Future of Apple

Can it maintain its growth momentum, or will it falter?

Apple is no ordinary company. In the last 10 years the company has seen its annual revenues increase from $20 billion to $235 billion. This has largely been spurred by the sales of I-Phones, which alone contributes nearly $150 billion (2/3rd) to its revenues. The Mac and the I-Pad are much smaller in comparison and together would at best account for $50 billion in sales. But that is just one part of the story.

Till date, Apple has sold 900 million I-Phones. Its quarterly profits of $18.4 billion makes it the most profitable company in history. It has a market cap of $525 billion and sits on a cash stash of $150 billion. Despite these factors, Apple may be in for challenging times in the years ahead. Here is why…

What is the next big story?

 For the last 8 years Apple has been virtually synonymous with the invention of the smart-phone industry with its I-Phone. Of course, there is Samsung and then there are cheaper Chinese models, but these have hardly been able to dent the hold that I-Phone has over the market. But after selling close to a billion I-Phones and nearly 300 million I-Pads, the question is, now what? There is no product after the I-Phone that has been able to set the markets on fire. The Watch has sold just about 4 million units and is nowhere close to the frenzy created by the I-Phone. The market for I-Phones has obviously saturated and the same rate of growth may be impossible to sustain. With no new products coming up, the company may fall into the pioneer’s curse.

China is slowing; and badly…

Nearly 25-30% of I-Phone sales come from China. Over the last few months China has seen a distinct slowdown and a fall in demand for most high-end products from perfumes, luxury cars, designer labels to classy electronics. That is bound to pinch Apple. Also a strong dollar is already taking its toll on Apple and the management has admitted so much in previous quarterly announcements. With emerging markets overall to feel the pinch, Apple is going to be hit where it actually hurts.

Get ready for a slower Apple…

Apple has shown consistent growth in sales and profits for the last 51 quarters (that is huge). Already analysts are projecting that this year Apple may end up with a 10-12% fall in top-line. A combination of I-Phone saturation and a slowdown in China will mean slower future growth for Apple.

The best manifestation of this worry is visible in the stock price of Apple. From a high of $132 in the middle of last year, it has fallen to $94 reducing its market cap from $740 billion to $525 billion. Stock price as a lead indicator does tell an eloquent story of Apple! ©

You can ask us your stock related questions with #AskReligareOnMarkets via our Twitter channel @religareonline

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