What happened?

Apple has revealed that overall sales dropped for the fourth quarter in a row. However, sales and earnings per share did beat analysts expectations.

Shares sank over 3% in extended trading after executives announced the technology company may not return to growth during the important festive quarter.

Apple: A quick glance

What? A technology company manufacturing, designing and marketing smartphones, tablets, personable computers and wearable devices.

Industry: Technology industry

Founded: April in California, US.

Founder/s: Steve Jobs and Steve Wozniak

Current CEO: Tim Cook

Market capitalisation: 2.76 trillion

Number of countries active in: Operate 527 stores across 26 countries

Main source of revenue: the iPhone

Extra information on their earnings report:

The technology company also announced revenues dropped 1% to $98.5bn (£73.3bn) in its latest Q3 earnings, despite strong demand for its iPhones and services like streaming platform, such as Apple TV+.

What led to Apple’s recent performance?

A few reasons:

·       Potential supply chain issues. This particularly pertains to deliveries of its new iPhone 15 pro and Pro Max devices. Profits have reached $23bn. This was helped by a new record for have iPhone sales in the three-month period. Sales could have increased had the new iPhone range been made in China, but production has shifted slightly. The new iPhone range is being manufactured in India. The current main location isn’t as big as their previous one, but Apple plans to open up more manufacturing hubs in India in the future.

·       Economic uncertainty in China. China is one of their biggest markets, and hosts Apple’s biggest manufacturing hub, Foxconn. Sales in China had dipped by 2.5%. China is going through its own struggles, such as a property sector that is no longer booming, high unemployment rates among the youth and geopolitical tensions.

·       Competition. This is in relation to the Chinese phone market more specifically. While many Apple consumers are in China, many also prefer or are switching to Chinese made phones, such as Huawei. Huawei also released a new smartphone that has helped the company increase its sales in China.

·       Bans and fears. In September, the Chinese government banned its (government) workers from using iPhones. This announcement was just before the launch of the iPhone 15 range and it led to Apple shares falling by more than 6%. In that same month, France halted the sale of the iPhone 12 for emitting too much electromagnetic radiation

A little more focus on Apple’s production shift

The 2020 pandemic made many companies realise just how dependent they are on China -  Apple is one of them. From cheaper labour costs, to lax labour and employment laws, it’s not hard to see why many companies, including Apple have preferred China over other countries. Foxconn, currently Apple’s biggest manufacturing hub saw a series of disruptive events that negatively affected the company. For example in 2022, Foxconn workers went on a strike due to the conditions they were under during China’s three year lockdown. During Foxconn’s shutdown, it was estimated that it cost Apple roughly $1 billion a week in lost iPhone sales. It led to a shortage and increased delivery times for the iPhone 14 Pro, which affected Apple’s overall sales and profitability for that quarter.

Not to forget increasing tensions between the US and China. China has tried to stay somewhat neutral of Russia’s invasion of Ukraine, but their actions prove that they support the war in Ukraine, much to the US’ wishes. A series of other events, such as the shooting down of a so called spy balloon in US territory, have added to the tension between the two states.

The shift to India by Apple makes sense. They have been producing some Apple products since 2017. However, Apple want to raise India production share from around 5-7% to 25%.

Like their Foxconn factory, they could decide to have all the assembly and manufacturing to be done in a centralised hub. This will decrease the transportation costs because trucks will no longer need to transport parts to other locations, and increase production times. This is all good stuff, as what any company wants, is more efficiency. Foxconn has already bought more than 300 acres of land in the southern state of India. They are planning to invest over £700 million into the plant.

With all of this being said, Apple plans to only increase the production from India, at least for now.  As it stands, China will still bring in the most profits for the company.

What does this mean for India?

A lot of investment will go into the Karantaka factory in India. This will lead to:

·       More jobs. India has a lot of people looking for work, and a very large percentage of them are of young, working age. From working on the production/assembly line, to van and truck drivers, to janitors and more, it will lead to many have a stable source of income. The Karantaka plant can hire around 100,000 workers.

·       More foreign investment. This is good for any country, and especially India. This is because it means that investors see potential in India, which can lead to more foreign investment from others. It means that the money gained from them can go into improving sectors and industries, such as education and healthcare.

·       Good use of a young labour force. It can help people develop their skillset, which can lead to an improved quality of life in the future.

Apple’s future:

For everything that has come against the company, from lawsuits, to supply chain issues and beyond, Apple has remained strong. Ever since they entered the smartphone market, they have been a force to be reckoned with. Even though competitors have better features than Apple, Apple has managed to successfully build a sort of cult-like following of consumers who are willing to buy Apple products and services. Even though lines to buy newly released Apple products is waning, I personally, I don’t see this eagerness to buy their products going any time soon.

They plan to branch into other industries, such as the electric vehicle market and the Augmented reality market. The tech giant has been flirting with the idea of creating a car since 2008, when Steve Jobs reportedly considered it. Whenever it does get released, I think there will be a buzz about it.

With that being said, I think the release of the Apple Vision Pro won’t be as spectacular as they want it to be. According to Ming-Chi Kuo, an Apple analyst, she says that they will ship 4000,000 to 600,000 of its mixed reality headsets in 2024. If you factor in the expensive price compared to competitors more affordable ones) and the fact that it’s a gadget that people won’t use on an everyday basis.

My thoughts:

I will not be surprised if Apple post a further decline in sales in their next earnings report. Economic and geo-political climates may very well stay as they are now, and even get worse. This isn’t what companies want, and could spell a further decline in Apple shares.

With the festive period coming up, which includes Black Friday, Christmas and even the New Year, it could boost sales.

That’s it for this week!

Until next time, remember to stay curious!

DISCLAIMER:

This blog is for informational purposes only. Parah Insights is not associated with the news sources in this blog, and sharing does not equal endorsement. Parah Insights does not provide financial, tax, legal or accounting advice – always consult your financial and legal advisors to determine what’s right for you and your business.

Further resources:

‘Apple stock dips after weak outlook for December quarter revenue’ – Article by CNBC

‘Apple sales dip again despite iPhone boost’ – Article by the BBC

‘Inside Apple’s ALL NEW iPhone 15 SHOCKING Factory’ – YouTube video by Future Mission