success shows, China still has a potentially huge pool of users primed to upgrade just as Apple likely gets ready to unveil its new iPhone model(s) this fall (December). Remember: Apple may not make all the phones, but unlike its rivals in China and elsewhere, it makes all the money.


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