Those Apple Channel checks that got investors all worried ahead of Apple's latest earnings report were spot on, it will show up in this next quarter, as these are forward looking due to the supply chain logistics cycle.
This makes intuitive sense though if you think about it as smartphones have become a mature product category they have become even more commoditized. In fact one can take a low end $50 dollar smartphone and compare it to a high end $800-$1000 smartphone and there are only minor differences in product specs with technological convergence of all the best and necessary features along with a healthy dose of innovation fatigue. There are only so many marketing gimmicks that Apple or Samsung can come out with at this point in the smartphone cycle, and none of these move the bar enough to justify even the time of buying a new high end Smartphone and transferring over your contact and data information, not even considering the cost of an additional $800-$1000 for the new phone.
In short consumers will keep their existing smartphones longer than ever before, as they value them enough given the high price tag to protect them with proper protective cases, all the features are about as good as they will ever utilize, and consumers would rather spend that $1000 elsewhere. These days consumers are going to hold onto smartphones for at least 3 years or several upgrade iterations, and not run out and buy the latest product upgrade. It is pretty hilarious watching Apple`s desperate marketing of the Red Phone when consumers can easily just buy a much cheaper stylish protective case in any color they desire.
In the latest quarterly filings of Hedge Funds you see the smart money getting out of Apple stock, and the dumb money in Warren Buffet and Apple themselves buying their own stock at the top of the market. Warren Buffet buying Apple Stock at this point in the Smartphone cycle after everyone else buying the stock for a decade in the most overcrowded trade on the street and the QE Supercycle also coming to an end will provide a nice parting shot into his retirement career. This is even worse than his foray into IBM where he finally threw in the towel after many double downs on that technology dinosaur. Apple will miss the next earnings report bad, investors will finally get that smartphones have become boring commodity products that nobody will ever stand in lines for ever again, and many people will keep their smartphones for five years going forward.
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However, this is just the start of the downturn as Apple gets most of its revenue from smartphones, they have failed to come up with a replacement product, and everyone on the planet who needed a smartphone has already purchased one in a decade of a strong business cycle. Talk about terrible fundamentals, Apple is a short for the next five years at a minimum as the QE Central Bank money leaves financial markets, Apple continues to have declining smartphone numbers, and the global economy heads into recession with the debt and financial market bubbles finally bursting making this next recession one of the worst in a century. Good luck marketing a $1000 smartphone with some new marketing gimmick going forward in that economic environment. The Smartphone Supercycle is over, Apple has had its decade long run, and to cap it all off they built that stupid spaceship office in California, usually like stadium naming rights this marks the top in a company. The only people buying Apple stock will be Warren Buffet all the way down in a value trap and Apple trying to prop up the stock effectively trying to cover up massively declining revenue growth that comes along with the death of the Smartphone Supercycle.
Those channel checks are right and the pain is just beginning, think about how long you will wait to buy your next high end smartphone? Do you have the same compelling reason to run out and buy the latest Samsung or Apple iteration? The minute differences just don't amount to much in the overall scope of a mature smartphone market where they keep going up in price with only incremental new benefits for the consumer. Similarly to how the Commodity Supercycle ended with a crash in commodity prices, expect smartphone prices to start crashing, even at the high end, as these really are just handheld computers in the end.
And once the marketing hype fades away when all phones are basically the same damn device that can take pictures, make calls and watch videos and movies equally well, they have in essence become fully commoditized. Next to occur is the price crash in smartphones, once they become fully commoditized, prices start reflecting this fact, and start falling as any commodity product does in the end. Just wait until Apple has to start lowering prices on those high end smartphones just to get rid of excess inventory!
So I-Phone margins are going to go down considerably from here for the next decade! Think about that for a minute. It only makes sense that Warren Buffet is Apple's biggest fan, and he finally has an IPhone but it is too complicated for him to use, so he still uses his flip phone. He is basically a technology luddite who will be the last to know when the technology market has changed. He is just looking at Apple from all the value metrics that have occurred in the past, the classic value trap! All those pretty financial metrics have occurred in the glory days of the Smartphone Supercycle, Apple will trade going forward on all those pretty financial metrics going south along with the death of the smartphone as a sexy must have device.
Smartphones are actually pretty boring these days, like a hit song that has been played too much. The newness of the product category and technological innovation has run its course, and all the hype in the world isn't going to make consumers run out and pay a $1000 bucks to replace their current phone that works perfectly fine. In short, the Smartphone Super Cycle is done!
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