Apple Is a Dead Money Stock

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The Technology S-Curve caught up with it.

By Alex M., Founder of Macro Ops:

There’s always a lot of noise you have to deal with when analyzing a company. The trick is to cut through it and isolate the key drivers of the stock price.

Take Apple for example. Its stock price primarily depends on iPhone growth. Out of the $50.6 billion in revenue Apple made in Q2, $32.9 billion came straight from the iPhone. That’s over 65%… the business clearly depends on this one product.

But if you look at year-over-year sales, they’re decreasing. There was an 18% drop in iPhone revenue from 2Q 2015 to now. This was far worse than analyst estimates and is a large cause for concern given that the iPhone drives the company’s share price.

The problem is that the smartphone market is maturing. Most people who want a smartphone already have a smartphone. Revenue in Q2 of 2015 for the Americas, Europe, and Japan is less than it was in Q2 of 2014. This is a blatant sign that these markets’ demand has matured.

And with no new demand, Apple is left to compete against itself for upgrades. But according to CEO Tim Cook, the underwhelming Q2 report was due to a significantly slower iPhone upgrade rate.

Why are upgrades slowing? It’s because not only is the smartphone market maturing, but smartphone technology itself is maturing. It comes down to the technological S-curve. As Benedict Evans explained:

A technology often produces its best results just when it’s ready to be replaced — it’s the best it’s ever been, but it’s also the best it could ever be. There’s no room for more optimisation — the technology has run its course and it’s time for something new, and any further attempts at optimisation produce something that doesn’t make much sense.

The development of technologies tends to follow an S-Curve: they improve slowly, then quickly, and then slowly again. And at that last stage, they’re really, really good. Everything has been optimised and worked out and understood, and they’re fast, cheap and reliable. That’s also often the point that a new architecture comes to replace them.

You can see this very clearly today in devices such as Apple’s new Macbook or Windows ‘ultrabooks’ — they’ve taken Intel’s x86 and the mouse and window-based GUI model as far as they can go, and reached the point that everything possible has been optimised. Smartphones are probably at the point that the curve is starting to flatten…


Smartphones have gotten as good as they’re going to get. This is why users aren’t rushing to upgrade like they used to. As hardware matures, it causes the upgrade cycle to lengthen and chokes off growth. We saw it happen with both PCs and tablets. Smartphones are no exception.

So how is Apple management trying to solve this maturity problem? They’re going all-in on China.

China is the last hope for the tech giant’s iPhone growth. Its economy is big enough to move Apple’s bottom line. But if you’ve been following the macro situation in China even a little bit, you know the picture is “lukewarm” at best. And “mad max” at worst.

China has been spastically hitting the credit needle in a desperate attempt to juice stagnating growth. Pledged loans continue to rise with no end in sight. But it’s just not helping anymore. The property market has cooled off despite the liquidity injections. And the stock market is in the gutter. While economic growth has been declining.

This deteriorating macro picture is already showing up in Apple’s earnings.

In the recent Q2 report, revenue from China actually dropped 26% year over year. The China growth strategy is clearly not going as planned.

Carl Icahn recently closed a large position in Apple for this very reason. Not only was he concerned about China’s growth, but also their excessive regulation. As Icahn explained:

“You worry a little bit — and maybe more than a little — about China’s attitude. [The government can] come in and make it very difficult for Apple to sell there … you can do pretty much what you want there.”

China recently shut down both Apple’s iBooks store and iTunes Movies. Their relationship with the company is quickly souring, making sales even tougher.

And we can’t forget about USD strength either. That trend has not gone away by any means. The Chinese devaluation of the Renminbi is also still very much on the table. One thing’s for sure. A weakening yuan will not bode well for Chinese iPhone sales. Apple is incredibly exposed to foreign exchange risk in China.

At this point, Apple looks like a stock our team at Macro Ops wouldn’t touch with a 10-foot pole. Its brutal transition from growth stock juggernaut to blue chip value has been a tough one.

Now we don’t recommend shorting stocks like Apple because there is cash flow and the valuation is fair. But we absolutely don’t want to be long either. Apple is what we call a “dead money” stock. It’s a lumbering sleepy giant that churns and grinds sideways for years and years. Think of Microsoft after the ‘99 bubble deflation.

Your money is better put to work elsewhere. Something that has the potential to move a lot and actually pay you a respectable dividend yield.

To top it off from a technical perspective, Apple has broken down from an 18-month topping pattern and is about to challenge its long term trend line.


With a maturing smartphone market and their only potential source of growth (China) nearing economic Armageddon, Apple’s stock price is due for a long grind sideways frustrating both bulls and bears. By Alex M., Macro Ops.

All 30 companies in the Dow have now reported first quarter earnings. Of them, 19 also reported “adjusted” earnings that they skillfully draped over their GAAP earnings, and now it all looks just so much prettier. Even the SEC woke up. But what will the media do? Read…  OK I Get it, Corporate Earnings are a Fairy Tale and Reality is Crummy, But Do They Have to Push it This Far?

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  23 comments for “Apple Is a Dead Money Stock

  1. John Doyle
    May 25, 2016 at 11:10 pm

    The S – curve carries on into what shape? It will decline in some form, a Seneca cliff perhaps? Efforts to keep up with ever more sophisticated additions is wasteful. It’s what’s happening with cars. More and more unnecessary bells and whistles show that the technology is just seeking whatever it can to keep the market alive. It’s not a saviour, just a delaying trick. Phones will keep adding more stuff to keep interest going, but it has to end.

    Our whole society is also “mature”. We face the same hurdles as Apple does. It’s becoming symptomatic across the board.

    • VegasBob
      May 26, 2016 at 2:43 pm

      Not only are many technological ‘upgrades’ unnecessary, successive roll-outs of ‘new and improved’ product versions tend to make the product functionality worse instead of better.

      Just look at Microsoft for proof: Windows XP, Windows Vista, Windows 7, Windows 8, Windows 8.1, Windows 10…

    • Dan Romig
      May 26, 2016 at 2:58 pm

      I agree with the comment about cars, but the manufacturers seem to bent on providing the drivers with cars that are extensions of their smart phones. For what it’s worth, I drive a mint ’95 Lexus SC 400, and have a ’94 in the garage to take parts off of in case they’re needed. No need to sync up my phone while driving!

      As far as phones and Apple, Alex M. is making a very good point. My three year old HTC is reliable and does everything I want from a smart phone. Why spend to replace/upgrade?

      • John Doyle
        May 26, 2016 at 11:01 pm

        My remarks on cars referred to this article. It’s not about linking phones, it’s about fundamentals like doors which take 15 seconds to open, etc

        • Dan Romig
          May 27, 2016 at 7:17 am

          Apologies to you John, as I didn’t catch what you were referring to regarding cars. Nice link on the $150,000 Tesla that you posted.

          Ron Amadeo of Ars Thechnica wrote a piece on 19 May, ‘Google shows off its car infotainment operating system, built into the Android N’ that highlights what my point of criticism regarding smart phones synced up to cars.

        • John Doyle
          May 27, 2016 at 7:27 am

          Thanks, Dan. I believe this “going backwards” is yet another symptom of the decadence we are all party to, like it or not. It’s just a make work strategy as there is not enough real value work around.
          The looming federal election in Oz now is all about “jobs and growth”. Pity the pollies are so ignorant – and assume we are also – that such a strategy is just pushing us ever closer to collapse. Signs are everywhere yet no one wants to connect the dots.

  2. nick kelly
    May 25, 2016 at 11:26 pm

    Very interesting. I have never got past a flip phone, which they tell me is ‘in’ in a reverse way ( like torn jeans, but that only works on some legs)
    But there is one app that impresses- that’s when I ask a pedestrian ‘do you know where X street is, and they take out their phone and produce a map.
    To the perpetually lost, this is magic.

    But for fun let me take the opposite of the thesis in the piece.
    Apple invented two products: the ipod and the smart phone. Let’s assume that the author is correct and the latter is saturated.
    What’s next? Well to be completely boring- the name alone could be milked for perhaps its current net worth. It is not just the world’s most recognizable tech brand- it represents quality and exclusivity. The name could be attached to bed sheets- obviously it won’t be but you could probably add 10 % to the price of a quality sheet with the name.

    OK- so how about a real app. I happen to detest TV ads- when an ad comes on for Life insurance with no medical ( limited benefits first two years- uh ya) showing granny cavorting with the kids- I want to puke.
    I’m always amazed when I’m at someone’s place and they don’t mute ads- Like, don’t you clean up dog sh*t?

    So I consider protection from ads (just TV WR!) a desirable product.
    So how about this- when an ad comes on, the TV automatically ( enter Apple) switches to a recorded video I like, and when the ads are over it switches back. I never touch the remote- it’s seamless.

    • chip javert
      May 26, 2016 at 10:53 am


      Loved the dog s**t analogy. However, I thought Tivo had done something like your “skip ads” concept, and Hollywood sued them into submission. I love it when a lying, cheating, unethical ad guys talks about the “ethics” of consumers using ad blockers.

      I have & continue to love Apple products. Having said that, I do wonder what they will come up with next. Having a cash stash of $100B+ for corporate managers to “invest” quite frankly scares me to death (Apple car, anyone?).

      Profits belong to shareholders, not corporate managers. Mature tech companies should be paying dividends so corporate managers (a la Microsoft) don’t run around for years blowing up capital.

      • david
        May 26, 2016 at 9:57 pm

        I think they go for streaming revenue….open said wallet and buy Netflix

        • interesting
          May 28, 2016 at 1:38 pm

          Netflix sucks, I’ve been using them for about 6 months and i can tell you not much you want to watch is available on the 9.99 per month plan.

          it’s looking like it’s back to the DVD for me.

    • Joe
      May 26, 2016 at 8:26 pm

      I’m not sure Apple invented anything. IBM had the first smartphone, and numerous companies sold portable digital music players years before the iPod.

  3. P Walker
    May 26, 2016 at 6:17 am

    I’ve said for years that Apple’s Achilles Heel was their reliance upon the consumer market and puzzled why companies like them haven’t gone to war with the FIRE parasites. These parasites have killed off the consumer market leaving fewer and fewer people with extra cash to go shopping or to replace items. I think it has more to do with the fact that American households can’t handl an unexpected $400 emergency than it being about the ‘technology S-curve.’

    • chip javert
      May 26, 2016 at 11:02 am

      What’s a FIRE parasite?

      • NOTaREALmerican
        May 26, 2016 at 1:42 pm

        FIRE = Finance, Insurance and Real Estate

  4. Dave Mac
    May 26, 2016 at 7:54 am

    Isn’t Berkshire Hathaway in Apple? As Mr Buffet doesn’t make too many mistakes I suspect Apple is far stronger than many think.

    • chip javert
      May 26, 2016 at 11:08 am

      As a berkshire Hathaway investor, I’m intrigued by this.

      BRK does own about $1B of Apple. My understanding is Buffet did not make this decision, but a couple of his (much younger) portfolio investment managers made the decision.

      If you’re 85 years old, ya gotta let younger managers develop & demonstrate skills. We’ll see if tis is a smart investment (full disclosure: I own & love Apple PCs and iPhones).

    • randombypasser
      May 26, 2016 at 11:35 am

      If i recall right this Buffet’s first investment in tech company ever. Buffet has said about investing in tech sector that he won’t invest in things he don’t understand which is bloody good advise to anyone.
      But now Buffet has suddenly invested in one tech company, in a sector which by his own words he doesn’t understand. So why Apple and why now?

      The real question here is should anyone follow Buffet or not, though much more interesting is to ask has he become senile? Or does he know something special about Apple or tech sector? Or is he sidestepping his own investing rules in hope of quick money? Or has he been forced to do this?

      Maybe Buffet once again knows something which we the others get to know when it’s too late to make excellent profits. But time will tell.

      • polecat
        May 26, 2016 at 11:47 am

        Picture Mr. Buffet strolling along the beach, naked, except for the Iphone he holds in his palm, as the tide procedes to roll waaay out, as he’s trying to figure how the damn thing works;’)

      • bud
        May 26, 2016 at 11:50 am

        Perhaps Mr Buffet needs a loosing stock to offset the gains in another.

        Then again he could very well be buying today, both stock, options and puts, and selling tomorrow before you could act.

        His greatest wealth boost was Wells Fargo and that Fed Window. Apple also it trying to become a bank, spending big bucks in D.C. lobbying.

        May they both lay in the same grave. They both do more to destroy society, health, and family than any good that appears on the surface.

    • interesting
      May 28, 2016 at 1:45 pm

      Mr Warren I-never-saw-a-bailout-out-i-didn’t-love-Buffet?

      “Mr Buffet doesn’t make too many mistakes”

      give me a fucking break, he should be bankrupt but went to congress hat in hand and won fucking big from tax payers.

      i guess it’s hard to “make mistakes” when the taxpayers got your back.

  5. Intosh
    May 26, 2016 at 11:38 am

    There is always the next iPhone and they are now courting the Indian market full-force. So in the short to mid-term, there will be a significant stock price surge. But yeah, long term, it’s going to stagnate unless they introduce an entirely new and disruptive product line.

  6. Kreditanstalt
    May 26, 2016 at 6:23 pm

    Well, I still play my records and watch my VHS videos.

    Why? Because IMO newer technologies are overpriced – records go for anywhere from 5 cents to 50 cents in second hand stores here and VHS from 20 cents to 50 cents – and newer technologies offer only very slightly better performance.

    I think the ‘S-curve’ reaches a point in which the factor of cost drives people not only to not upgrade, but to not buy the newer models AT ALL.

  7. Thomas Malthus
    May 31, 2016 at 8:19 pm

    Apple will likely take three years between full-model changes of its iPhone devices, a year longer than the current cycle. In a typical two-year term, fall 2016 was supposed to see a major upgrade. But the changes on the model to be launched this autumn will be minor, such as improved camera quality.

    According to Nikkei the move is prompted by two factors, and is “largely due to smartphone functions having little room left for major enhancements. A slowing market is another factor.”

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