Apple has had a mixed year in 2023. And the stock market heavyweight will also face major challenges in the new year. But is the iGroup really in a serious crisis?
• Apple recently experienced a dip in growth
• Analysts pull the ripcord on iPhone concerns
• Apple has survived worse crises
Apple has delivered for years: the company has repeatedly pulverized market expectations with its sales and profit figures. The successful iPhone product has become an integral part of the smartphone landscape and reliably contributes to the company’s success. With the Apple Watch, CEO Tim Cook has another hot product in the fire and the Vision Pro should – if Apple has its way – represent a revolution. This has convinced investors in recent years: Apple shares are one of the top stocks on Wall Street, with a market capitalization of around three trillion US dollars, Apple remains at the top of the stock market world and is currently only seriously held in this position by the Tech giant Microsoft challenged.
Growth story takes a hit
But 2023 was also a challenging year for a stock market giant like Apple. In November, Apple was able to exceed profit expectations in its fourth-quarter results, but quarterly sales suffered a setback compared to the previous year. It was the fourth quarter in a row in which sales fell, which was viewed with concern not only by analysts but also by investors.
Half of the group’s revenues once again came from the iPhone business, while revenues from Mac computers collapsed and the China business in particular weakened. The latter was due, among other things, to US sanctions, which made it difficult for Apple’s Chinese competitor Huawei to operate in the US market, which, however, resulted in significant increases in business in the Chinese market and may have cost Apple its market leadership in the region, at least for a short time .
Dependence on the iPhone continues to be a big problem
The fact that the iPhone family accounts for such a large share of Apple’s business has been a problem for some time, but has recently become increasingly clear given Huawei’s success. But emerging competition that wants to reduce Apple’s market share is not the US company’s only problem in China. The economic situation in the region is fragile, and the Sino-American economic war is also putting additional pressure on it and putting Apple in a precarious position. In response to US measures aimed at favoring domestic companies with domestic production facilities, China issued a ban on the use of iPhones by employees of local governments and state-owned companies, according to press reports.
There are also problems of a different kind: iPhone prices are rising continuously, but the technology now hardly differs from that of competing devices, and innovative innovations on the successful smartphone have recently been in short supply. This, combined with increased consumer prices, is apparently causing iPhone owners to no longer replace their devices with new models as often. “Part of Apple’s problem is that sales are falling because people are keeping their devices longer,” The Telegraph quoted Ben Wood of analyst firm CCS Insight as saying.
More problems with the product range
Apple has recognized this problem, but can only counteract it to a limited extent with the rest of its product range. Sales of the second successful product, the Apple Watch, had to be temporarily stopped in December, just before the important Christmas business, after a defeat in a patent dispute. According to an analyst, this resulted in Apple losing sales in the three-digit million range.
When it comes to Apple’s augmented reality headset Vision Pro, market assessments vary widely. While some observers agree with the US company that Apple has brought a new type of computer onto the market with the device, others question the target group for the product. With a selling price of $3,500, the US giant is likely to only appeal to a small group of buyers, especially since there are already competing products from other companies that have not had much impact on the market so far.
With the “Services” business segment, Apple wants to reduce its dependence on the hardware business for iPhone, Apple Watch, Vision Pro and Mac computers. The company recently adjusted the price here and made the use of Apple services such as iCloud, Apple TV+ or Apple Music more expensive. Although business with Apple services is going well and was able to achieve growth of 16 percent in the fourth quarter that ended at the end of September, with a sales contribution of 22.3 billion US dollars in the reporting period, the company only generated around half as much the iPhone business.
AI commitment is a long time coming
Meanwhile, Apple seems to show little interest in entering the trendy topic of artificial intelligence on a large scale. While companies like Microsoft and Google are treating the topic as a priority and are already broadly positioning themselves, the iGroup is noticeably holding back in this area. Company-owned AI applications are in short supply, and a chatbot like ChatGPT or Google’s Bard is apparently not an issue for Apple – at least officially. As part of an earnings call, CEO Tim Cook explained that the company has been relying on AI for years and sees it as a core technology that flows into every Apple product. They have been researching “for years on a variety of AI technologies, including generative AI” and are planning to invest billions in research and development activities in this area. But they want to approach the topic “responsibly”. Nevertheless, the technologies would become visible in product improvements in the future, the CEO promised.
Analysts are pulling the ripcord
The above-mentioned challenges that Apple faces have led experts to reassess the company. In view of expected weak demand for the new iPhone generation, Barclays experts lowered the price target and downgraded Apple shares from “Equal Weight” to “Underweight”.
Piper Sandler also followed suit: The investment bank no longer rates Apple with “Overweight”, but gave the share a “Neutral” rating: Here, the experts were also concerned about the iPhone and in particular the high inventory levels in this area as well as the weak one macroeconomic environment in China.
Is Apple really in crisis?
Whether one can speak of a real corporate crisis for Apple remains questionable. Despite weaker growth rates, the group continues to earn a lot of money with its products and is one of the top companies in the stock market world. Apple recognized the increasing dependence on the iPhone as a problem some time ago and is continuing to work on alternatives to the successful smartphone. Bloomberg reporter Mark Gurman believes that the iPhone will take a back seat in terms of development in 2024 and that Apple will concentrate on other parts of the product range.
In view of billions in profits, a threat to existence is not an issue. This distinguishes Apple’s current situation from the one in which the company found itself in 1998, when Steve Jobs was just able to avert impending ruin by returning to the top management of the company.
The challenges remain great this year and in the years to come. The stock market heavyweight is now much broader. Even a partial loss of the China business will hit Apple hard, but is unlikely to cause extreme economic turbulence. The company’s top management appears to be aware of the challenges Apple faces and is working to overcome them.
It remains to be seen whether the measures will convince investors and analysts alike.
Editorial team finanzen.net
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