Editor’s note: This article was first published in January 2019; it is news commentary on Apple’s share price fall, Tim Cook’s letter lowering revenue guidance to about $84 billion, iPhone price rises and the reported boycott in China. The Apple-Qualcomm patent dispute was settled in April 2019.
Once again we’re witnessing how the market blows a company’s one-off problem out of proportion. This time the victim is Apple, again. The last time Apple went through this, its share price plunged more than 30% before it embarked on what was probably the biggest rally in the company’s history. At the time, Warren Buffett said that buying Apple shares was like buying 1-dollar bills for just 60 cents.
History is repeating itself. This time it looks like the end again, but we keep forgetting that Apple is one of the most financially solid companies on the planet, and probably the least indebted.
Should you invest in Apple after the falls?
After analysing Apple’s results, the conclusion is that we clearly have a company with an excellent economic moat, with incredible room to manoeuvre when it comes to continuing to make profits.
To give you an idea, Apple has managed to earn more while selling less. The company has made it clear on more than one occasion that it doesn’t want to compete on price with other smartphone brands. Tim Cook has put it bluntly: Apple doesn’t make junk, and others are welcome to make it.
This time, Apple’s strategy for boosting profits has been to raise iPhone prices, something that has been criticised because the improvements to the new models have been minimal. In my opinion, Apple hasn’t wanted to innovate too much until it has resolved the patent lawsuits it currently has with Qualcomm.
The fronts Apple has open
Apple is said to be suffering a boycott in China, one of the most important markets for iPhone growth, as a way of supporting Chinese phone brands. Meanwhile, in Germany, all iPhone 7 and iPhone 8 models have been withdrawn from stores because of a patent lawsuit.
Apple’s business could be heavily exposed to iPhone sales, since this is the company’s flagship product and accounts for two thirds of its profits, something Tim Cook himself has said they’re working on. In fact, the latest results show an increase of almost 20% in profits from the Mac, iPad and accessories.
See also: The 13 best stock market and finance books of all time
Apple faces a tough 2019
Tim Cook himself sent a letter to shareholders saying that revenue is now expected to come in lower, at around $84 billion, 9 billion less than forecast. That may sound alarming, but the truth is that, for a company going through this series of problems, that revenue is more than acceptable.
Let’s remember that when a large company gets into trouble and its share price falls, it becomes an excellent investment opportunity. In my personal opinion, that’s what Apple is right now: a good investment opportunity, but I would wait to see how things play out.
Apple is a company that has shown time and again that it can turn adversity into a springboard to launch itself forward again, even though Steve Jobs is no longer there. Innovation will return and they’ll surprise us again. But I insist: I’d wait to see how things develop before investing in Apple.
Featured image: Daniel L. Lu (user:dllu), CC BY-SA 4.0, via Wikimedia Commons.
