When Apple shares no longer 'sparkle'

When Apple shares no longer 'sparkle' Picture 1

With expectations of boosting profits waning, Apple has maintained its stock price by boosting earnings per share through buybacks. According to data from market tracking company FactSet, Apple spent $77.5 billion in the fiscal year ending September 2023 on this activity. This figure far exceeds the $63.4 billion share buyback plan for 2023 of all listed companies in Japan combined.

However, some analysts of stock brokerage firms since the beginning of 2024 have still lowered their investment recommendations and price targets for Apple.

A report from FactSet shows that out of 44 securities companies tracking Apple, only 57% (or 25 companies) recommend buying Apple shares - the lowest level in about 4 years. Apple's stock price is currently down 11% compared to its level at the end of 2023. While stocks of other tech giants have been rising since the beginning of the year, Apple has lagged behind.

Difficulties in manufacturing advanced chips have increased component prices for iPhones and reduced Apple's profits, according to a report from smartphone analytics lab Fomalhaut Techno Solutions.

Fomalhaut's analyzes show that all four models in the iPhone 15 series (launched in September 2023) cost about 10% more to produce than the 2022 models.

However, with the exception of the top-end iPhone 15 Pro Max model, Apple has kept the starting price for new models almost unchanged for many years. So, according to Fomalhaut's assessment, Apple is expected to make a profit of $370 on each standard iPhone 15 - a 15% decrease compared to the standard iPhone 14.

Profits for iPhone 15 Pro and iPhone 15 Plus are estimated at $462 and $451, respectively - both down about 10% compared to equivalent models released in 2022.

iPhone is Apple's mainstay product, accounting for about half of the group's total revenue. While Apple achieved profit margins of around 50 - 60% on many iPhone models, it dropped to 46% for the 15 and 15 Pro models. Sales are also expected to decline, especially in the Chinese market as Apple must compete with rivals such as Huawei Technologies.

Other Apple services such as the App Store and music streaming service (Apple Music) are expected by the group to compensate for recent hardware difficulties. But this product group is also facing many obstacles. In March 2024, the European Commission announced a fine of more than 1.8 billion euros ($1.9 billion) against Apple for "abusing its dominant position" in the music streaming application market on iPhone and iPad. iPad.

While Apple is appealing this decision, the case still shows cracks in the corporation's business model.

Market expectations for Apple's services segment are gradually decreasing. The average revenue forecast for this segment for the fiscal year ending September 2024 has decreased from $95.3 billion to $94.2 billion. About half of the analysts have lowered their forecasts.

In terms of net profit, market forecasts only suggest 4% growth this fiscal year for Apple, much lower than Microsoft's 20% and Alphabet's (Google's parent company) 15% growth. .

Difficulties piled up even more for Apple when the US Department of Justice recently filed an antitrust lawsuit against the corporation. According to the complaint, Apple abused the iPhone's dominant market position to make it difficult for users to switch to other products. It is such anti-competitive practices that hinder innovation in the application market and many other places.

According to experts, downsizing is a way for Apple to return to its growth trajectory. Among the top five US technology companies, only Apple did not announce widespread layoffs last year.

Amazon and Meta (Facebook's parent company) cut more than 15,000 jobs at each company in 2023. Both later reported significantly improved profits the same year. Meanwhile, Apple is said to have canceled its electric car development plan and is preparing to lay off employees. If Apple can successfully restructure, the group can expect short-term earnings growth.

In addition, the launch of iPhone integrating artificial intelligence (AI) technology may bring advantages to the group's phone products. Apple is said to be considering equipping the iPhone with AI technology developed by Google.

Micah Soto

Update 01 April 2024