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Is Apple Inc. (NASDAQ:AAPL) in a Full Reboot?

Apple Inc. (NASDAQ:AAPL) has taken a very quick route from hero to whipping-post over the past month. One of the confounding mysteries of this shift is the fact that the company just gave Q4 guidance a couple weeks ago. And yet, somehow, the picture for the company has imploded since then, such that this guidance is now completely off base.

That sense comes from a list of key suppliers who have, one by one, come out and signaled a flashing red light about Apple’s demand in Q4 and Q1 2019. The list already included four suppliers, and now includes a fifth (and the biggest one): Foxconn.

Apple Inc. (NASDAQ:AAPL) shares have now broken under the 50-day and 200-day MA’s and the long-term bull trendline all in a matter of weeks. The stock is now down as much as 25% since late September.

If you take a step back and think about it, the writing was on the wall months ago and seems to be written into the strategic picture for the company. Apple has relied on the iPhone as its core linchpin of growth for years now. However, as we discussed previously, the market is saturated with iPhones and the product cycle has dramatically lengthened.

 

What is the real driver of this dilemma?

Imagine if we were talking about a fisherman and a lake. The lake only has so many fish in it and the fish only reproduce so fast. As the fisherman gets more and more efficient, he is eventually going to catch all the fish.

So it goes now with Apple. The iPhone 6 Plus is a great example. If you own one of these, there was never really any reason to buy a 7, 8, or any other. The difference between the 6 plus and successive models is negligible. Why would you buy a newer model?

And the company has done such a great job of design and marketing that everyone on the planet who wants an iPhone probably already has one.

The fisherman did too good. And now the second derivative function is confounded.

If you pair this with the company’s lagging position in the smart console device market (the Echo, Home, etc), then the next step for Apple is likely going to be more about cloud services because it’s very difficult to see another option.

In other words, a very major overhaul in primary emphasis is now underway at Apple. Its every-two-decades self-reinvention process has now begun. And it will be awfully interesting to see what comes out of the cocoon this time around.

But, one thing is beginning to look clear: it’s not going to be about the iPhone.

Apple Inc. (NASDAQ:AAPL) generated sales of $62.7B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 17.3% on the top line.

In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($66.3B against $116.9B, respectively).

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