Apple Stock News: Apple Surges 13.5% Amid Easing Tensions

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.

Apple Stock News – Antitrust Probe Laws Ruins Mood for WWDC

Source: Apple Inc

The highly anticipated Apple Worldwide Developers Conference (WWDC) 2019 is happening as we speak, in San Jose, California. From 3 to 7 June 2019, apple fans will been given the latest tech updates and investors will be watching stock prices closely.

However, on Monday, 3 June, news broke that Apple was facing possible jurisdiction for an antitrust probe, causing major unrest for investors as stock prices fell that very day. Meanwhile, trade war tensions might be dissipating.

Antitrust Probe – A Toothache for Apple

Source: Bloomberg

On Monday, 3 June 2019, Apple stocks fell despite trying to put their best foot forward in WWDC. The US Department of Justice has secured jurisdiction to investigate Apple on antitrust probe concerns. Sources on Reuters, unfortunately did not specify what issues led to them wanting to pursue an antitrust probe.

Other tech giants such as Amazon, Alphabet and Facebook are also undergoing concurrent antitrust probes.

Apple’s stock fell by as much as 2.4% at $170.87 following a release on the report about the antitrust probe, despite being positive earlier in the day. By the end of Monday, Apple stock had rebounded slightly and closed at $173.30, with a drop of 1%.

WWDC – What’s the Latest News Mac?

Source: The Verge

On the other hand, in the WWDC 2019, Apple has announced some new and exciting updates, including a Mac Pro and Pro Display XDR, iOS 13 with a dark mode, MacOSCatalina and an operating system for the iPad called iPadOS.

iTunes will be cancelled and instead broken up into three apps; Apple Music, Apple Podcasts, and Apple TV. This is to cater to the new ways consumers buy and stream media.

They also announced the latest Mac Pro with the most up to date and powerful specs. However, it has gained a lot of traction for the wrong reasons as the design of the mac pro has ended up looking a lot like a giant cheese grater.

iPhone introduced a dark-mode for system menus and native apps. Whilst the launch speed for apps should be much quicker. With iPad’s new software updates, switching between apps will now be more seamless.  

Trade War Tensions Might be Dissipating

“The differences and frictions between the two sides in the economic and trade field will ultimately need to be resolved through dialogue and consultation.”

China’s Ministry of Commerce

Following the release of the statement in early June, investors can feel slightly hopeful. The Trade War tensions have been going on for months, putting investors and consumers on edge.

Any tariffs placed on Apple products will have an undesirable impact. According to analysts, every 5% drop in China’s sales will result in an earnings per share drop of about 15 cents. This is due to the fact that China is Apple’s third largest market and Apple relies on chinese workers for assembly of their products.

Source: Bloomberg

On 10 May 2019, the Trump Administration raised tariffs from 10% to 25% on $200 billion goods after failed negotiations. Three days later, China threatened to raise tariffs on $60 billion worth of US goods. With the escalating trade war tensions in the month of May, Apple Stocks have certainly taken a hit.

Goldman Sachs estimated that Apple’s earnings would fall by 29% if China were to retaliate against the US with a ban on sales of the iPhone maker’s products.

Apple Stock News: Gloom From US-China Trade War Is Here To Stay

Investors used to be optimistic about Apple in the trade war

While Apple’s stocks have been unmistakably suffering this month from the US-China trade war, its prospects were not always so gloomy. When the Trump administration initially declared sweeping tariffs on China, it exempted Apple in order to assuage the appetites of voracious American iPhone consumers. In fact, last week, the stock was still trading on a P/E ratio 14.6 forward Wall Street profit estimates, which was below the forward P/E multiple on the Dow Jones (of 15.7 times) and the S&P 500 (of 17.2 times).
Yet with a second round of tariffs on the horizon, Apple’s prospects are not so sunny. Especially after May 17, when the Trump administration banned Huawei from purchasing the American components it needs to manufacture its products (for allegedly aiding Beijing in espionage), the risk of Chinese retaliation is heavy on Apple’s shoulders.

China is key to Apple’s sales and revenue

It cannot be stressed how important Apple’s operations in China is to its sales and revenue. In the past fiscal year, $51 billion of Apple’s sales came from China, deeming the country Apple’s third biggest region, only behind the Americas and Europe. Moreover, Apple relies on China for about a fifth of its revenue.

Analysts are drawing up estimates for how much damage China could inflict with retaliatory policies. As Huawei struggles to replace its American parts with self-manufactured ones, Apple is China’s next likely target if Beijing continues to pursue its “tit-for-tat” strategy. While analysts at Goldman Sachs believe that a ban on Apple product in China is still unlikely at this point, such a ban or “some other restriction on Apple products” could dent Apple’s earnings by 29%. What’s more, China does not have to ban production directly to cut into Apple’s supply chain. China could pursue other methods such as a ban on rare-earth metals or promoting nationalist sentiment among consumers.

Optimism for Apple’s immediate recovery is fading

The biggest problem Apple faces today is that the key factor which could trigger all of these looming risks–international trade policy–is surrounded by so much uncertainty. As of now, the next opportunity for a Trump-Xi dialogue is at the upcoming G20 Summit in Osaka in late June. Even then, it is not certain that such a dialogue will exist or that it will be ameliorative.

These questions up in the air have definitely thrown Apple on a downwards slope. Goldman Sachs has lowered its target price for Apple to $178 a share. This estimate seems appropriate seeing that the stock has dropped about 10% in May, and about 20% from its highs in October 2018. Yahoo Finance’s Scott Gamm pronounced that its stock is officially in bear market territory.

So is Apple hitting bottom anytime soon? Are we nearing the end of its turmoil? The answer is “probably not.” Erin Gibbs, equity chief investment officer at S&P Global Market Intelligence, tells Yahoo Finance that with so much uncertainty surrounding “fundamental catalysts” such as trade, there is “definitely more room for Apple to go down.” In short, with such a key part of its sales essentially being held hostage in one of the fiercest trade wars of this decade, Apple’s stocks can be predicted to continue to fall victim to this unrelenting uncertainty.

Apple Stock News: Apple’s Revenue Hits An All Time High

Summary:

  • Apple’s Services Revenue Reaches New All-Time High of $11.5 Billion
  • The U.S. Supreme Court ruled that consumers can press ahead with a lawsuit that accuses Apple (AAPL) of using its market dominance to artificially inflate prices at its App Store.
  • Apple’s market share in the global smartphone market is shrinking.

Sticky Situation For Apple

The U.S. Supreme Court ruled that consumers can press ahead with a lawsuit that accuses Apple (AAPL) of using its market dominance to artificially inflate prices at its App Store. The US Supreme Court voted 5-to-4 to allow an antitrust lawsuit against the tech giant to move forward. This decision piles on the pressure the company faces to cut the 30% commission it charges on app sales. Lawyers pressing the case plan to seek hundreds of millions of dollars on behalf of overpaying consumers. Apple fell 5.8% to close at $185.72 on the stock market on that day.

[Yahoo finance]

When a user buys an app on Apple’s app store, Apple collects the money, keeps the 30% commission and gives the rest to the developer. Apple told the high court it passed $26.5 billion on to developers in 2017. The company is part of an app economy that will grow from $82 billion last year to $157 billion in 2022, according to App Annie projections.

In the Apple lawsuit, the company argued the case’s focus was the 30% commission. That’s something the company said is paid by the developers, not the app purchasers. The consumers said they pay for the commissions through higher app prices. But Apple contends those are the type of “pass-through” damages barred under the Supreme Court’s 1977 Illinois Brick v. Illinois ruling. The high court did not touch on the merits of the case, which contends the company has monopoly power over iPhone users because the only place they can buy those apps legally is run by the company.

Shrinking Problem

Apple’s market share in the global smartphone market is shrinking, and the company’s margins are being compressed due to declining iPhone sales and increased competition. This leads me to believe that Apple will likely have to lower iPhone prices to better compete with its cheaper competitors.

In addition, the recent earnings report was not great in my view, and the company may disappoint investors in future quarters. The technical image also looks weak, and we could see another 15-20% correction from here. Between Q4’18 and Q1’19, Samsung has taken a 5% leap in the smartphone market share, while Apple declined by 7%. Huawei has since overtaken Apple in second place.

[Statista]

Trade War

[Financial Times]

In the ongoing trade war between US and China, tariffs of 25% on $200 billion of chinese goods were made on the 13th May. The tariffs could add about $160 to the cost of a $999 Chinese-made iPhone XS. The increased cost of the american branded chinese made product could have detrimental effects on the sales of its products, with strong competition coming from Samsung and Huawei. However, one thing to note about the tariffs is, the cost of the tariffs to consumers. The new 25% tariff is levied on components, not the finished product. Apple’s AirPods and Apple Watches are spared additional tariffs. Any calculations made pertaining to the costs will not be straightforward.

Although Apple has a lot of American suppliers and spent $60 billion on American suppliers in 2018, it assembles its iPhones primarily in China. As a result, Apple uses a Chinese supply chain for all its products, from iPhones to iPads and Mac computers, hence being a primary victim of the trade war. It’s korean competitor, Samsung which has plants in Vietnam, China, India, Brazil, Indonesia and Korea, is far more diversified in its supply chain. To address this issue, Apple has reportedly stepped up efforts to shift production from China.

Shipments of iPhones to North America, Apple’s largest market, fell 19% to 14.6 million units in the first three months of the year. Also, Tariffs could also affect iPhone sales in China, where On Monday, China announced plans to apply 25% duties on 2,493 US products, starting on 1 June. Apple reported $51 billion in revenue in 2018 from “Greater China,” which includes Hong Kong and Taiwan. That’s Apple’s third-biggest region, after the Americas and Europe. Apple’s total revenue for 2018 was $265.6 billion. This could mean a lower revenue in the future quarters.

Everything else is thriving

[Idgesg.net]

Even though Apple has faced legal troubles and the potential force of the trade war, investors should not worry. Apple is doing well in services, that its service revenue has increased to $11.5 billion in the Q2 2019 financial report. That can be attributed to paid subscriptions, which nearly topped 400 million for an increase of 30 million over last quarter. The company also posted quarterly revenue of $58 billion , which is a decline of 5 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.46, down 10 percent.

International sales accounted for 61 percent of the quarter’s revenue. iPad sales were also up, fueled by the release of the fifth-gen iPad mini and the new iPad Air. Apple also sold $5.1 billion worth of Apple Watches, AirPods, and other accessories in the Q2’19, a 30 percent increase over the year-ago quarter. We should also not forget that Apple announced that they will no longer reports iPhone, iPad, and Mac unit sales numbers.