Summary
- Apple market volatility will continue to be dictated by China trade woes and other political news
- iPhone Sales down 25% in China
- WWDC garners mixed headlines and negative press from $1000 monitor stand
Exposure to China
Given that China alone accounts for approximately 20% of Apple’s net sales and manufactures its products there, it has significant exposure to their economy and trade between China and the US which accounts for approximately 40% of their sales. In light of current looming trade disputes and a slowdown in the Chinese economy, Apple has suffered significant declines there. In the trailing 6 month period ending March 30, 2019, Apple suffered a 25% decline in sales in China year over year from $30,980,000,000 to $23,387,000,000. Although other regional sectors of the business also experienced some decline, China was the worst performer by far. In the same time period, European sales declines 4%, Japanese declined 2%, Asian Pacific declines 2%, and the Americas is the only area that showed growth at 4% . Whereas the general small declines in sales are due to a mature smartphone market with growing competition where Apple represents the priciest option, Apple’s slump in China can be attributes to macroeconomic factors. In light of these general declines, Apple is becoming more proactive and aggressive in marketing and selling its iPhones. A recent tactic has been to offer 0% financing .
Huawei Competition
In the first quarter of 2019, Huawei overtook Apple as the second largest smartphone maker behind Samsung. Huawei shipped 39.3 million phones in the first quarter of 2018 compared to 59.1 million shipments in quarter 1 of 2019. This growth has come almost exclusively from China while it remains barred by the Government from doing business in the US, Apple’s crown jewel within global markets. In the scenario that there is a breakdown in trade talks and severe escalation in the trade conflict between the US and China, Apple could be subject to a retaliatory move from the Chinese side. If iPhone sales were banned in China as Huawei is banned in the US, this would immediately wipe 20% off from Apples bottom line and presumably at least that much from its market capitalization.
Looming Antitrust Probes
On June 3, 2019, on the first day of Apple’s much anticipated WWDC (Worldwide Developers Conference) news broke that Apple was the subject of an antitrust probe along with other big names in tech such as Google, Facebook, and Amazon which triggered an industry wide selloff as the NASDAQ 100 index fell by almost 2% that day.
Apple Worldwide Developers Conference Summary and Aftermath
Apple’s Worldwide Developers Conference took place from June 3 through 7 and although Apple headlines were undermined by news of the antitrust probe on the first day of the conference, the conference yielded much positive news and interest. Updates include an overhaul of TVos and Apple TV as well as details regarding iOS 13, MacOSCatalina and the iPadOS which is the operating system for the iPad. Regarding hardware updates and improvements, they announced the Mac Pro and Pro Display XDR as well as specs for the new Mac Pro.
This did however garner some controversy and negative press in what can be described as a massive PR blunder. They announced their starting price for their Mac Pro Monitor at $4999 with an optional stand for $1000. Critics described this as everything that’s wrong with Apple and some consumers are frustrated with paying 1000 for what is essentially a piece of metal. Other companies like Microsoft have it included with their monitor. The consensus is that this should have been presented as a $6000 computer which is a fair price considering the alternatives which generally range from $10,000 to $43,000.
Stock Performance Summary
Since bottoming at $170.27 per share on June 3rd following antitrust headlines, the stock has rallied to over $194, almost exactly halfway between the 52 week range of $233.47 and $142.
