Apple Inc. has been suffering one setback after another in recent times. Production halts and labor unrest at the Foxconn Technology Group’s iPhone plant in China are expected to impact Apple’s sales of millions of devices this holiday season.
Economists predict the continued global recession will reduce consumer appetite for expensive Apple devices. The raising of interest rates by central banks to contain inflation has resulted in tech stocks suffering the most this year. Apple Inc. alone lost around $800 billion in market capitalization in 2022, a nearly 25% erosion.
Apple is also facing antitrust scrutiny for its App Store policies. As per Bloomberg News, the strict European Union requirements in 2024 have led the company to prepare to allow other apps on its iPhones and iPads. Other countries and the US will follow this development and let other app sources take a bite out of the $23 billion revenue estimated to be generated by the App Store in the current fiscal year.
Despite the bad news, Apple Inc. outperformed peer tech stocks in December. It is the most valuable company globally at a $2.1 trillion market capitalization.
Cash generation from operations in the past five years was $454 billion. Instead of using it to acquire marquee firms, the company plows cash back in the form of dividends and stock buybacks from shareholders. This amount is more than the market value of JPMorgan Chase &Co or Exxon Mobil Corp.
Apple’s Earnings and Pay-Outs
The strength in the company’s stock is due to future profits projection. Amidst the lower-earning estimates of Tech stocks in 2023, analysts at Wall Street estimate that Apple Inc.’s profit will increase by 2%.
Loyal Customer Base
One major factor is the loyal customer base of Apple. There are more than one billion iPhones in circulation, apart from many users having other apple devices such as Mac computers, iPads, and watches. This, combined with services like cloud storage and apps, makes it hard to unplug from this platform.
According to Jason Benowitz, a portfolio Manager with Roosevelt Investment Group, customers find it hard to switch to Android if they do not get an apple device. Apple has also benefited from knowing that affluent customers will continue to pay for the services even during the recession.
Bloomberg News reported labor agitation at Foxconn’s plant in Zhengzhou will likely result in a production shortfall of about 6 million iPhone Pro units in 2022.
Ming-Chi Kuo, an analyst with TF International Securities Group, is more pessimistic and predicts that Apple could face a shortfall in production of iPhone 14 Pro and Pro Max as many as 20 million during the quarter of the holiday season. He warned that the device that costs $1599 is at risk of disappearing during economic sluggishness.
However, Sameer Bhasin of Value Point Capital disagrees with many other investors. According to him, Apple has a monopoly of 15% of the world’s wealthiest population, and the company’s profits are immune to the economic slowdown.
