Weak Sales Could Crimp AAPL Stock
The debut of the Apple Inc. (NASDAQ: AAPL) next-generation “iPhone 7” was as expected; it’s nothing really that special to make you want to shell out up to $750.00 to upgrade from the “iPhone 6.” At least that’s my view on Apple’s latest entry to the highly competitive and increasingly price-conscious smartphone market.
The reality is that Apple stock trades largely on the numbers for the iPhone. The flatness and current range trading in AAPL stock indicates a likely flat or disappointing outlook for the Apple iPhone 7.
My assessment is that, while Apple did produce a better device, the changes were not earth-shattering enough to warrant an upgrade or a new purchase. The iPhone 7 has a faster processor, extended battery life, more memory, a better camera, water resistance, and a brighter screen, but so do other rival phones.
Consider also that the Apple iPhone 7 no longer has a headphone jack, as the company has developed its own proprietary wireless technology that Apple says is better than “Bluetooth.” The problem is it that will cost another $159.00 for the “Airpods,” which means you could be shelling out $900.00 for an iPhone 7.
It’s a matter of how loyal you are to the Apple brand. The Apple iPhone is still considered an iconic brand recognized worldwide, but I wonder if it is still considered a must-have phone, given the rise of equally proficient superphones out there.
Pre-orders for the iPhone 7 were last Friday. AAPL has already come out and said it will not report advance sales numbers for iPhone 7, which is a departure from the past launches. Clearly, Apple understands that the sales numbers will not be great, and the company doesn’t want an impact on AAPL stock.
The feeling is that loyal iPhone users will wait for what is being rumored to be big changes for the Apple “iPhone 8” next year. I just don’t know what else you can do with smartphone technology that is not already out there, to make customers want to upgrade.
Consider the survey done by Quartz in July, indicating that only one of 10 current iPhone owners were “very or extremely likely” to buy the iPhone 7 if it was not very different from previous models. (Source: “9 In 10 iPhone Owners Aren’t Keen On Upgrading To iPhone 7,” Forbes, July 29, 2016.)
Apple Needs Innovative Technologies
Apple stock could drift in a tight range until the company releases the iPhone 8 or some other major game-changing product.
Chart courtesy of StockCharts.com
In my view, AAPL needs to reduce its dependence on the iPhone. We saw some evidence of that in the fiscal third quarter when iPhone sales as a percentage of total sales declined.
A worrisome development has been weakening the Chinese market for the iPhone; sales in China fell to 21% of total sales in the FYQ3 from 27% a year earlier. In China, the world’s biggest market for smartphones, there is stiff competition from Chinese rivals such as Xiaomi, which sells an excellent-rated phone with all the bells and whistles, but at a much lower price.
AAPL stock needs to bring its innovation back and drive up the multiple paid by the market. Its $1.0 billion investment in the Chinese ride-sharing service Didi Chuxing was a start. Subsequently to that investment, Didi bought out Uber’s Chinese business for $35.0 billion. The Apple deal means there is a potential to push future auto-related products in China.
Yet the bottom line is that Apple needs to somehow integrate its iPhone and other products into some sort of seamless Internet of Things to really drive up Apple stock. The U.S. Federal Communications Commission (FCC) is proposing new policies aimed at changing the landscape of the TV market, which would allow for app-based technologies to stream programming, instead of only set-top boxes being allowed to do so. Perhaps AAPL will focus on the long-speculated “Apple TV” as a way to break into this lucrative market.
At the end of the day, the stock market wants innovation from Apple and, until that happens, AAPL stock could trade in a narrow range.