Apple’s best years may be over - May 06, 2016

Apple’s best years may be over

After publishing a disappointing quarterly report last week, Apple’s stocks started to fall. This is not surprising, since this is the first time in 13 years that the IT giant’s incomes shrank. In the meantime, the competition at the very important smartphone market is fiercer and fiercer and China may not be as big of a market as Apple had expected.

The fall in Apple’s incomes was surprising, but the fall of iPhone sales weren’t totally unexpected. This is a huge problem for the company since iPhone gives two-thirds of Apple’s total income. Therefore, if iPhone sales get a hit, the whole company gets a hit. This time, the hit was rather big: phone sales dropped 16% compared to the same period of 2015. This still means 51.2 million phones, which still makes Apple the biggest smartphone producer of the world but altogether, Android phones oversell Apple.

What’s more, other manufacturers are getting better and the technological lead Apple had ever since the first iPhone was introduced in 2007 is now gone. The biggest competitors (Samsung, LG, HTC) now are at the same level as Apple, and new manufacturers are coming from the Far East (Huawei, OnePlus, etc.). What is more important, relatively cheap but quality phones under $250 became a reality. This means the competition is getting fiercer. No wonder, after the market of big phones, Apple tries to enter the market of cheap phones too. But at both markets, the once leader Apple is the late comer. The new iPhone SE may help Apple’s sales grow, but there is a good chance that it will cannibalize the sales of the more expensive 6S and 6S Plus.

Altogether, Apple’s incomes shrank 13% in the last quarter, and they took an even bigger, 26% hit in the Chinese region (China, Taiwan, Hong Kong). This was unforeseen, since this region showed a stable growth in the last years. It’s important to see that China has its own favoured – and now top notch – manufacturers, while the country is not always playing nice with Apple. Just last week the government shut down Apple’s online book and movie services.

What is also worrying for the future, the board of directors are far from consensus about the expected incomes for the next quarter, which is historically a weaker season in the industry. Also, the industry doesn’t expect a new, revolutionary product from the company either, which could turn the falling sales around.

Nonetheless, Apple is still a moneymaker: in the first quarter they had $232 billion in cash, and even after the fall in profits, they made $10.5 billion net income. (Although they may have problems with using that huge cash because some of it is abroad in tax havens.)

There is a great chance that the great growth of Apple is coming to an end and instead of the constantly flying stock prices we got used to, the company will be better for paying out dividends. This is still good for some investors, but may be less attractive in the eyes of others. Even the billionaire investor, Carl Icahn (who had approximately 1% share in Apple) sold his stocks after the quarterly report, partly because “You worry a little bit — and maybe more than a little — about China's attitude”, he told CNBC.

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Changes of Apple’s share prices since 2009