Forget peripherals: real question is how strong is Apple's core
Yes, Apple exploits the mood merrily when it has a new gizmo to flog, but at Apple the machine has been in ridiculous overdrive for the past year.
The first sign was analysts competing to be the first to predict a $US1000 ($959) share price. Brian White of Topeka Capital Markets was the winner, declaring "Apple fever is spreading like a wildfire around the world". Others piled in.
Given the size of the company and its weight in various indices, not owning Apple shares suddenly became a career risk for the average US fund manager. Who would want to be the fool who stood alone against the iPhone 5?
At $US700 the stock was clearly priced for perfection. After a small slip - a wonky mapping app - the machine went into reverse. With tech stocks there is no neutral gear; they are either on their way to the moon, or they are former growth companies that have run out of ideas.
So last week's numbers were greeted as evidence of the latter - a confirmation that Apple has peaked. It is true that its quarterly profits were flat year on year at $US13.1 billion and that the annual outcome could be the first decline for a decade.
Higher manufacturing costs are a fact of life and Samsung, which has put a dent in Apple's profit margins, is a formidable competitor. The shares fell another 12 per cent to $US450.
But take a step back. After the ride on Wall Street's rollercoaster, Apple's shares stand almost exactly where they did a year ago. For a company in transition that is hardly a humiliation. What matters is the rate of decline.
Middle age comes to everyone and handing out the winnings (Apple has $US137 billion in cash) in the form of dividends or buybacks would be no disgrace. But can anyone really be confident that Apple's growth has peaked, and the 48 million iPhones sold in the past quarter represent a last hurrah? It is far too early to judge. The big event is the next product: it always is.
It is fair to beat up Mr Cook for failing to spot, until now, potential child-labour abuses in the supply chain, but it is premature to conclude that Apple's innovation pipeline is broken, or that it has lost its appetite for risk.
Frequently Asked Questions about this Article…
Apple shares slid after a period of intense hype that pushed the stock to high expectations — analysts even raced to predict a US$1,000 share price. A small stumble (notably the wonky mapping app) and news of flat quarterly profits triggered a reversal. Combined with tech-sector volatility, those factors helped push the shares down further (the article notes a fall of about 12% to roughly US$450).
According to the article, Apple’s quarterly profits were flat year‑on‑year at US$13.1 billion. It also says the full‑year result could be the company’s first annual decline in a decade, but emphasizes it is too early to draw a firm conclusion.
The article states Apple sold 48 million iPhones in the past quarter. While some see those numbers as a possible sign of peaking demand, the piece argues it’s far too early to judge — the next product launch will be the key indicator of whether demand continues.
Apple reportedly holds about US$137 billion in cash. The article suggests that returning some of that cash to shareholders via dividends or buybacks wouldn’t be a disgrace, especially as the company travels through a more mature phase of growth.
Yes. The article says higher manufacturing costs and competition from Samsung have dented Apple’s profit margins, and that Samsung is a formidable competitor affecting Apple’s profitability.
The article argues that analyst hype contributed to an overheated valuation. With commentators racing to predict a US$1,000 target and fund managers feeling career pressure to own Apple, the stock became priced for perfection — which made the subsequent pullback more severe.
The article says it’s premature to conclude Apple’s innovation pipeline is broken. While management faces valid criticism over issues such as supply‑chain problems and a mapping app misstep, the piece stresses that the next product release will be the real test of Apple’s ongoing innovation.
Everyday investors should watch upcoming product announcements (the article calls the next product the big event), profit trends, how margins respond to manufacturing costs and competition, and any supply‑chain or reputational issues (the piece mentions child‑labour concerns in suppliers). The article also notes shares are roughly where they were a year earlier, so the rate of decline — not just headline moves — matters.
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