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Silence the Noise: Apple's iPhone Will Grow

Apple Inc. (NASDAQ:AAPL) iPhone Will Grow

8-01-2016

Preface
While Apple (NASDAQ:AAPL) has seen its first ever year-over-year sales decline in iPhones, the narrative surrounding the smartphone market in general has gone totally off the rails. The reality is, smartphone users are growing, and the iPhone will likely grow with it.

THE SMARTPHONE STORY
There's no doubting it -- Apple saw a spike in iPhone sales when it introduced its first ever large screen iPhone. The numbers were breathtaking, including the largest after tax earnings for any company in a year and a quarter ever.

The flip side for Apple has been very difficult year-over-year comparisons. This is all true. But, there is a false narrative that has formed that draws a corollary between the smartphone market and the personal computer market and it's dead wrong. Here is the personal computer market's collapse, which has affected Apple a little bit with its mac products, although in general Apple has gained market share even though volumes are down.

Source: Statista

Clearly that is a market in severe contraction. But somehow that narrative has been spun to also include the smartphone market, or for Apple (NASDAQ:AAPL), the iPhone market. But here's the forecast for smartphone users worldwide.

Source: Statista

While the market is clearly beyond its prime growth days, it will still grow and the idea that the crown jewel for Apple , the iPhone, is in a declining market is false. The smartphone market will grow, the PC market will shrink.

APPLE IS OPTIMISTIC
Apple is optimistic not just because of the worldwide growth still to come in smartphones, but because of shrewdly placed bets in India, which is the second largest smartphone market in the world, and saw Apple iPhone sales rise 51% year-over-year per the last earnings announcement.

IPHONE IS MORE RELEVANT THAN EVER
Sticking with headlines, we'll read that Apple is getting old -- less relevant to the younger generation and open to a new wave of competition. Well, that turns out to be a false narrative as well. Business Insider tells us that "teenagers are heavy smartphone users — many spend six hours a day on their phones — and Apple's iPhone remains their brand of choice." And then they wrote this:

Nearly 7 out of 10 teens surveyed by Piper Jaffray own an iPhone, and 75% percent said they intend to buy an iPhone as their next smartphone.

69% of teenagers surveyed are currently iPhone users. That's the highest interest in the iPhone among teenagers since at least 2013.

I think we can safely say the iPhone has never been more relevant.

There's a lot more going on with Apple well outside of the iPhone, but we must decouple the narrative surrounding PC shipments from smartphones.

The author is long shares of Apple (NASDAQ:AAPL).

WHY THIS MATTERS
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