Apple has ‘the mother of all balance sheets’. So said Tim Cook recently, on the release of disappointing quarterly results that show iPhone sales slowing, which is causing concern among markets. Pessimistic spread bettors may be congratulating themselves after a slide of some 20% over the last six months and a further drop of 2.7% following the announcement last week, despite growth in profit margin. What is spread betting? In essence, you’re speculating that a particular asset may move up or down, without ever actually owning the asset itself. The amount of money you stand to make or lose depends on the degree to which the asset moves in the direction you predict it will. Anyone who went short on Apple then, believing the stock was going to fall, could have brought in a decent profit this week.
So how much trouble is Apple in here and why? Will the pessimists continue to have success based on Apple’s ‘slide’? The tech company said revenue for the first three months of 2016 will be between $50 and $53 billion, after iPhone sales of 74.8 million against 74.46 million over the same period in 2015. Quarterly profits were at record levels, and Apple was bullish about the strength of its financial position, but the flat revenue and fall in iPhone shipments against projections is spooking investors. That’s partly because Apple stock is often seen as something of a bellwether in the markets. If it slumps, that could give an indication of a general downward future trend. What’s going on then?
There are concerns that the smartphone market is becoming saturated. In the USA it has well and truly matured, and a lot of sales now tend to come from undercutting the competition rather than converting newcomers to the benefits of touchscreen technology. In developed countries, consumers are becoming less brand-loyal and noting with interest the emergence of devices from new players that are inexpensive yet perfectly functional. In developing markets, affordability is naturally also a high priority. iPhones have always been at the higher-end of the price scale, and their legendary ability to connect with consumers may be slipping away in the face of competition.
China has historically been a big, big market for Apple and it’s relatively untapped so far – currently, there are only just over half as many Apple stores in China as there are in California. But that’s no guarantee of growth. In recent months the market has been jolted significantly by movements in the Chinese economy. If downward adjustments continue, consumers will be holding onto their disposable income, and that’s bad news for lifestyle-product manufacturers like Apple.
It’s not all about China of course, though that has been Apple’s main focus for some time and will continue to be for the near future. A lot of major economies are slowing down and some, such as Brazil, are already in a recession.
The strength of the USD?
The dollar is riding high at the moment. While good news for American holidaymakers planning a European vacation is not so positive for exporters. Apple can’t just go raising its prices in foreign markets at the whim of currency fluctuations – in the past the company has said it prefers to set prices at the time a product launches – so it has to take a hit on its balance sheet for every phone sold in Europe, Japan or wherever the local currency is falling against the dollar.
It’s no surprise that a lot of Apple fans have been getting a bit hot under the collar recently. Too many new iPhones are hitting the market with too few modifications or innovations mean people are starting to think their loyalty may be being taken for granted. When Steve Jobs passed away, there were concerns that a lot of Apple’s visionary creativity had gone with him. While that’s a debate for a different arena, there is certainly a need for the company to bring something new to the table and prove it can still deliver the quality of Jobs.
So where does Apple go from here? As Tim Cook pointed out, the company is sitting on a very comfortable pile of cash right now, so there are no immediate worries but investors will be watching keenly over the next few months to see what the CEO and his Chief Design Officer, Sir Jonathan Ive, have up their sleeves.
The next version of the iPhone could be a deal-breaker. It could totally disrupt and reinvigorate the smartphone market, or it could signal that Apple is really running out of ideas.
Apple will no doubt continue plugging away in China. There are a lot more sales to be harvested there, and Apple’s market penetration may only have just begun.
Everyone knows Apple is making a car and when it eventually arrives, it’s going to be big news. You can expect Apple technology to be heavily linked with the iCar, so if you’re interested in taking a punt with spread betting, you might want to think about going long before that car hits the market when you’ll reap the rewards.