David Trainer Discusses Apple on CNBC’s Closing Bell

Here to take a look at what's next, let's bring in Anil Dhiradla from William Blair and Co. and David Trainer, who's the CEO of New Constructs, for sort of a bull-bear debate here, guys. And Anil, you are full on Apple. So tell us a little bit about how much bigger the services piece of the business and the overall thing can get from here.

So thanks a lot for having me this afternoon. You know, while people are focused on many moving parts, I think there are a couple of key takeaways for me from yesterday that led me to be incrementally positive longer term. You guys talked about the services revenue, you know, 16% of revenue and their ability to maintain their gross margin targets of 38 to 40%. And most importantly, when you look at the high-end handset market, the competitive landscape is next to nothing. The only other competitor, Samsung, is having structural issues. So when I look at the business model, I think investors over time will attribute this business model to be less of a volatile hardware company, but more of a sustainable, profitable, and stable recurring business model that will result in some form of multiple expansion, which you're seeing. And the software revenue is actually going to be a driver.

Okay. Now, let me get to David and get his side of the story here. I got, you know, yesterday before the earnings came out, I understood the skepticism maybe there would be a lull in iPhone sales as people wait for the next generation. iPad sales have been stagnant, you know, on and on. All this— didn't any of that— wasn't any of that skepticism allayed for you after the earnings came out last night?

I think a little bit is allayed, but I don't think that a quarter or two is enough to make a trend. Look, we saw double-digit declines in all hardware units last year, and that's why Tim Cook is shifting the focus to services. But the services world is a completely different world. We're talking about competing against Google and Spotify and Amazon, not BlackBerry and Nokia anymore. And the margins are far, far lower in services. So I don't think— Apple's been a great company in the past, right? It was the Titanic. It's the biggest market cap company in the world, one of the most successful products of all time. I don't think they're going to be able to produce another Titanic, which means we're at peak profits and the stock's just not going to be what it once was.

And, Neal, by the way, yesterday the hardware was a big part of the beat. You had iPad shipments looking good for the first time in, I think, a couple of years. And, and PC or Macs as well, even though overall PC sales have been kind of slumping. So this is a company that still needs to innovate on the hardware front too, right? Look at the home speaker they're about to debut.

Right. And David brought up a good point. I've thought a lot about it. So let's kind of focus a little bit when we talk about a blockbuster product or the next big wave and all that stuff. You know, when we look at Apple, what it is trying to do is keeping its innovation and lead on the hardware platform. What do I mean by that? The processor, the memory, the camera, and battery life. Effectively, what has happened is that the democratization of innovation in the software space. Now, David pointed out that Google and all these guys are going to be leading. See, one very important thing, I mean, Google had launched Android. What happened to Android? The problem is, once you get into mobility, power-constrained environments, The integration of hardware and software becomes a lot more important, and Apple has created that. So when people say, oh, there's no innovation there, the only innovation these guys have to do is make sure that the hardware platform becomes an anchor point. Tim Cook talked about augmented reality kits. That's the kind of stuff these guys have to do. But at the end of the day, it's a mid-single-digit grow on the top line, maybe 10% grow on EPS, 1 to 2% dividend yield. It's not going to be a hypergrowth company. But you could have a 10 to 15% return on an annual basis.

Okay, David, before we go, very quickly, anything that would change your mind?

Not really. I don't think we're going to see the incremental growth that we've seen in the past. I think Anil's expectations for growth are a little too high. And we're not talking about the past Apple, we're talking about the future Apple. And I just don't see anything in the future that's going to be nearly as bright as what they've had in the past.

And here we are, up 5.4% today on the, on the trading day. Good to see you both. Anil, David, thanks for joining us.