Apple (AAPL) shares are getting hit hard Thursday after Wednesday's guidance when the company warned sales of iPhones would come in below expectations. By now I'm sure you've heard Apple expects revenue for the December quarter of $84 billion, well below consensus estimates of just below $91.49 billion.
Previously, Apple pointed toward four factors/influences on revenue for the fiscal first quarter. Three of them played out as expected. The fourth, economic weakness in emerging markets, was far worse than management anticipated. By emerging markets, Apple is referring to China.
Am I the only one to find it ironic anyone still refers to China as an emerging economic market these days? I chalk it up to a PR spin.
Emerging markets are known to be volatile, so unexpected performance from a "volatile" region may not be viewed as a significant negative. I mean, come on, it's a volatile sector. What did you expect? The market is smarter than that. In fact, the market is smarter than most PR put on the streets. PR is stuck in the 1990s while the rest of the market has progressed.
In short, Apple is one of the first admitted victims of the U.S.-China Trade War. And it really doesn't get any bigger than Apple, no offense to Microsoft (MSFT) .
This doesn't spell the end of Apple, however. The company is still going to bring in almost a billion dollars of revenue per day during the quarter. While iPhone revenue is slightly down, Services, Mac, iPad, Wearables/Home/Accessories is projected to be higher by 19% year over year.
But here's the issue: Apple is still a hardware company.
Despite the 19% y-o-y growth outside of iPhone, those categories are predominantly hardware. Apple is not going to transform into Microsoft. No offense to Apple. Therefore, its challenges are two-fold, innovation and upgrades. The first really leads into the second.
Apple boasts that its installed base of active devices hit an all-time high, but that's a negative until they reach a significant upgrade cycle. That will only occur through a passage of time or significant innovation. As technology improves, the time cycle expands.
Do folks with an iPhone 6 or 7 really have a need to upgrade iPhone XS? Has anyone needed to upgrade an iPad in a few years? Of course, Apple will snag the users that want to upgrade, those who desire the latest, greatest thing, but that won't spur growth. It will maintain consistency, but when you're vying to be the most valuable company in the world, you need consistent growth.
Jim Cramer presented a target of $120 before buying Apple. I believe the culture (or stock cult) will be too strong to let that happen. Additionally, Apple is a key component of many major ETFs and continued buybacks are always hovering.
I'm looking for a trading range of $135-$165 over the next 12-15 months as Apple works through its China challenges.