New fortnightly markets column
Chris Woodcock monitors the markets, keeping a careful eye on the biggest technology stocks in the world. Every fortnight he’ll bring you his latest insights on market movements and more.
This week Chris takes us through Apple’s recent slip and analyses the tech giant’s future prospects.
Reporting season has really hit its stride since I last wrote and for a tech analyst in the UK it’s an exhilarating and exhausting rollercoaster at times.
Typically, results are released after the markets close in New York with a conference call an hour later.
Our Silicon Valley counterparts can look forward to a 2pm call safe in the knowledge that no matter how much a CFO drones on about the 0.7% decrease in work-in-progress inventory they’ll be skipping home in the sunshine before they’ve had time to properly digest their alfalfa sandwich lunch. Unfortunately over here that’s a 10pm start and it is not always in the best interests of the company to engage its audience (lest they invite too much scrutiny).
I am thankful to the likes of Larry Page of Google who at least tries to keep the energy levels up. “Someday we will all be amazed that computing involved fishing around in pockets and purses,” he declared tantalisingly last week.
The big apple
In truth though the one name investors have been waiting to report was Apple.
The company is the largest in the technology sector, and for owners of the shares it has been a wild ride of late. They hit an all-time high above $700/share last September, a whopping $650 billion dollars in total, as excitement around the launch of iPhone 5 and iPad Mini reached a crescendo. However, since then the reality of slowing growth has dragged the stock all the way back to around $400/share.
They reported $44 billion in sales for the quarter, which was ‘only’ 11% ahead of a year ago
As expected the report last Tuesday was further confirmation that, with over 500 million iOS devices sold since 2007, demand for Apple products has started to slow.
They reported $44 billion in sales for the quarter, which was ‘only’ 11% ahead of a year ago. Growth over the previous twelve months had been 59%.
Similarly gross margin, the average difference between the cost to make a device and the price at which it sells, was 37%, down from a peak of 47% last year. This is known in the business as negative operating leverage, or a double whammy.
A lot of this was already being assumed by the market and to the extent that it is ever possible to know for sure, would explain the poor performance since September.
Looking ahead, the key controversies really are what new products they can produce to reignite growth, and what would it do with the $145 billion in cash that is burning a hole in its pocket. To his credit Tim Cook, Apple CEO, addressed both issues directly.
New products in new categories this autumn
It turns out new products will be revealed in the autumn, including potential new ‘categories’. TV, watch, car, fridge, it remains anyone’s guess.
On the cash front, Mr Cook unveiled an updated plan to return $100 billion to Apple shareholders over the next three years. It is the largest program of its kind ever announced. These are big numbers.
In the aftermath the shares are showing signs of a nascent recovery.
Nevertheless, it is worth remembering the market has a rich history of penalising large tech companies far before any individual can see the writing on the wall. IBM, Xerox and Microsoft are just a few examples that suffered this fate whilst at the top of their game, several years before the discontinuities that would hurt them became apparent.
It is a fickle business where we are perhaps just one product cycle away from some start-up turning the game on its head. It may not be much solace to Apple shareholders but it is an exciting prospect for anyone following technology.