Apple’s $1tr market valuation at risk
ANALYSTS ARE UNIMPRESSED WITH DROP IN REPORTING TRANSPARENCY AS TECH MAJOR’S STOCK TAKES A HIT
Apple Inc’s decision to stop reporting how many iPhones it sells landed with a thud. While some pundits praised the move as a way to highlight a potent new business model, many analysts complained it was an attempt to hide the pain of a stagnant smartphone market.
The stock fell more than 6 per cent in extending trading on Thursday, putting the company’s $1 trillion (Dh3.67 trillion) market valuation at risk.
“Big companies often clam up when numbers turn sour,” said Neil Mawston, executive director of the global wireless practice at Strategy Analytics. Motorola, a once-formidable industry player, reduced public reporting of mobile phone shipments when things turned bad a few years ago, he noted.
Question of unit sales
Apple has been praised for being one of the lone major technology companies to break how many of each of its major products it sells each quarter. When iPhones were the hot new thing, like in 2015, it was easy for the company to tell investors it shipped 46 per cent more of the devices.
Now, the smartphone market has matured and growth is harder. Global shipments fell 8 per cent in the third quarter, compared to a year earlier, leaving the industry “effectively in a recession”, Strategy Analytics wrote in a research note.
In its fiscal fourth quarter, Apple said iPhone unit sales were about the same as a year earlier. Starting next quarter, Apple will no longer report that number, or similar stats for iPads and Macs. Both product lines saw a decline in unit sales.
Reporting 90 days of unit sales no longer presents an accurate picture of Apple’s performance, chief financial officer Luca Maestri said. CEO Tim Cook likened reporting unit sales of products to disclosing how many items are in a grocery shopping cart versus how much the items cost.
Some analysts were unimpressed. “No one saw that coming. What are they hiding?” Neil Campling, head of tech, media and telecom research at Mirabaud Securities Ltd, wrote in a note to clients.
Others saw the change as a strong signal that Apple sees itself becoming more of a services business with digital subscriptions anchored to an installed base of more than 2 billion active users of its devices. “Apple is trying to shift the discussion to services and recurring revenue, because the more recurring revenue, the higher your valuation becomes,” Shannon Cross of Cross Research said. ■
Julie Ask, Forrester Research
“Because devices have been Apple’s history for so long, there’s a set of expectations around those sort of products. But growth in the future is going to be slower in some ways.
The upgrade cycles are slowing. You have to be a user of games, or the more demanding applications on the phone, to really need that upgrade. I don’t need an iPhone X to do email, but you do if you want to play the latest video games.”
Horace Dediu, Asymco,
“We’re a little disappointed on the guidance. It looks to be, perhaps, indicating emerging market or China slowdowns and frankly, considering the product mix they have, it’s a flat forecast with zero growth in the iPhone. There’s a question around whether the XR will be a home run or not.”