Apple bitten despite enviable sales, profit
Its stock quickly sank 11 per cent. What is going on? Because of its great success in recent years, many investors have come to expect nothing short of perfection from Apple. And while it is still widely considered the most innovative company in the technology world, a maker of products that its devoted customers cannot live without, Apple is facing challenges.
It is dealing with increased competition from big rivals such as Samsung and Google, and with so many people already using smartphones, the market is not quite as untapped as it once was. Apple is forging into cheaper product categories, meaning lower profit margins. And given that Apple has grown so big, with sales of more than $US160 billion in the past 12 months, keeping up its heady growth rate is becoming harder and harder.
Once-euphoric investors, who pushed Apple's stock to a record high of $US702.10 in September, have become nervous, and in after-hours trading on Wednesday, the stock traded at $US461.30, down 34 per cent from its peak.
Apple has reinvented itself several times over the past decade with new products, and could do so again. Television and electronic payments are among the markets where analysts believe the company could make a serious push, leading it to new heights.
"Apple has really been able to invent whole new markets," said John Gallaugher, an associate professor at Boston College's Carroll School of Management. "That's where it differs from companies like Microsoft. I don't think the mojo of this team has evaporated."
In a call with analysts, Timothy Cook, Apple's chief executive, said the company's pipeline of new products was "chock-full". In the meantime, though, the love affair that investors once had with Apple is clearly waning. "There's nothing that can help the stock from sliding now," said Mark Moskowitz, an analyst at JPMorgan Securities, who said Apple's holiday sales met his own forecasts, even though they missed others' predictions.
The New York Times
Frequently Asked Questions about this Article…
Apple reported a quarterly profit of US$13.1 billion (about A$12.4 billion) and said it sold 28% more iPhones and 48% more iPads in the period — clear top-line strength even though the stock moved lower after the release.
The stock fell because investor expectations have become extremely high — many expect perfection. The article notes markets are getting saturated, Apple faces tougher competition, it’s moving into cheaper product categories with lower margins, and the company’s rapid past growth is hard to sustain. After the report the stock sank about 11% in regular trading and traded at US$461.30 in after‑hours — down 34% from its September peak of US$702.10.
Apple has grown to more than US$160 billion in sales over the past 12 months. The article explains that once a company reaches that scale, keeping up very high growth rates becomes more difficult, especially when many customers already own smartphones and the overall market is less untapped.
Apple is facing increased competition from big rivals such as Samsung and Google. With many people already using smartphones, competition intensifies and Apple’s move into cheaper product categories can mean lower profit margins compared with its premium devices.
Analysts mentioned in the article see opportunities for Apple in markets such as television and electronic payments — areas where the company could potentially make a serious push and extend its growth runway.
Tim Cook told analysts that Apple’s pipeline of new products was “chock‑full,” suggesting the company believes it has plenty of new ideas and products coming that could help future performance.
Views are mixed: John Gallaugher, an academic, said Apple has repeatedly invented whole new markets and that the company’s ‘mojo’ hasn’t evaporated. By contrast, JPMorgan analyst Mark Moskowitz said investor enthusiasm has waned and suggested there was nothing that could stop the stock from sliding at that moment, noting Apple’s holiday sales met his forecasts even while missing others’ expectations.
The article’s takeaway is balanced: Apple delivered strong profit and product sales, but investors have grown nervous because of tougher competition, market saturation and margin pressure from cheaper products. The company also has potential new markets and a busy product pipeline, so investors should weigh short‑term volatility against longer‑term opportunities rather than assuming past growth will continue unchanged.
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