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.
Frequently Asked Questions about this Article…
Apple reported a quarterly profit of US$13.1 billion (A$12.4 billion) and sold 28% more iPhones and 48% more iPads compared with the prior period.
Investors have come to expect near-perfection from Apple, so even strong results can trigger selling. The article notes concerns about tougher competition, market saturation in smartphones, moves into cheaper product categories that lower margins, and the difficulty of sustaining high growth as the company gets very large.
Apple's stock sank about 11% on the news and traded after-hours at US$461.30. That price is roughly 34% below its record high of US$702.10 set in September.
The article cites increased competition from big rivals such as Samsung and Google and notes that many people already use smartphones, so the market is less untapped than before.
Yes — Apple is forging into cheaper product categories, which the article says tends to mean lower profit margins. For investors, that can translate into slower profit growth even if unit sales rise.
According to the article, Apple has grown very large — more than US$160 billion in sales over the past 12 months — and that scale makes it increasingly difficult to maintain the heady growth rates seen in earlier years.
Analysts mentioned in the article believe Apple could push into markets such as television and electronic payments. Apple CEO Timothy Cook also told analysts the company's product pipeline is 'chock-full,' suggesting new initiatives could be on the way.
The article quotes Mark Moskowitz of JPMorgan Securities saying the investor enthusiasm has waned and that 'there's nothing that can help the stock from sliding now,' while noting Apple's holiday sales met his forecasts but missed other analysts' predictions.
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