Apple Inc. (NASDAQ:AAPL) failed to meet expected results, triggering many questions or doubts about its future. More than $45 billion was wiped out from the valuation due to the results. On top of that, billionaire and activist investor, Carl Icahn, indicated that he exited from the counter completely blaming the China factor, which has been there for quite some. A year ago or so, the same investor placed a bet that the tech stock was worth more than $200 by pointing out various products such as the autonomous car in the pipeline. Therefore, has the situation changed about the product pipeline completely because of the China factor? In the past too, the iPhone maker’s earnings missed and rebounded strongly. In any case, it appears that he has taken a hasty decision at least on three counts.
Wrong Timing
Though there is no data to indicate the price at which Carl Icahn has sold the shares of Apple, his exit has come probably at a wrong time. After the quarterly results, the stock reached the 52-week low triggering fresh concerns among the retail investors. It is a fact that some retail investors take a cue from activist investor like Icahn or investment Guru, Warrant Buffett, and accumulate the stocks that these big investors have. Their hope has been the same, i.e. wait for the long-term gain rather than look at the short-term pain. More than that such investors undertake extensive research before making more investments.
Apple shares are trading low almost every key parameter. For instance, the stock shed 30.8% when it touched the 52-week low of $92 from the yearly-high price of $132.97. For the year-to-date period also, the stock shed 23.71%. There are other key metrics like 20-day, 50-day and 200-day moving averages. The stock is down by 12.71%, 10.07%, and 13.98% compared to the 20-day, 50-day and 200-day moving averages. Whenever a company misses its earnings, analysts’ reduce the price target only as the fundamentals remain intact unless the situation demanded otherwise. In the case of technology bellwether, it was a well-known fact that Xiaomi was eating away other smartphone makers’ share due to its cheap pricing.
New IPhone Launch
Apple has witnessed a tremendous downturn between the December quarter and March quarter in terms of the unit, as well as, the market share. For instance, the company shipped 14.5 million units in the first quarter of 2015 and enjoyed 14.7% market share as it recorded 62.1% growth, which was the highest among the vendors. In the current year’s March quarter, the company estimated to have shipped 11.5 million units only. While the overall smartphone market itself predicted to have dipped 5.4%, the choice of preferring the domestic brands among the people in China became an inevitable factor to drag iPhone share.
However, AAPL could see some reversal of fortunes in the upcoming quarters. For instance, it launched iPhone SE on March 31. That meant it could not register any sales figure of the new model in the quarter, and the impact will be felt in the June quarter only. Also, its CEO, Tim Cook, expressed the view that there was strong demand for is iPhone in China than it could fulfill currently. Also, another model is likely in September. In any case, the high growth-rate would be tough to see again as the replacement market among the emerging markets were small only.
China’s Economy: Better Than Expected
There is no doubt that China’s economy has slowed down and it would have had its impact on Apple’s recent quarterly numbers. However, their economy has not been as bad as it was predicted to be. The country achieved 9+ growth and 8+growth until a few years ago. However, the growth pace has come down to around 6.5 – 7% level now. The country did well to achieve 6.7% growth in the first quarter and was in line with the economists’ expectations.
India To Be New China
The dictum says that one’s loss is another’s gain. As far as AAPL is concerned, it prepared well to face the downturn in China by focusing another big market in the same Asian region. While speaking to analysts during the conference call, Cook said that iPhone sales achieved a growth of 56% in India. What was important was that it came on the back of a 16% drop in the overall iPhone sales between January and March. Significantly, India is one of the markets where the cheaper smartphones were sold in more numbers than the premium-based one.
Apple’s Cook also admitted the reality that for most the global community, the premium smartphones were already bought by them. It was because of that reason that cheaper phones in markets such as India would have to the on the radar. Therefore, he was clear that if the iPhone maker has to ensure growth, it must compromise on mid-range and lower price points in emerging markets. The company believes that the iPhone SE was a good start.
Creative Strategies, Inc President, Tim Bajarin, expressed his opinion that AAPL sees India to fill the void created by China or the next China. However, it might take some more years to come to that conclusion. In any case, reducing the price and reaching the Indian people provided the tech bellwether a new market to grow. That is because of other services like iCloud or music to lure them.
Conclusion
At the best, Icahn could have waited for one more quarters before deciding to exit. It is a known-fact that Apple is trying to come out with another money-spinning device. That is why they are investing in research heavily to make the autonomous car. There are some other areas where the company is yet to see monetization. Currently, the stock might trade in a range-bound. However, its fundamentals remained intact and could grow once it launched a fresh iPhone model that is likely in September. Lower expectations for Apple may also be helpful.