Apple Outs The Truth: Growth Is Slowing——-Everywhere

The big news of the day had nothing to do with Janet Yellen, which was entirely appropriate given both her stance on the economy and anything she could possibly, realistically do about it (nothing). Apple reported results that were shocking in many ways, though not necessarily unexpectedly so. Last quarter, CEO Tim Cook had warned that the business had shifted. On a conference call with analysts in January he declared, “The challenging global macroeconomic environment is leading to constrained conditions unlike anything we’ve seen, everywhere we look.”

In that quarter, Q4 2015 (fiscal Q1 2016), Apple did manage to beat its record revenue, so the 13% drop in revenue in this next quarter only further suggests the “macroeconomic environment is leading to constrained conditions.” And unlike Janet Yellen, Apple isn’t ready to forecast that to change soon, though, as always, they see the longer term remaining ever so bright. The revenue forecast for Q2 (Apple’s fiscal Q3) was equally dismal, with expectations of just $41 to $43 billion vs. the $47.4 billion level that analysts had already downgraded to.

In trying to explain its worst quarter since 2001, Cook again turned to the economy:

Chief executive Tim Cook partially blamed ‘strong macroeconomic headwinds’ including the strong US dollar for the decline in sales, which was particularly severe in China.

On yesterday’s conference call, he specifically stated it as the reason for weakness in the smartphone business, where sales of Apple’s iPhone fell for the first time ever.

I think that the market as you know is currently not growing, however, my view of that is that’s an overhang of the macroeconomic environment, and we’re optimistic this too shall pass, and the market and particularly us will grow again.

The FOMC’s April policy statement was amended to include what is increasingly just reality, that the economy, “appears to have slowed.” We will find out tomorrow just how much that might have been when the advance estimate for GDP is released, though we can reasonably infer from the language here (if not Apple’s sudden plight) that it isn’t likely to be appreciably better than all the advance guesses – even including “residual seasonality” yet again.

Last October, there wasn’t even the hint of such a dramatic reversal for Apple. In its press release, Tim Cook was quoted with only glowing assessments for the end of the year and the all-important Christmas season.

Fiscal 2015 was Apple’s most successful year ever, with revenue growing 28% to nearly $234 billion. This continued success is the result of our commitment to making the best, most innovative products on earth, and it’s a testament to the tremendous execution by our teams. We are heading into the holidays with our strongest product lineup yet, including iPhone 6s and iPhone 6s Plus, Apple Watch with an expanded lineup of cases and bands, the new iPad Pro and the all-new Apple TV which begins shipping this week.

The quarter prior to that, reported in July 2015, Cook had left no doubt over continued enthusiasm even about Apple sales and revenue potential in China.

We remain extremely bullish on China and we’re continuing to invest. Nothing that’s happened has changed our fundamental view that China will be Apple’s largest market at some point in the future.

Sales in greater China, including Hong Kong and Taiwan, instead in Q1 2016 (again, Apple’s Q2) fell an alarming 26%. For the Chinese mainland alone, revenues were down 11%. With revenues being forecast so low in Q2, we can only assume that conditions in China, as everywhere else, are not expected to rebound immediately suggesting only lingering “macroeconomic constraints.” The company may project that there will be a turnaround even still this year, but they, like economists, always predict that.

As IBM, Intel, and other tech companies, these are important bellwether notices that “something” has changed since the middle of last year. Unlike the major employment statistics, these are hard figures that are not subject to biased imputations. In the FOMC statement for April, the Committee did acknowledge that “slowing” in the economy but also referred, yet again, to their view that labor conditions “improved further.” Labor conditions have yet to do anything but improve, only further proving just how irrelevant they have been (and will likely continue to be).

Apple’s drastically awful results once again show that depending upon the BLS statistics for basing expectations on why the economy won’t or even can’t get worse is just folly. No matter what the unemployment rate had declares, or every orthodox economic assessment about how China is just undergoing a “soft landing”, there is every reason to believe that is not the case. We see it in far too many economic statistics already, but when it gets into Apple’s results in such a big way we can only be assured as to which economy is the real one.

Even where that might seem to be more of an overseas problem, at least when it is admitted in the mainstream, it should be noted that Apple’s US-based revenue fell 4% last quarter and overall revenue in the “Americas” segment (the bulk of which is US sales) was down 7% in the last six months. That decline was actually worse than the 6% drop in sales reported from Greater China over those same two quarters. The economy isn’t just slowing overseas, it is everywhere – from Apple revenue both foreign and domestic to even DC monetary policy statements.