Two Apple Charts That Will Scare You

It’s been a quiet year for Apple (NASDAQ: AAPL).
We have learned that longtime CFO Peter Oppenheimer will retire later this year, that Tim Cook made an awkward joke during the annual shareholder meeting about not introducing new products plus rumors continue to fly about a potential iWatch.
But besides that, not much new information has been made available to investors. In the absence of major news, investors often turn to analyst estimates and historical data for investable information.
I found two Apple iPhone charts that will scare you whether you own shares of the company or are considering an investment. One comes from historical data and the other comes from analyst estimates.
Did you know that more than half of Apple’s revenue comes from just the sale of iPhones? More than iPad, Macbook, the iTunes store and all other products combined, iPhone is the product that makes Apple the global juggernaut that it has become.
Apple Revenue by Segment 3.14.14
The chart above clearly illustrates the importance of iPhone sales to Apple’s financial results. It should concern investors that more than 50% of revenue comes from one product, a product that faces stiff competition from multiple fronts.
However this trend is nothing new, as iPhone has accounted for most of Apple’s revenues since late 2011.
What this chart doesn’t show is the number of “new” iPhones sold rather than “replacement” iPhones sold to existing customers, a measure of how many new iPhone customers Apple is gaining.

Apple iPhones Replacement chart 3.14.14

If you are an Apple investor that is banking on the growth of new iPhone sales to boost the share price, this chart should terrify you.  But this chart certainly makes sense if you consider Apple’s iPhone strategy.
After selling you an iPhone, Apple hopes that you are hooked on its iTunes and App stores, product eco-system and the iPhone in general. The ecosystem makes it tough to go from an Apple phone to, say, a Samsung phone.
More importantly, the company hopes that you will love your iPhone and want to upgrade when they release the newest version later that year.
As the company sells more iPhones to first-time customers and these customers turn into repeat customers, it is no major surprise that the number of new customers declines, as demonstrated above.
What is a surprise, and should be especially terrifying to investors, is that these estimates suggest the total number of iPhones sold in 2014 and 2015 will be about the same.
This chart is based on estimates produced by an analyst at Pacific Crest Securities, so it doesn’t present verifiable historical data. However it does present the analyst’s best estimates, so we can’t just ignore it.
The bottom line is that the iPhone is Apple’s most important product. With more than 50% of the company’s revenue coming from iPhone, Apple simply cannot afford to lose ground to competitors like Samsung and the Windows phone by Microsoft (NASDAQ: MSFT) and Nokia (NYSE: NOK).
The second of the Apple iPhone charts that should scare you paints a picture of a low or no-growth 2015 with an increasing reliance on “replacement” sales rather than sales to “new” iPhone customers. This is a bleak financial prospect for Apple if it is to grow around the world.
As an Apple shareholder myself, this data is certainly concerning. But I believe it overlooks the new markets that Apple has entered and the potential for new products that bring new customers into the Apple ecosystem.
What do you think?

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