Investors become more nervous as the share price of a company drops and sales drop
Tim Cook didn’t hold back. In a 2018 email to finance executives, he ordered his lieutenants that they should improve the sales of Apple’s new iPhones.
Apple’s China business was in decline, leading to its first profit warning since 16 years. According to emails released in a recent lawsuit against Apple, one executive called the performance “an extreme issue” while another told employees to act as if there was a five alarm fire.
The company reported a revenue drop in two successive quarters, a rare dip from a business that is known for consistently getting more money out of customers every year.
The Chinese phone maker was blamed for the low sales at the time.
Apple’s China head of marketing wrote: “I think upgraders see Huawei as a better value, especially if there are no major reasons or new innovations in the iPhone.”
In the end, Huawei didn’t kill Apple’s China business. US sanctions effectively crippled Huawei’s ability to manufacture high-end smartphones and gave an advantage to iPhone in the process.
Apple has achieved record sales in China despite the deteriorating relations between Beijing, Washington and other countries.
Cook could have just delayed the reckoning. Wall Street recently raised a new alarm about Apple’s China business, sending its shares tumbling.
This is only one of many important issues that face the largest company in the world.
In November, Apple revealed that revenues had declined year-over-year for the past four quarters. This was the biggest slump in more than 20 years. Analysts believe Apple will report a fifth consecutive quarter of declining sales when it announces its Christmas sales in the next few weeks.
It would be the longest losing streak for the company since 1998, when Steve Jobs saved it from bankruptcy.
Apple or Cook is not in the same situation. Last year, the company was the first to reach a valuation of $3 trillion (£2.4 billion) and its shares reached a new high.
The company captured over two-thirds of the high end segment of the smartphone industry – the only one that is consistently profitable – and earned $97bn profits in its last financial period: about $11m per hour.
Cook has also defied predictions that Apple would reach its “peak” and continue to grow the company’s profits, even though each iPhone release is becoming more similar to the one before.
Investors are becoming more nervous. Since December’s peak, Apple shares have declined 8.5pc. This is a loss of $260bn.
Cook is facing a number of challenges, which together represent the most complex during his tenure.
Jefferies analysts said on Monday that iPhone sales in China are likely to drop by double-digits this coming year. Analysts at Jefferies said that supply chain sources indicate shipments are falling at a 30pc rate.
This follows the downgrades issued by both Barclays Bank and Piper Sandler in the past week.
Apple’s resurgence is partially due to the deteriorating economic situation in China, but it is also being challenged by Huawei. With a smartphone processor that is made locally, Huawei has overridden US sanctions. Huawei’s new Mate 60 smartphone has been in high demand on its own market due to its impressive specifications.
Local reports state that some government officials were also told to stop using iPhones or other foreign-made devices.
Analysts at Counterpoint Research say that Huawei is eating away at Apple’s top-of-the-market sales in China, as it rebuilds the smartphone business.
Apple’s share of the market for phones above $600 fell from 75pc down to 71pc, while that of China’s rose from 3pc up to 5pc. This is a major shift in a market which has become calcified.
Ben Wood, an Apple expert at CCS Insight and a long-time Apple follower, said that smartphones “approach washing machine territory”, which means they are only replaced when broken.
He says that Apple is suffering because sales are down, as people are holding onto their devices longer.
It is concerning because Apple’s revenues are still largely derived from the iPhone. Cook isn’t just worried about the smartphone sales in China.
After a court ruling, a medical device manufacturer accused the company of patent infringement. The company was forced to temporarily suspend sales of the Apple Watch.
Apple has frozen its order while it appeals this ruling. However, the reprieve could only last until Friday when US Customs is set to decide whether or not a proposed update will address the complaint.
Apple Watch is a major source of revenue, even if it’s not as revolutionary as the iPhone.
Other legal issues may arise. The New York Times reported last week that the US Justice Department is on the verge of filing a major case against Apple. The case will likely target Apple’s tactics to protect its market position with the iPhone.
The company will likely challenge the case. However, it is going to be painful and time-consuming.
In Europe, the regulatory crackdown is more pronounced. In the coming months, iPhone users will be allowed to bypass Apple’s highly profitable app store in order to install apps.
Apple, facing mounting problems, is focusing on a product it hopes will revive its business.
Apple announced on Monday that the ski-goggle-like Vision Pro, its augmented reality headgear, would be available on February 2nd. Cook has praised its capabilities, calling it “a new type of computer”.
Apple’s innovation and selling power will be tested in this launch. Production and sales are expected to be limited at $3,499 for the device. Other companies have failed to sell high-tech headsets.
Apple’s metaverse technology is a hot topic, but the world has its eyes on a more exciting innovation: artificial intelligent. Apple has said less about this topic. Apple rarely talks about AI, instead focusing on how machine learning can improve existing technologies like Autocorrect and the iPhone camera.
The iPhone’s Siri AI assistant is a constant source of frustration for users, which has contributed to the perception that Apple is losing market share.
Apple is reportedly planning to revamp Siri later this year with a system that’s closer to ChatGPT. It has also been in discussions with news publishers to license their content. It faces questions, however, about whether Apple’s pro-privacy credentials would deter it to collect the vast quantities of data that are typically used to train AI system.
Apple has experienced long sales slumps, but has always been saved with breakthrough products. 1998’s iMac or 2001’s iPod.
Apple’s latest ideas will have to be up to the challenge as the clouds gather once again.