Apple (AAPL) shares soared on Wednesday after the company announced December quarter earnings. And there was sure a lot to cheer about as I noted in my post on Apple’s results yesterday. The shares closed up $5.15 to $129.
Today, though, was a day for mulling over some of the doubts. The shares certainly didn’t tumble–closing just 0.17% lower–but neither was the market able to sustain the immediate post-earnings report enthusiasm.
Those “concerns”? In no particular order they are
Apple TV. Remember at one point Apple TV was supposed to be the next great product at Apple, something to give the company more than just the iPhone to lean on. (Especially with the continued decline in iPad sales.) But sales of Apple TV fell in this quarter.
China. It’s great the Apple was able to take advantage of Samsung’s rather spectacular problems with exploding phone batteries this quarter to grab back global market share, but Apple lost the No. 1 slot in China’s smart phone market in 2016. The iPhone 6S finished second to Oppo’s R9 smart phone for the year. In fact Apple lost ground to Oppo, Vivo, and Huawei in China. With the strong dollar creating another cost disadvantage for Apple, it’s not clear how Apple can quickly reverse its loss of share of Chinese phone makers. But Apple can’t afford to simply write off the world’s biggest smart phone market.
India. Apple could, of course, make up for its loss of share in China by building sales in other large emerging markets. India comes leaping to mind. Apple has an impressive 62% share of the market for premium phones in India, but that market is tiny. Apple sold just 2.5 million phones in India in 2016.
One-legged stool. The iPhone produced revenue of $140 billion for Apple in 2016. It would be helpful–and might well push Apple’s astonishingly low price to projected earnings ratio of 14 higher–if the company could point to a second BIG product. Hence the disappointment with Apple TV and hence the effort at Apple to talk up the growth of revenue from services. The lack of a new blockbuster–the iPhone is now 10–is one reason that investors aren’t willing to pay up more for Apple’s earnings and earnings growth. Ten years is long run for a technology product.
As I noted yesterday, everyone is convinced that the new iPhone to be introduced in the fall of this year–the 10th anniversary iPhone–will be a knock-your-socks off product. And certainly no one is willing to walk away from a lottery ticket on a possible huge product cycle. But it’s not like all the worries about Apple will vanish in the months before that introduction.
Apple is a member of my long-term 50 Stocks portfolio