Management currently expects gross margins to contract to 36% to 37% in the April-June quarter, down from 37.5% in the most recent quarter and below analyst expectations of 38%-39%. This level of gross margins is also down from the company's peak in the high 40%s. In my view, it is likely that Apple's gross margins will decline below 30% within three years and will stabilize at 25%-30% within five years. This implies negative earnings growth -- derived from its existing lines of products --for Apple for the next three to five years. 2. Apple needs another big hit product; it's nowhere in sight. Because Apple's earnings stream from its current product line is experiencing an essentially irreversible process of secular decline, Apple desperately needs a new hit product line to arrest its overall contraction in earnings. iWatch is not going to do it as its impact would be substitutive or "cannibalistic" on existing product lines. iTV could do it, but may not be forthcoming -- at least not for several quarters.
No company, including Apple, has a monopoly on innovation. It is unrealistic to expect Apple to keep pulling rabbits out of its hat every couple of years. When the ranks of Apple fan boys dwindle to insignificance and/or their fawning is no longer taken seriously by the investing public, Apple's stock will have hit bottom. In the meantime, Apple's stock will likely continue to grind lower as, one by one, investors realize that Apple's earnings are in long process of secular decline and that the stock is essentially dead money, at best, unless and until Apple gets lucky and is able to introduce another revolutionary product into the market that does not cannibalize its existing product lines.