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Apple’s bombshell and the trillion-dollar question
WASHINGTON, Jan 4, 2019 (BSS/AFP) – Apple’s bombshell news — a sharply
weaker revenue outlook and lower iPhone sales — has raised questions over
the future of the California giant, which until recently had been seen as the
undisputed innovation leader in the tech sector.
Apple’s rare admission on Wednesday cited steeper-than-expected “economic
deceleration” in China and emerging markets and noted that trade frictions
between Washington and Beijing were taking a toll on its smartphone sales.
But the news raised questions on whether Apple — the first to reach a $1
trillion valuation and until recently the world’s most valuable company — is
seeing a bump in the road or is starting to slide back from its leadership
position.
Some analysts point to Apple’s dependence on iPhone sales to drive revenue
and profits, even as it tries to diversify its product base and add services
such as music and digital payments.
“The iPhone has been supporting the company for than a decade,” said Roger
Kay, analyst at Endpoint Technologies Associates.
“The world isn’t coming to an end for Apple but it’s a major inflection
point. Up to now, Apple has defied gravity by growing faster than any other
company in the market, but mathematically it was impossible to beat the
market forever.”
Apple shares plummeted nearly 10 percent on the news Thursday, with the
company shedding some 38 percent since its valuation hit $1 trillion last
year.
Kay said the trillion-dollar valuation was “irrational” and based on
growth projections Apple is unlikely to achieve without a new catalyst.
Apple, which has been growing in China even though it lacks a dominant
position, is pressured by tariffs and other trade issues, further inflamed by
the arrest of China-based Huawei’s chief financial officer in Canada at the
behest of the United States.
Huawei has overtaken Apple as the third largest global smartphone maker
despite limited presence in the United States.
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– ‘At a crossroads’ –
The update suggested a disappointing figure for iPhone sales, the key
driver of revenue and profit for the California tech giant.
Apple said that it expects weak iPhone sales in other emerging markets,
driving down revenue despite some positive signs in developed markets and in
its other products and services.
The company slashed its revenue guidance for the first fiscal quarter of
2019, ended December 29, to $84 billion — sharply lower than analyst
forecasts averaging $91 billion.
“Apple stock is now at a crossroads,” said a research note Thursday from
Gene Munster and Will Thompson of the investment firm Loup Ventures.
“Some investors will consider the stock broken.. but we’ve followed the
company long enough to know there is cyclicality in the market’s relationship
with Apple.”
Munster and Thompson said it would take “a new product category,” or large
acquisition to allow Apple to regain its momentum.
– Tactical errors? –
Some analysts said Apple erred in boosting the price of its new iPhones to
well over $1,000 in a global smartphone market that is largely saturated and
facing tougher competition.
“I think the main villain is the very high prices that Apple is charging
for its new iPhones,” said Richard Windsor, a technology analyst who writes
the Radio Free Mobile blog.
“This is not a catastrophe nor is it a sign that Apple is losing its grip
on the smartphone market but merely a misjudgment by Apple with regard to how
much money people will pay for an iPhone.”
The latest news sparked talk of the “Nokia moment” for Apple — a
reference to the Finnish-based firm that led the mobile phone market in the
early 2000s.
But Windsor said: “I do not in any way think that this represents Apple’s
‘Nokia’ moment simply because there is still nothing to seriously challenge
the iPhone in the high-end segment.”
Carolina Milanesi of Creative Strategies said Apple is unique among
smartphone makers because it has a wide array of apps and services that
produce revenue.
“While it is true that no other single product has done for Apple as much
as the iPhone, the product offering as an aggregate still puts Apple ahead of
all other vendors who might be selling higher volumes but have no direct way
to monetize from their users once the sale has occurred,” Milanesi said in a
blog.
Patrick Moorhead of Moor Insights & Strategy said Apple may be unable to
deliver the double-digit growth than many on Wall Street have been expecting
given the current smartphone market.
“I am not concerned for the company, but it’s likely investors will not
see the company value it was at until it can see a likely path to double-
digit revenue growth,” Moorhead said.
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