2018 was a lost year for Apple Inc (NASDAQ: AAPL).
The company’s stock ended the year with a 10% drop in share prices after it made a rare cut to sales guidance. As such, investors are starting to worry that the company’s magnificent growth may be fading.
However, Apple’s CEO Tim Cook has been trying to put a positive spin to the company’s outlook.
To reassure the market, the company is making a big change in its business strategy with more focus on its valuable services and wearable products, instead of its primary bestselling hardware-iPhones.
While investors are looking for a New Year’s gift, Apple instead gave a sales warning to them on Jan 2.
Well, it’s certainly a “surprise” for its investors.
In a letter to investors, Tim Cook said the company had slashed its revenue guidance for its fiscal 2019 first quarter (ended on Dec 29) due to its weak iPhone sales in the slowing Chinese economy, as well as the ongoing trade tensions between the US and China.
It now expects revenue to be approximately $84 billion, down significantly from a prior outlook of $89 billion from $93 billion, issued just two short months ago.
This is the first time in 15 years that the company is cutting revenue expectations, sending shock waves through markets.
Biting Off More Than It Can Chew
However, for savvy investors watching Apple for a long time, most were unsurprised by the announcement.
In November last year, the company announced that it would no longer release hardware unit sales. Investors took that as a sign that iPhone unit sales would soon turn negative.
In lieu of hardware unit data, Apple said it will provide profit margins on hardware and services. Apple’s outlook seems weak this year after the company gave a warning letter to its investors.
They will continue to face some key challenges, including the company loss its market share to strong rivals in China, the second largest country in the world, as well as US-China trade war.
Losing Its Shine
In recent months, the company has continued to lose its growth momentum in terms of global shipments. With the company losing its shine in key markets, especially China and its rivals, such as Samsung, Huawei and XiaoMi pushing product innovation aggressively, what will befall of Apple?
In addition, Huawei has overtaken Apple to become the world’s second largest smartphone seller behind Samsung in the second quarter, the first time in seven years that any contender has managed to split the top two.
According to the preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker, Huawei has retained its second position in the third quarter with 14.6% market share, beating Apple (13.2%). Once again, Samsung is the largest smartphone maker with 20.3% of market share.
Public sentiment has made it quite clear that it is quite disappointed with the new launches for lacking new and exciting innovation. Most are in agreement that consumers are not buying iPhones for the new features, but to upgrade an older iPhone model.
In an August article on Bloomberg, it was revealed that Chinese-made smartphones are consistently cheaper than its Western counterpart. For instance, Huawei’s P20 Pro retail price is about $800 in China, compared with the $1,000-plus cost of an iPhone X.
Innovation, coupled with its attractive prices, has shifted the Chinese buyer’s obsession from the bitten fruit’s logo to its Chinese counterpart.
So, the question is how Apple can maintain their customer loyalty?
US-China Trade Will Continue To Drag iPhone Sales
The trade war will continue to dampen Apple’s performance.
Last year December, China’s court has banned Apple from selling some of its iPhone models in China for violating two patents of chipmaker Qualcomm Inc. Market believed it’s a counterattack to the US after Huawei’s CFO Meng Wanzhou was arrested in Canada.
Moreover, the company cutting its sales guidance also a signal that Apple’s performance and outlook has been hit by the trade war. The company will continue to be dragged into the trade dispute as tensions escalate.
Apple Is Looking Beyond iPhones
After Apple reduced their sales guidance, the company also revealed they would focus more on their valuable services and wearable products.
Currently, its services include its App Store, iTunes, Apple Pay, Apple Music and iCloud. For its wearable products, namely, the Apple Watch and AirPods are a huge revenue contributor.
Apple CEO Tim Cook said in a letter that issued to investors, “Revenue outside of our iPhone business grew by almost 19% yoy, including all-time record revenue from Services, Wearables and Mac.”
He explained, the services generated over $10.8 billion in revenue during its first quarter, growing to a new quarterly record in every geographic segment. Moreover, they are on track to achieve their goal of doubling the size of this business from 2016 to 2020.
This year will be an exciting year for Apple, as the company will invest and focus on its services’ segment.
Last Sunday, Apple signed a deal with its top rival, Samsung. The iPhone maker will offer iTunes movies and TV shows on the Samsung Smart TVs. In short, customers who own select Samsung smart TVs will be able to access iTunes movie and TV content.
Samsung smart TVs will also support Apple AirPlay 2, which will let iPhone and iPad owners send content from their screens to the TVs, too.
In an exclusive interview with CNBC, Tim Cook said, “you will see us announce new services this year, there will more things coming.”
Although he didn’t go into specifics, he indicated that healthcare and wellbeing is one area that Apple is focusing on.
Wearable Products’ Revenue Increased 50%
Apple’s wearable products’ revenue grew by almost 50% yoy in the first quarter, as Apple Watch and AirPods were wildly popular among holiday shoppers.
More importantly, the revenue for this segment had exceeded the iPod’s revenues when the music player was at its peak.
Apple CEO Tim Cook discusses the AirPods at a media event in San Francisco on Sept. 7, 2016. Image via Reuters.
These statistics are particularly significant because this segment will become a turning point for Apple amid the sales drop of iPhones.
Other than that, the company is also expected to launch new AirPods this year, capitalising on the success of its most popular accessory ever.
Although 2018 is a bad year for Apple, the company has big plans for health in 2019. It could be an exciting year for this stock.
It not only can help the investors focus on moving away from the weaker iPhone sales but hopefully, will also revive its downwards stock price momentum.