Apple's invincibility fades on iPhone miss

SAN FRANCISCO: Apple biggest success has become
its biggest risk factor.
The iPhone revolutionized the smartphone industry,
driving Apple's expansion into Europe and China and,
after just half a decade, yields about half its annual
$100 billion revenue haul.
But the world's most valuable technology company --
which throughout the global recession near-
unfailingly smashed Wall Street forecasts -- is
beginning to lose its aura of invincibility.
The company has missed Wall Street targets twice in
under a year. CEO Tim Cook may now have to worry
more about economic and product launch cycles, and
the whims of fickle consumers.
Tuesday's numbers also showed the impact of the
economic slowdown in Europe on its sales,
something a smaller, less-exposed Apple was able to
dodge a few years ago.
"Apple is a little bit more vulnerable," said Giri
Cherukuri, head trader at OakBrook Investments.
"There are chinks in their armor now."
The reason for its vulnerability: its very success and
"When they were small enough, they could power
through it," Sterne Agee analyst Shaw Wu said. "Now
it's so pervasive that it's a lot harder."
The change in sentiment was evident in Cook's call
with investors on Tuesday following a miss in fiscal
third quarter earnings numbers.
Cook assessed how the global economy --
particularly in Italy, France, Greece, and China --
impacted iPhone sales. This stood in stark contrast to
his comments in 2009, when the world's credit
system froze and global economy was grinding to a
halt in the aftermath of Lehman Bros' collapse.
"We just spend our time projecting our business and
leave the economy forecasting and comments to
economists," Cook said during an earnings
conference call nearly three years ago -- before the
launch of the iPad and when the Mac computer
generated more revenue than the iPhone.
On Tuesday, Cook was somewhat more expansive in
his assessment of the business environment.
"We are certainly seeing a slowdown in business in
that area," Cook said of Western Europe.
"Fortunately, the US and China, although I realize it's
getting a lot of press, we're not seeing anything there
that we would classify as an obvious economic
Branding sheen
The blockbuster smartphone that adds a special
gloss to the Apple brand is a highly cyclical product.
Buyers emerge in droves every time a new version is
launched, lining up at stores overnight, and snarling
supply for the device.
Its popularity has heightened speculation around the
device every year as over 100 million yearly
customers decide when to switch to a new model,
whether to buy now or hold out for a better but same-
priced phone.
The now-more predictable line-up also means
consumers are more attuned to product life cycles
and launch timelines, something that Apple goes to
great lengths to keep secret.
In fiscal 2009, Apple grew 35 per cent despite a
global credit crisis that hurt most companies. But
Apple generated only $6.75 billion from iPhones that
It raked in over $16 billion in iPhone sales last
quarter alone, a little under half of total revenue.
"When you become so reliant on a single device then
that device's life cycle is going to have a much
bigger impact on the results," Morningstar analyst
Michael Holt said.
Sales of the iPhone slipped 26 per cent sequentially
last quarter, reducing margins by 460 basis points to
42.8 per cent.
Investors had already lowered their expectations, but
they did not expect the company to miss altogether.
A lot of the blame was placed on the pause prior to
the launch of a new iPhone, which some fear is
becoming a yearly trend.
"We expect to see greater volatility in Apple's
quarterly results going forward due to the growing
importance of the product cycle," Holt said, adding
that more consumers now are tuning into the chatter
around expected new products.
That's prompted Wall Street to take Apple's
notoriously conservative earnings forecast more
seriously now. On Wednesday, JPMorgan cut its price
target on the stock to $675 from $695, Raymond
James slashed it to $730 from $800, and Canaccord
Genuity reduced its target slightly to $797. Goldman
cut its price target to $790 from $850.
Finally, as consumers await the new iPhone --
expected to be a complete redesign with a bigger
screen -- competition is growing from the likes of
Samsung Electronics' new Galaxy S III.
But analysts and investors say that the choppiness in
iPhone sales doesn't matter as long as Apple's strong
growth resumes during the holiday quarter after the
anticipated new iPhone hits the stores. Expectations
are high that Apple will launch a phone that will
again beat the competition in terms of features.
And the bullish view of Apple's growth is evident in
the stock price, which is up 42 per cent for the year
despite a 4.3 per cent drop on Wednesday on the
Nasdaq market.
"This is likely one of the last buying opportunities
ahead of the iPhone 5 launch as we expect
headwinds to reverse in the calendar fourth quarter,"
Morgan Stanley's Katy Huberty said.

1 comment:

  1. Could this be a threat to Apple's global dominance?...air ur view


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