Apple Chief Executive Tim Cook has probably got used to a negative part of a positive announcement causing the stock to slump.
Yet the reaction to the company posting the largest quarterly profits in American history may have surprised even him.
Apple’s shares lost about $30 billion in value – slightly more than the entire stock market capitalization of Yahoo. It was the stock’s biggest fall in two years.
What caused the slump was Apple reporting its slowest-ever rise in iPhone shipments and its forecast that sales for the current quarter will show the first drop in 13 years.
Despite all that, Apple still ended the week valued at $522 billion. Yet Wall Street is wobbling on fears about how long the company can sustain its upward trajectory with the iPhone, already the most profitable product in history.
From Nokia To Apple
Professor Andre Spicer of London’s Cass Business School is concerned. “Apple may have had the largest quarterly profits in history but it could go from darling to dud within a few years,” he says.
“This happened to Nokia before, and it could easily happen to Apple. Its strategy of providing a limited range of high priced products could backfire.
“As smartphones increasingly become undifferentiated commodities, people will start asking why they are paying such a huge premium and Apple could find itself trapped by what it is good at. Sales of the iWatch have not really taken off yet.
“Now Apple is trying to make up for flat sales of its core product by moving into other markets like healthcare, financial services and cars.
“The big hurdle it will face is these are very different industries - they are tightly regulated, filled with many large, well-established players and are extremely complex. It is uncertain where the skills of making cool looking mobile phones will translate into banking.”
China Syndrome
Apple has overcome such worries before and Cook remains “very confident” about the long-term potential for the Chinese market, despite its current volatility.
He said the company has “large opportunities” ahead of it and is maintaining its investment plans. The company still has its $200 billion of cash in the bank.
Spicer is worried about that too, however, fearing an attempt by activist shareholders to force Apple to hand back some of its to investors.
“It is easy to paint a doom and gloom scenario,” he says, “but what is more likely is that Apple will shift from being outstanding to being simply ordinary.
“When this happens, many of the habits which you find in middle aged companies will kick in - cost cutting, fashion following, and pointless and repetitive change programs.
"It is likely that shareholders will put more pressure on the company to return dividends and engage in typical financial ‘boosterism’ like increasing share buybacks.
“Some investors will be eyeing Apple's cash pile, hoping they might see it returned to them rather than being reinvested to reinvigorate the company.”
If that happens, it will probably be the “first nail in Apple’s coffin,” predicts the London professor.
It seems odd to be using funereal metaphors about the world’s largest company by market value, though there are predictions that Alphabet, Google’s parent company – current market capitalization – $509 billion could soon exceed it.
That will probably cause more forecasts of doom. It’s not likely to be causing Cook any lost sleep just yet, however.
Has Apple peaked? Is it on a downward trajectory now? Or is this another temporary blip? Do let me know your views.
