The Truth

In today’s “The Numbers Don’t Lie,” Bloomberg’s Scarlet Fu previews Apple’s fourth-quarter earnings. Apple is hoping that its quarterly earnings which will be reported will be improved by the launch of its new iPhone 7. Both the revenue growth and number of shipments have decreased during this year.

The concern with the iPhone is that in the previous quarter the iPhone shipments dropped 15% and iPhone revenue dropped 23% from a year ago. One of the drivers pushing the decline of iPhones revenue is the lower average selling price, linked in part to the launch of the mid-range iPhone SE.

Investors fixate so much on the iPhone because it makes up 66% of Apple’s total revenue; completely dominating the company’s overall revenue. Mackintosh, which is the next most important category makes up only 11% of Apple’s revenue. As iPhone growth slows, Apple has launched new products, as well as new services, which have the potential to generate new sales over the long-term. One of them is the Apple Watch. The product just got a re-design, which propelled Apple into the lead of the market for smart watch manufacturers.

Even with a drop off in the fiscal second quarter, Apple has a huge advantage over other smart watch manufacturers. A big issue for Apple this year was taxes. There was a big crack-down in August, when the European Commission ordered that the company pay as much as $14.5 billion dollars. However Apple will not be lacking in money. They have an excess of $200 billion in cash on the balance sheet. Most of it is overseas, which allows CEO Tim Cook to grow those iPhone sales and to diversify its business.