2016: Apple’s (NASDAQ: AAPL) Year of Disappointment

Written By Jason Stutman

Posted October 30, 2016

With a slew of earnings reports and new product reveals, it’s been an absolutely huge week for the world’s leading tech companies, for better or for worse.

After months of anticipation, investors and analysts finally have answers to a number of looming questions surrounding Apple, Tesla, Samsung, and a number of other high-profile technology firms. Frankly, it’s all a bit too much to digest in a single sitting, but there are at least a few things worth addressing before we officially close out the week.

As I’d been predicting would happen since late last year, Apple’s iPhone sales continue to falter. For the first time since 2001, the consumer tech giant posted a year-over-year revenue decline, and a significant one at that. All told, sales for the firm were down 7.7% from the same period in 2015… and for a $600 billion firm, that’s beyond significant.

At the same time, Samsung’s profits have completely dropped off a cliff, making Apple’s awful year somehow look palatable by comparison. Thanks largely to its exploding Galaxy Note7 fiasco, the firm’s mobile division profits have imploded 96% year over year, while overall operating profit has fallen 30%.

For those of you who’ve kept up with our market commentary lately, these numbers should be of little to no surprise. Sure, I’m had my fun with hyperbole, touting my “Death of the iPhone” thesis, but you can’t say it hasn’t been turning out. The handset industry has clearly hit a plateau, both in terms of sales and innovation, and leading firms like Apple are now losing market share to other OEMs that have reached technological parity.

Apple’s inability to innovate has slowly but surely caught up to the firm, as I’ve been arguing would inevitably happen as far back as 2013. Not only is the company experiencing underwhelming demand for its monotonous iPhone 7, but competing firms such as Microsoft and Google are compounding the problem, releasing a slew of new and innovative products that paint a dreary future for what was once considered the authoritative avant-garde company of tech.

In an ongoing effort to ramp up its hardware division, Microsoft now has a viable answer to the Macbook with its Surface Pro notebook and is showing up the iMac with its wonderfully received Surface Studio PC.

I could go on for pages about all the features and specs of these devices, but the headlines alone are telling enough:

“Microsoft Surface Studio’s Gains Will Be Apple’s Loss” — Wired

“Microsoft Continues Attacks On Apple” — Forbes

“Apple should stop selling four-year-old computers” — The Verge

At the same time, both Google and Microsoft have officially joined the virtual reality race, while Apple is still nowhere to be seen. Google, with its Daydream headset (compatible with its new Pixel phone), and Microsoft, with a dedicated VR headset revealed this week, are making Apple look infantile by comparison.

It’s not just Microsoft and Google that are getting a head start on Apple, though. HP, Dell, Lenovo, Asus, and Acer are all partnering to bring these products to store shelves for as little at $299. Not to mention Facebook and Samsung are betting big on VR, too…

Personally, I picked up my Google Pixel earlier this week, with VR being one of two major selling points. I’m waiting on my Daydream headset to ship so we can have some fun with VR at the office next week, and I can already say that the integrated AI (Google Assistant) simply blows Siri out of the water (the aforementioned second major selling point).

I can’t remember the last time a smartphone has earned the “oohs” and “ahhs” of friends and colleagues, but the Pixel certainly does the trick.

Meanwhile, Apple has been forced to delay its AirPod rollout, though no one seemed to really be excited about those anyway… Jointly, the firm held its latest Macbook reveal on Thursday, which still lags being the Surface Pro in terms of capability, offering no touch display, no detachable tablet, or anything really worth getting excited about, period.

Of course, these words probably sound pretty harsh, and I’d certainly be amiss to say that Apple doesn’t still make quality products. I love my Macbook and have for years — but that’s exactly the point. Apple has done nothing in terms of innovation to convince users to upgrade. Microsoft has done plenty to make me consider switching to the Surface Pro when the time comes. Google certainly convinced me to switch over from HTC with its new Pixel phone…

In the midst of all this commotion, though, investors don’t stand to make their biggest returns chasing companies like Microsoft or Google as Apple falters. Those may be the firms that make all the headlines on the front pages of Forbes and the Wall Street Journal, but the ships that make the sharpest turns at sea are not the 500,000-ton tankers; they’re the powerboats and dinghies riding in their wake.

If you don’t quite catch my drift, I’m referring to the component providers lurking inside — the companies that allow consumer electronics to exist in the first place. Underappreciated by mainstream media, these are the firms you ultimately want to invest in if you’re looking for meaningful growth.

Of course, the bulk of investment opportunities in mobile phones has already come and gone. With Apple and Samsung slowing down, there’s no longer much of a wake for component providers to ride in anymore. Instead, investors would be wise to start looking elsewhere for growth, particularly into emerging technologies such as driverless cars, the Internet of Things (IoT), and, of course, VR/AR.

For our number one pick in the latter, you’ll want to hear my iPhone Killer thesis.

Until next time,

  JS Sig

Jason Stutman

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