Apple after F3Q15

The stock was down 7% at opening day following its F3Q15 earnings call. The results were great, beating Apple's own guidance and consensus estimates of Wall Street analysts. The results showed that iPhone's share gain over Android saw no sign of stopping. Sales doubled in matured markets such as Germany and South Korea. Growth in China also remained strong, China sales were higher than expected which caused a channel inventory reduction.

But the stock is still down, why? Common explanations are: 1) smartphone sales is slowing down and iPhone will not be able to grow as fast when markets reach "saturation", 2) Apple did not beat heightened expectation by as much as people expected.

Lazy thinking will propel one to think that Apple will stop growing, and maybe start declining. Indeed, it takes more incremental revenues to grow as fast as before. Also, Apple's largest revenue component, smartphone, is seeing slower growth as a product category in general. Those are legitimate concerns, however, Apple's ability to counter the conventional wisdom is overlooked.

Apple is is not an one trick pony. Unlikely Samsung, or almost any other smartphone OEMs that reply solely on hardware handset revenues, Apple generate substantial (and fast growing) revenues from services and cross-sale of other devices and accessories. Each iPhone (or Macbook, iPad) is a gateway to Apple's expanding ecosystem. The users are pulled in by better user interface (iOS), convenience (Apple Pay), differentiated functionality (Apple Watch), and third-party support (many apps and hardware prioritize support for iOS device over Android). Those non-smartphone revenue components will grow way past iPhone's plateau and  eventual downhill ride.

iPhone's growth is far from over. The smartphone market is behaving much like notebook PC market for Apple. Apple's PC business (iMac and Macbook) is consistently growing while the overall PC industry sees declines quarter after quarter. More notably, Apple is gaining share in the high-end PC market, in other words, it is taking higher proportion of $ value of the PC market while the market as a whole is shrinking. Another way to see the trend is that, as the market matures, Apple's share gain accelerates. The same thing is happening in the smartphone market. High-end Android phones have been losing share to Apple. And traditionally "low-end" markets such as China, is seeing iPhone share gain at a faster pace.

For the emerging markets, where Android currently have the dominant share, Apple will continue to gain share. For those experience Android users, iPhone is the holy grain, iPhone is the true definition of the smartphone. After all, Android is but an open, more confusing, and low-cost copy of iOS. Also, a greatly overlooked feature of iPhone, is that it is the best social equalizer. Even the richest person in the world will not be able to get a better mobile computing experience than a common office worker, because there is no superior mobile computer experience beyond iPhone; therefore, as a status symbol and an object of design, iPhone is an affordable to provide psychological satisfaction for a common person.