About the company

Apple is an American technology giant based in Cupertino, California, known for developing innovative electronic devices such as the iPhone, iPad, MacBook and others. Since its founding in 1976, it has steadily become the most valuable company in the world, a position it still holds today with a market capitalization of $3.44 trillion. The company specializes in both hardware and software, and is known for its closed ecosystem that allows for seamless interaction between the brand's devices. In addition to hardware, Apple is also a major player in services such as Apple Music, iCloud, and the App Store, contributing to its diversification and stable revenue. In addition, the company maintains a leading position in technological innovation, whether in artificial intelligence, augmented reality or the development of new processors such as Apple's Silicon M1 and M2 series of chips.

The new iPhone hasn't impressed yet

Apple is bringing numerous improvements with its new iPhone 16, but the main attraction in the form of Apple Intelligence artificial intelligence is to come later. Its beta version will be launched during October, and customers won't see the full version until next year. The new model, however, includes a more powerful A18 Pro chip and a new 48-megapixel camera with an ultra-wide-angle lens. From a business perspective, Apple is expected to ship more than 90 million iPhone 16 units in the second half of 2024. Based on early data on orders and wait times for the new iPhone, demand does not yet appear to be reaching the numbers it did for the iPhone 15 last year. These claims are mainly based on data from the US and China, which are key markets for Apple. The reason for the lower interest in the case of China, in addition to the later introduction of a key feature, could also be the decline in purchasing power there in the difficult economic conditions.[1][2]

"Street" sales in Hong Kong ended earlier than expected

As mentioned earlier, China is one of Apple's most important markets, and demand in that country has had a huge impact on its overall financial performance. In China or Hong Kong, dealers usually appear as soon as a new iPhone model is launched, offering consumers immediate purchase outside the official outlets, often at a much higher price. Sellers capitalise on the fact that the phones are immediately available in regions where delivery times are longer. This process can take several days to weeks before prices gradually fall back to levels close to the official retail price. With the release of the iPhone 16, these resale prices in Hong Kong dropped within hours of its launch. On the first day after shipments started, dealers in the Mongkok area gradually stopped buying some versions of the device. The situation is markedly different from last year, when the iPhone 15 Pro Max was trading at a significantly inflated price even days after its launch. Such behaviour may also be an early indication of weaker demand there. [3]

Economic results

In August, Apple released its financial results for the third quarter of fiscal year 2024 (the period from March 30 to June 29, 2024), which show steady, albeit slightly slower, growth compared to previous periods. Revenues amounted to USD 85.8 billion, an increase of 4.9% compared to the same period in 2023. The company's net profit amounted to USD 21.4 billion, with a year-on-year increase of 7.9%. This implies improved profitability, with gross margin rising to 46.3%, up from 44.5% the previous year. Services were the main driver of growth, generating US$24.2 billion. On the other hand, sales of products such as iPhone, Mac, iPad declined slightly. iPhone continues to dominate the product categories with sales of USD 39.3 billion, but this is a slight decline from last year. In terms of world regions, Apple did best in the Americas, which brought in USD 37.7 billion. By contrast, in China, sales fell to USD 14.7 billion.[4]

Advantage over the competition

Despite the aforementioned potential demand issues for the new iPhone 16, Apple has a definite advantage over other tech giants like Microsoft, Alphabet, Amazon or Meta. While all of these companies are investing billions in AI development, and there is some doubt about the immediate return on these investments, Apple also offers a steady stream of products that are a major source of its revenue. This means that its shares have more liquidity than its competitors, which is an indicator of reliability and stability for investors. Their price reached an all-time high of $234.82 per share in July 2024, and as of September 24, 2024, it was still hovering at just under $230. This year, the value of Apple has increased by approximately 22%.*[5]

Apple Inc. stock price evolution over the last 5 years. (Source: Google Finance)*

Conclusion

It is clear that Apple continues to rely on its strong brand and broad range of products and services to support its steady growth. Despite the iPhone being Apple's flagship product, lower interest in a new model does not necessarily spell disaster. The company has enough diversification within its portfolio to keep it at the forefront of the technology market. The challenge remains to maintain interest in products at a time when innovation does not bring such a significant "wow effect" and consumers may be less motivated to upgrade devices regularly. Despite these obstacles, Apple continues to deliver impressive financial performance. [1]

Adam Austera, Senior Analyst Ozios

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://www.apple.com/newsroom/2024/09/apple-debuts-iphone-16-pro-and-iphone-16-pro-max/

[2] https://www.investing.com/news/stock-market-news/barclays-sees-muted-demand-for-iphone-16-432SI-3627660

[3] https://www.investing.com/news/stock-market-news/iphone-16-resale-prices-collapsed-within-the-first-three-hours-of-trading-3624963

[4] https://www.apple.com/newsroom/2024/08/apple-reports-third-quarter-results/

[5] https://www.investing.com/news/stock-market-news/3-reasons-why-investors-should-remain-bullish-on-apple-stock-needham-3629316