Apple, Inc. is a giant that needs no introduction. The $656 million market cap company has dominated the smart technology scene for years… But what’s been going on lately?
Perhaps wishing to flood its already fragmented market with the latest versions of its smart products does not bode well for the company’s future. Apple has already had to cut production of its iPhone line 10% during the first quarter of 2017, making this the second year in a row the company has diminished production. This information is based on calculations from Apple’s suppliers.
According to a report released by the Nikkei Asian Review, Apple has chosen to cut production of its iPhone 7 approximately 20% due to the model’s lack of exciting new features. Current iPhone 6 users don’t have sufficient reason to upgrade their devices. iPhone 6 and 6 Plus production all but stopped this time last year because of a stockpile of inventory, as those products were not selling as well as originally anticipated.
And now the same goes for the iPhone 7.
However, the demand for the larger iPhone 7 Plus appears to be unmet. With a fancier camera not seen on any other iPhone model, Nikkei says the problem lies with the inability to secure enough camera sensors to meet its demand.
Creating scarcity through sluggish production rather than consumers’ needs isn’t exactly idealistic and doesn’t really live up to expectations. To state it plain, Apple customers are getting bored.
These are worrisome trends. What happened to the known inspiration and sought-after innovation that is synonymous with the Apple brand?
“We believe that Apple is about to embark on a decade-long malaise,” writes Andrew Uerkwitz, an analyst with Oppenheimer. “We believe Apple lacks the courage to lead the next generation of innovation (artificial intelligence, cloud-based services, messaging); instead it will become more reliant than ever on the iPhone.”
But how can that be, when the latest models are leaving us, the consumers, wanting more? And besides, in the fourth quarter of the latest fiscal year Apple sold fewer units than ever. Sales of iPhones, iPads, and Macs all fell below the bar.
Such bold statements are atypical and rare amidst Wall Street talk. In most cases, analysts tend to focus on quarter-by-quarter trends. Strict criticism of a company’s overall track record in forecasting future trends, like so stated above, is very unusual. Things must really be getting serious.
With the impending release of the Apple Watch Series 2 and the revamping of the popular AirPods, is Apple really giving its consumers what they are asking for? According to a survey performed by Bank of America Merrill Lynch, sales predictions for the latest upgrades don’t sound too promising.
As for the Apple Watch Series 2, only 8% of survey respondents intend to purchase the latest model, leaving a staggering 92% of consumers indifferent to its release. Only a handful of surveyors currently own a Series 1 Apple Watch.
As for the AirPods, they appear to be doing slightly better that the watch, but not by much. Only 12% of the respondents stated they plan to purchase the headphones.
A hefty purchase price of $159 is deterring potential consumers from the wireless earbuds. Most state that their current headphones suffice. No need for change.
The consumers have spoken, and they’re not really interested. Perhaps when it comes to wearable technology, Apple should devote its focus to just one. It appears as if Apple is placing a lot of faith in these new products in order to revitalize its latest bland trend.
Has the downward spiral begun? Prior to 2016, Apple had an untouchable 51 straight quarters of steady sales growth.
RBC Capital Markets analyst Amit Daryanani forecasts Apple selling only 76.1 million phones. Yet, he notes, there is potential for better things with growing popularity of the iPhone 7 Plus. Larger has always done better. It could potentially drive up the average selling price.
However, with the average life expectancy of a smartphone increasing to approximately three to four years from the previous one to two years, perhaps releasing a new model every year isn’t the best idea. Let the anticipation and excitement grow for a few years, and then see what happens. Perhaps then not so many iPhones will be sitting in storage collecting dust.
Despite mixed feelings across the board, analysts still remain somewhat hopeful.
Many analysts anticipate that Apple will slide just under what Wall Street has been predicting: $2.09 per share in earnings and $57.8 billion in revenue. However, some are predicting an average of $77 billion, which would put an end to three quarters straight of declining revenue.
Mark Moskowitz of Barclays predicts $76.6 billion. Yahoo Finance predicts $77.38 billion. Neil Cybart of Above Avalon predicts $80 billion.
With both ends of the spectrum being presented, it can be difficult to discern which is the best course of action. The current activities of this first quarter are not doing much to inspire hope, either.
During the first quarter, shares are still down approximately 26% from their previous 52-week high and have decreased 11% since Apple’s previous fourth-quarter results. John Butters for Insight FactSet writes that the current mean EPS estimate for Apple for the first fiscal year (calendar fourth quarter) is $3.22. Compared to last year’s actual EPS of $3.28, a small dip is still evident.
“While we do think that Apple will likely meet estimates in its latest quarter, iPhone data points have been mixed and we see some potential downside to consensus estimates coming out of the quarter,” writes Bernstein’s Toni Sacconaghi.
But at this point, most people expect greater stability from a company as prominent as Apple, rather than seeing numbers all over the place.
When it comes to buying shares, I’m not convinced that Apple is the best choice at the moment. I would never again buy Apple stock, unless the company guarantees increased buybacks and dividends. With $206 billion in cash on its balance sheet and a dividend yield of 2.01%, patience appears to remain the best course of action.
Analysts and investors are anxiously awaiting any commentary pertaining to President Trump’s tax reform efforts from Apple CEO Tim Cook, which could result in the increase of buybacks and dividends.
In the long run, Apple needs to revamp its “innovation engine” and “excite consumer imagination” once again in order to boost profits. That’s all that can be hoped for, because its current product line is utterly boring, with the sales numbers to prove it.
Until next time,
Jennifer Clark
Pro Trader Today