Apple Filing Includes Profit and Growth Warnings

In a first in the modern era, Apple disclosed to the U.S. Securities and Exchange Commission (SEC) that its new products won’t be as successful as existing products, resulting in lower profit margins and revenues.

“[Apple’s] ability to compete successfully depends heavily on ensuring the continuing and timely introduction of innovative new products, services and technologies to the marketplace,” the latest Apple 10-K filing notes. “New products, services, and technologies may replace or supersede existing offerings and may produce lower revenues and lower profit margins, which can materially adversely impact the Company’s business, results of operations, and financial condition. There can be no assurance the Company will successfully manage future introductions and transitions of products and services.”

Now, this doesn’t read as particularly problematic to me. If anything, it’s obvious, not just for Apple–which, granted, has had a singular success for the ages with the iPhone–but for any company in this market. But as The Financial Times points out, this is also a first. Apple is required by the SEC to disclose risks to its business, and to date, it has cited “competition, foreign exchange, supply chain issues, and other factors.” In recent years, it added the vague “higher cost structures” to that list. But specifically stating that its new and upcoming products won’t be as successful as, say, the iPhone, is new.

But again, it also feels obvious. In its most recent quarter, the iPhone accounted for almost half of Apple’s revenues, and its successes since the iPhone have either been relatively minor, comparatively, or tied to the halo effect generated by the iPhone. Services is currently Apple’s second-biggest business by revenue, and it’s a bit over half the size of the iPhone by revenue. But those revenues are almost entirely tied to iPhone.

To put this in perspective, Microsoft’s total revenues in that same quarter were $65.6 billion. The iPhone delivered $46.2 billion in direct revenues in the same time period, but if you add in Services, which I think is fair, then the total is over $71 billion. Put simply, the iPhone and its associated ecosystem–and that figure doesn’t even include other related revenues from Wearables, Home and Accessories, and elsewhere in the company–is bigger than all of Microsoft. So stating that it will never surpass the success of the iPhone is, again, obvious.

That Apple made this disclosure now is interesting, regardless. Services continues to grow nicely–revenues were up 12 percent in that same quarter–but most of its other product introductions–Macs, iPads, Apple Watches, and so on–are just upgrades for existing customers. Real growth has to come from something truly new, and Apple’s only truly new product, Vision Pro, is too expensive to provide that growth. Other efforts, like its smart car initiative, have failed. And Apple Intelligence, while nicely done, will never provide the type of growth it’s seen with hardware and services. Apple’s costs–and risks–are going up, and the potential payoff, it seems, is going down.

‘To remain competitive and stimulate customer demand, the Company must successfully manage frequent introductions and transitions of products and services,” the Apple 10-K filing reads. This is on top of the related need to “enhance existing products and services,” and it relies on market acceptance, third-party support, and channel management, among other things. Apple today isn’t just bigger in every way than the company Steve Jobs rescued 25 years ago, it’s far more complex. There are a lot of moving parts.

And, suddenly, some uncertainty.

It’s impossible not to wonder if this disclosure previews a coming downturn that might otherwise have upset shareholders enough to trigger a regulatory investigation.