Apple has a big problem on its hands. While the company debuted its new suite of iPhones last year, with the largest and most expensive models getting much of the attention. One of Apple’s work horse phones, the lower priced iPhone XR, has not been selling nearly as well as Apple hoped. The phone, which is priced well under the top models, has particularly been facing weak sales in China, Apple’s most important market. Home grown competition has stolen much of the middle market which the phone is supposed to occupy.
FINSUM: This Wall Street Journal puts it nicely—the phone is being passed over by both bargain hunters and status seekers. In other words, it doesn’t have a niche.
In what comes as an almost apocalyptic announcement for Apple investors, President Trump indicated yesterday that he may impose a tariff directly on iPhones. When asked about whether he would do so, Trump said “Maybe. Maybe. Depends on what the rate is … I mean, I can make it 10%, and people could stand that very easily”. One analyst summarized the development this way, saying “The Street will not be taking this news lightly as with the litany of bad news Apple (and its investors) have seen over the last month … this tariff threat on iPhones out of left field from Trump and Beltway will surely add to this white-knuckle period for Apple”.
FINSUM: We don’t think this will happen. If Trump tried to raise iPhone prices 10% he would likely have a popular revolt (from both sides of the aisle) on his hands. He certainly doesn’t want that.
We have covered a lot of bear market indicators this year. Every investor is understandably wondering when the next bear might bite. So how about this for an indicator—Apple just entered a bear market. Now we know that Apple’s decline seems to be quite particular to its own situation—especially the fear over iPhone sales that were cemented by the company’s announcement that it will stop reporting such figures—but what if it is a leading indicator for the whole market? Apple is not alone among big companies either—over 40% of the S&P 500 was in its own bear market at the October low in equities.
FINSUM: We do not think Apple’s bear market in its self signifies much about the underlying market. Apple’s trouble really stems from one issue—one of the most successful products in history is finally starting to see slower growth as the result of its own spectacular success. We do not think that is a bear market indicator.
The market fell in a big way yesterday. The root cause? Apple. Apple has cut its iPhone sales guidance, and it now seems a recession is coming to the whole Apple universe. The numerous companies that make their living supplying Apple seem set for a severe correction and are paring their estimates back sharply. Investors didn’t seem ready for this slowdown in the iPhone, perhaps misguided by the hype that has recently surrounded new models. The fact is that the iPhone is now a mature product, and maintaining the kind of growth it once had is likely untenable, a fact that even Wall Street analysts are starting to admit.
FINSUM: Apple’s business is changing and it seems to be doing a good job managing that transition, though everyone hopes it will have a new dynamite product. That said, a general recession surrounding the iPhone universe seems likely.
Apple is set to release, not one, not two, but three new iPhones later this year. Bloomberg describes the phones this way, saying “the largest iPhone ever, an upgraded handset the same size as the current iPhone X and a less expensive model with some of the flagship phone’s key features”. The iPhone X has not sold as well as forecast, and there has been consumer pushback on price, which may have led to the change in lineup. “This is a big deal”, says a venture capitalist and Apple commentator, “When you have a measurable upgrade in screen size, people go to update their phone in droves. We saw that with the iPhone 6, and we think this is setting up to be a similar step up in growth”.
FINSUM: We think this is a smart strategy, but we are surprised that Apple is caving in on pricing.