Is it crunch time for Apple as its new year gets off to a shaky start?
- Apple’s share price tanks wiping off $58 billion
- Even the Apple Watch seems to have wound down
- Captain Cook issues an explanation and warns of problems ahead
Apple has had an amazing run. Way back in the late 1970s it launched its first blockbuster product - the Apple II - which for a variety of reasons became, like all the Apple products to follow, the cool device. First, it wasn’t just an enthusiast’s play-thing. Not only did it look stylish and carefully considered, but it could run a spreadsheet program, VisiCalc, which put it in a sort of hybrid zone somewhere between the workplace and the ‘home with everything’.
Then the Macintosh. Famously launched in 1984 by a woman hefting a sledge hammer into the face of an Orwellian dictator, it’s still with us, utterly physically changed but still sporting a graphical interface and icons and instantly recognisable by any refugee from the 1980s. Next the iPod (huge success) followed, of course, by the iPhone (mega success).
Which is Apple’s problem. That amazing run seems to have ended. No blockbusters (apart from the semi-blockbuster iPad) since 2007.
As a result Apple is now over-reliant on the iPhone which makes up 60 per cent of its sales total. A nice problem to have, you might say, but any little jag to the iPhone’s remorceless advance and Apple overall catches cold.
The jag this time is China. So reliant is its valuation on the expectation of continued growth (more blockbusters) that what appears to be a relatively small dip in iPhone sales means crisis time.
Apple’s CEO Tim Cook in his letter to shareholders (just issued, see - Letter from Tim Cook to Apple investors) blamed in the main a combination of a slowdown in China’s economy and the continuing trade tensions between China and the US which together have squeezed sales.
As a result Apple has downgraded revenue expectations for the most recent quarter from its former $89 billion to $92 billion guidance to $84 billion. That was enough to wipe $55 billion from Apple’s total capitalisation. Of course there are other factors at play, some of them directly impacting sales and others adding to a general unease about Apple’s vaunted position in the world.
Shareholders are clearly asking themselves whether a series of lucky product strikes (as outlined above) are enough to justify a belief that the Apple product prowess will continue, even with the founder and marketing genius sadly departed?
Perhaps not, especially when you bring in other factors weighing on Apple’s performance. These include a general slowdown in iPhone customer upgrades due to the iPhone already being plenty powerful enough for its applications, and Apple seemingly unable to load new models up with extra goodies to tempt customers.
In addition, in the wake of accusations of Apple slowing down older models, it has been offering cheaper iPhone battery replacements (encouraging users to upgrade the battery rather than buy a new phone).
Then there’s competition. The iPhone can no longer be regarded as being well ahead in smartphone performance. Other makers, in particular Samsung and (ominously) Huawei are now providing real competition at the top end. Huawei in particular will surely further chip away at iPhone sales in Asia and China itself over the longer term - and those markets are by far and away the largest.
Meanwhile the Apple Watch, its flagship in the emerging wearables segment, is not performing as an Apple product should. According to ABI Research while the overall smartwatch market is experiencing steady growth, Apple’s hold on share continues to slip. (see - Apple’s share of the smartwatch market drops below 45% in the second half of 2018). Considering how quickly phone vendors can come and go (Nokia? Motorola?), Tim Cook is right to feel pressure.
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