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To Apple, Inc.'s Tim Cook: What's After iPhone?

By Daniel Sparks – Jul 25, 2016 at 9:31PM

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What growth catalyst can follow in the footsteps of Apple's revolutionary iPhone?

Apple CEO Tim Cook. Image source: Apple.

On Tuesday, after market close, Apple (AAPL -2.63%) is expected to report a 15% year-over-year decline in revenue -- even steeper than the company's 13% decline in Q2. And it's not just analysts expecting this significant decline; management is anticipating a decline in revenue about in line with analysts' expectations.

What's most concerning, however, is not the expected decline itself, but the fact that it is expected to be driven by falling iPhone sales. As Apple faces headwinds in its largest and most profitable segment, investors are likely increasingly interested in where the Cupertino-based company will turn for growth next. Sure, there's a chance iPhone can return to growth in the coming years. But two quarters in a row of year-over-year declines in Apple's iPhone segment suggests growth may not come as easy in the future.

So, what comes after iPhone, Cook?

Electric cars?

One area Apple could turn to next is fully electric cars -- a market arguably dominated by Tesla Motors (TSLA 0.03%) today. Entering the electric vehicle market would make sense for Apple for several reasons, including the sheer size of the overall auto market and how rapidly fully electric vehicles with 200 miles or more of driving range are growing in popularity with consumers. The optimistic response to Tesla's unveiling of its $35,000 Model 3 in March, which generated 373,000 deposit-backed reservations less than a month later, previews the potential demand for a compelling electric vehicle -- and this demand was generated without any paid advertising or major push from the company to drive reservations.

Model 3. Image source: Tesla Motors.

Of course, it's no secret that Apple is exploring the possibility of bringing an electric car to market. Indeed, several reputable media outlets have repeatedly reported Apple has already decided it will eventually launch an electric car of its own. Apple's electric vehicle initiatives are known in the ever-active Apple rumor mill as Project Titan -- and they are well under way according to many reports.

The most recent report about Apple's Project Titan comes from The Wall Street Journal.

"Apple Inc. has tapped a highly regarded senior executive who helped bring to market many of Apple's signature products to oversee its fledgling automobile project," The Journal's Daisuke Wakabayashi said on Monday, citing "people familiar with the matter."

Apple's former executive Bob Mansfield, who has formerly led the company's hardware engineering for the MacBook Air, iMac, and iPad, has returned to a day-to-day position to run Apple's "autonomous, electric-vehicle initiative," according to the Journal. He had stepped down from the executive team in 2013, working instead on Apple's special projects team and serving as an advisor to the company.

The Journal's sources also notably said there are "hundreds of employees working on the project," including "veterans from the automobile industry as well as experts in battery technology and autonomous driving."

No guarantees

Clearly, Apple is up to something with electric cars. However, as one of the world's most competitive markets, made difficult by high barriers to entry and requirements for billions of dollars of capital expenditures to gain any traction, bringing an electric vehicle to market is easier said than done. Even hundreds of Apple engineers and a $233 billion war chest doesn't guarantee success.

Tesla Factory in Fremont, California. Image source: Tesla Motors.

However, while Apple could fail to follow through with its electric vehicle plans, shareholders are probably more willing than ever to lend an ear to the idea that the tech giant is working on something big in a totally new market following the company's recent revenue growth challenges. This is why when Apple reports third-quarter results on Tuesday, I'll be listening closely to see if Cook teases any "new products" in the same manner he previewed the Apple Watch before its unveiling, when he said during an All Things Digital interview that the "wrist is interesting" and that he saw wearables as another "key branch of the tree." 

Chances are Cook won't say anything that even remotely hints at an electric-car. Rumors suggest an Apple electric vehicle could be as many as five years out. So, Apple executives will likely continue to remain silent on the subject. But investors can at least look for some sort of overview from management on how the company intends to respond to headwinds for iPhone sales growth.

But, who knows, maybe Cook will finally give investors a teaser of new products on Tuesday during the company's question-and-answer session for its third-quarter earnings release.

Daniel Sparks owns shares of Apple and Tesla Motors. The Motley Fool owns shares of and recommends Apple and Tesla Motors. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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