Apple's quarter of lowered expectations: Fiscal Q3 2013
Wall Street is looking for Apple to report zero revenue growth. — FORTUNE — On April 24, the day after Apple (AAPL) reported its earnings for fiscal Q2, Cowan and Company's Matthew Hoffman published a revised forecast for the following quarter.
Context & Ripple Effects
The story continues an arc that began with Fortune's March 2013 report on Apple's first quarter of negative income growth since 2003: the growth machine that carried the stock for a decade had visibly stalled. On April 24, the day after fiscal Q2 results, Cowen and Company's Matthew Hoffman reset the bar by publishing a revised forecast for fiscal Q3, and by mid-July Wall Street's consensus was zero revenue growth.
What makes this pre-earnings moment notable is how widely it travelled — Computerworld, ReadWrite, BGR, 9to5Mac and others all picked it up — and what surrounded it: confirmed iWatch trademark filings across Russia, Japan, Taiwan and Mexico, higher ad spending on Ad Age's Top 200 list amid a tablet fight, and reported iPhone/iPad cellular performance lagging Samsung Galaxy phones. The Street is pricing a company between product cycles.
First-order effects
- Apple heads into its late-July fiscal Q3 report against a consensus of flat revenue, meaning even modest upside becomes the story while any miss confirms the deceleration flagged since the March 2013 income decline.
- Sell-side analysts like Hoffman now anchor their models on a no-growth Apple, shifting the debate from 'how fast' to 'what comes next' ahead of the print.
Second-order effects
- The competitive gap sharpens: with Apple devices reportedly showing slower cellular speeds than Samsung's Galaxy line, Samsung can press a specs advantage just as Apple spends more on advertising to defend tablet share.
- A flat-revenue baseline raises the stakes on unannounced hardware — the multi-country iWatch trademark filings signal Apple is preparing a new-category answer to the growth question before the next earnings cycle forces it.
Third-order effects
- If zero growth becomes the norm rather than the trough, markets will start valuing Apple as a mature cash-return business rather than a hyper-growth one, changing who owns the stock and what management must promise each quarter.
- Sustained deceleration also pressures platform strategy: the closed approach evident in Apple TV — where only a few high-profile partners have apps — faces internal pressure to open up as services and ecosystems become the growth levers left standing.
The trend: Apple is crossing from a hyper-growth company into one whose quarterly narrative depends on launching new categories — with the iWatch trademark filings as the visible hedge against a maturing iPhone-and-iPad core.