By Mark Richards.
Plenty of people will be reading this article on an iPhone. Many more will have iPads, Macs and other Apple products at home. But could the recent slide in the share price be a sign that the company is heading for trouble? Does Apple need a new Steve Jobs? We look at the warning signs…
At the beginning of October, I wrote an article, called the ‘Trillion Dollar Twins,’ describing the race between Apple and Amazon to become the first company valued at a trillion dollars – around £780bn.
Barely two months later economic commentators are starting to ask a previously unthinkable question: is this the beginning of the end for Apple?
The ‘beginning of the end’ could be a relative term. Apple still has a cash pile that would be the envy of many small countries – earlier this year it was estimated at $285bn (£224bn) – and the shares are still 2.3% up for the year as a whole when many of the world’s leading stock markets have fallen steeply.
But the shares are sharply down – by 20% – since those heady days of early October: the company is no longer worth a trillion bucks. So what’s happened? Why have investors suddenly fallen out of love with a stock they have been besotted with for years?
Investors are worried about iPhone sales
It was not long ago that investors were prepared to overlook sluggish iPhone sales. Yes, sales were only up slightly, but it was the more expensive models that were selling well. Now that sentiment has turned, with it not clear if the new range of iPhones unveiled in September is translating into sales.
Apple is only forecasting year-on-year revenue growth of up to 5% for the Christmas holiday season. Small wonder that investors were disappointed. As every parent knows, if you have two teenage children, not a Christmas goes by without a new iPhone arriving in the house.
Anxiety has been heightened by news of production cuts at some of Apple’s biggest suppliers and Apple itself has added fuel to the conspiracy theorists’ fire by suddenly refusing to say how many iPhones and iPads it has sold each quarter, a move described by one analyst as “the straw that broke the camel’s back.”
Apple is vulnerable if the economy turns down
Apple products are expensive: no-one disputes that – and if the US and world economies start to slow down, then Apple could be vulnerable as consumers wanting new phones switch to cheaper models. The lowest price Apple phone is currently $750 (£590) and industry experts think that sooner or later the company has to make a cheaper phone. The much-touted Huawei Mate 20 Pro, for example, is available for a fraction of the price of an iPhone.
Will Apple’s service business be a success?
Apple’s service business includes Apple Pay, Apple Music and the app store and the company is apparently targeting $50bn (£39bn) from this source by 2020. But investors are unsure. There are plenty of competitors out there and, if people stop buying iPhones, the future for the App Store looks a lot less bright. And other companies are pressing ahead with plans to break into TV and movies – Apple has said nothing on this yet.
Does Apple need a new Steve Jobs?
According to many Apple fans, the answer is an emphatic ‘yes.’ Steve Jobs’ attention to detail was legendary: here’s what the MacDailyNews has to say about that now being absent from the company:
‘He focused on the little details most people simply don’t see, don’t care about or don’t bother to do anything about if we do see them. This is what set Apple apart from the competition. Even if we didn’t know why it seemed so much better, the fact that [Apple products] were so much better was inescapable. From the worst security disaster in modern computing to ever more frequent operating system glitches, Apple seems to need that person who can obsess over things the rest of us miss.’
To this Apple user, that is it in a nutshell. I remember the sense of wonder when I got my first iPhone. I searched for the instruction book: there wasn’t one because it just worked, straight out of the box. My current contract ended last week, but I have gone on to sim-only. The iPhone no longer excites me enough to want to trade up – and if I were to change I would seriously look at the Huawei Mate 20 Pro for the better camera.
‘Rumours of my death…’
As Mark Twain supposedly said, “Rumours of my death have been greatly exaggerated.” That may turn out to be the case with Apple: as we wrote in October, the company has had some spectacular failures – the Apple Pippin, the Newton and the Macintosh Portable – and was in more or less continuous decline through the 1990s.
It only returned to profitability at the end of the decade when Steve Jobs returned as CEO and set the company on the upward trajectory that would ultimately take it to that trillion dollar valuation.
As most people know, Jobs died in 2011, but Tim Cook took over as CEO, guiding the company to a position where – in 2017 – it had 123,000 employees around the world and operating revenues of $230bn (£181bn).
Why is it suddenly different?
In a word, ‘China.’ We have touched above on the continuing trade war between the US and China, and there is also the rise and rise of Chinese phone maker Huawei.
In its last financial year, Apple generated nearly 20% of its revenue – around $45bn (£35bn) – from the Greater China area, in 2017 it shipped over 41m iPhones into China and was the fifth biggest company in that market. Add in 40 Apple stores in China and services such as the App Store and Apple Music and China is a very significant market.
It is also crucial in terms of production: Apple’s phones are assembled in China by Taiwanese firm Foxconn. Right now Apple is the most successful US technology firm in China – but that very success could become its major weakness if the trade war between the two countries continues to escalate.
Add that to the perceived lack of innovation and attention to detail and ever-increasing competition and the future could suddenly look very different for Apple. Tim Cook may do well to remember the old Chinese curse: ‘may you live in interesting times…’