Apple Will Likely Continue to Struggle
- By Naman Shukla
Apple (AAPL) has been a great stock for investors over the years, but it looks like Apple has peaked and is in a downtrend.
With iPhone sales declining, Apple is in for a rough quarter. The company will need to really improve the next iPhone to convince consumers to upgrade their phones, but the slowdown in iPhone sales isn't the only problem the company faces.
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The intrinsic value of AAPL
Declining Mac sales
As per the research results from IDC, the worldwide Mac shipment has declined 8.3% year over year to 4,420 units whereas Gartner reported that it has declined 4.9% year over year to 4,559 units. However, both of them predicted the worldwide PC market will still continue moving down around 5%.
On the other hand, the PC market in the U.S. has stabilized and surged around 1.4%, but the company has not been able to move Mac sales in the right direction. Mac sales decelerated in the U.S. while the U.S. market surged. Around the globe, the company's drop was possibly in stride with the market.
With iPhone sales already falling, Apple needs its other segments to perform better. However, as mentioned above, that has not been the case.
Does Apple have enough cash?
At the end of March, Apple reported that it had $233 billion in cash. After accounting for Apple's debt of about $80 billion, its net cash position fell to $153 billion. Out of the total cash, $209 billion is present in overseas accounts and Apple only has $24 billion in the U.S. Evidently, the company has a negative cash position of $56 billion in the U.S.
In fiscal years 2012 and 2013, the company produced around $13.5 billion of U.S. cash per year, which surged to $20.5 billion in fiscal year 2014 but declined to $18.1 billion in fiscal year 2015.
For the first half of this year, Apple generated $9.6 billion in cash, a decline of $3.2 billion as compared to the $12.8 billion in fiscal year 2015. If the same trend carries for the next two quarters, the company will generate around $13.6 billion for fiscal year 2016.
Due to this, the company could face problems fulfilling dividend payments in the long run; Apple uses cash in the U.S. In fiscal years 2013, 2014 and 2015, these payments were $10.6 billion, $11.1 billion and $11.6 billion. It is likely that the company will have to pay around $12.1 billion for fiscal year 2016 to complete its dividend payment.
Conclusion
Given the weakness in iPhone and Mac sales, Apple may continue struggling for quite some time. Bulls have often cited Apple's massive cash hoard as a reason to go long, but, as mentioned above, Apple doesn't have enough cash in the U.S. to venture into new prospects. Investors should avoid Apple for now.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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This article first appeared on GuruFocus.
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The intrinsic value of AAPL
