Apple Inc. headquartered in Cupertino, California is an American multinational technology company. The company designs, manufactures and markets mobile communication and media devices and personal computers, and sells a variety of related software, services, accessories and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, Apple Watch, Air Pods, Apple TV, Home Pod, a portfolio of consumer and professional software applications, iOS, macOS, watch OS and tv OS operating systems, iCloud, Apple Pay and a variety of other accessory, service and support offerings. The Company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, Book Store and Apple Music. The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and resellers.
- Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in April 1976 to develop and sell Wozniak's Apple I personal computer. It was incorporated as Apple Computer, Inc. Ronald Wayne sold his 10% of the share 12 days after incorporation and was paid out 1500$ whereas his shares could have been worth $60 billion dollar in today’s time.
- Apple sold 16 million units of iPhone X in Q1 2018, accounted for 4.6% share of the total global smartphone market
- iPhone X with 64 GB has a bill of materials (BOM) of $370.25, while its retail price is $999.
- Apple overtook Microsoft to become the world’s most valuable technology company in 2010 and became the first company ever to reach a $1 trillion market cap but has since fallen behind Amazon
- Apple has a cash pile of $285 billion as of December 2018.
- Apple’s has created more than 2 million jobs in the US which includes 80,000 Apple employees, 450,000 jobs through US-based suppliers and 1,530,000 jobs attributable to App Store ecosystem.
- Apple launches IPO – On December 12th, 1980, Apple went public by floating 4.6 million shares at $22 a pop. In the biggest tech IPO of its day, more than 40 of Apple’s 1000 employees became millionaires overnight. As Apple’s biggest shareholder, 25-year-old Steve Jobs ended the day with a net worth of nearly $217 million. Apple’s stock since IPO 38 years ago has risen nearly 43,000% in value. An investment of $1000 in 1980 would have resulted in almost $450,000 in todays value after splits and dividends. Understandably, Apple’s IPO was hotly anticipated in the press. “Not since Eve has an Apple posed such a temptation” was headline of an article in Wall Street Journal. Apple’s IPO became the biggest hit since the Ford Motor Company’s public offering in 1956. Underwritten by Morgan Stanley and the firm Hambrecht & Quist, Apple stock was filed to sell at $14 per share but opened at $22 and was sold out within minutes. That day alone the share rose up 32 percent, closing at about $29 per share and giving the company a valuation of approximately $1.77 Billion.. As for Apple itself the company recently held the crown of being the largest company in the world with a market capitalization of $991 billion before being taken over by Microsoft. The high performance of the stock makes it a perpetual favourite amongst the investors..
- Launch of the iPod – On October 23rd, 2001 Steve Jobs launched the first-generation iPod in a low-key event held at the town hall auditorium of the company. iPod was considered a breakthrough MP3 music player which packed up to 1,000 CD quality songs in an ultra-portable, 6.5-ounce design that could easily fit in pocket. iPod could play music in formats of MP3, AIFF and WAV and retailed for $399. In April 2003, Apple announced the iTunes music store, an online retail hub where users could buy music for 99 cents per song or about $9.99 for an album. By 2005 iTunes library had grown up to 1.5 million songs. By the end of year 2009 Apple had sold nearly 8 billion songs which with Apple’s 10 percent commission per song translated in no more than $800 million in revenue before accounting for running costs of an ever-growing library. This number seems trivial when compared to $22 billion which Apple earned as revenue by selling iPods during the same time. However, iTunes did provide a legitimate and convenient platform for iPod users to download music in a time of shady MP3 accessibility. Between third and quarters of 2004 and 2005, the sales of iPod leapt massively and showed an increase of nearly 616%. Apples profit soared and by the end of 2008, it had captured nearly 50% of MP3 player market share. iPods closest competitor with approximately 10% of the market share was SanDisk’s Sansa MP3 player. At the time of introduction, Apple wasn’t the powerhouse company it later became. The initial success of iPod and its successor products were major factors for company’s explosive growth.
- Launch of the iPhone – On January 9th, 2007 Steve Jobs launched the first-generation iPhone as if it were three separate products: a widescreen iPod with touch controls, a revolutionary mobile phone, and a breakthrough internet communicator combined into one device. The crowd erupted in applause looking at the intriguing device. Around Unites States retail outlets reported snaking lines of anticipatory customers excited to get a hold of $600 “revolutionary” phone. The first-generation devices boasted a lowly 2-megapixel camera along with a “stunning 3.5-inch widescreen display” which was said to revolutionise the way people watched television. The first-generation iPhone also included the Google Maps, the revolutionary navigation service. The iPhone was the next key driver of growth for Apple. In 2006 Apple generated $1.9 billion of profits on $19.3 billion of revenue – mostly from iPod and Mac. Its business has since grown nearly 10x. Apple last year generated nearly $45.6 billion of profits on of revenue. The iPhone drove nearly 65% of Apple’s sales last year and likely even more of its profits. In 2018 iPhone sold near about 220 million iPhones whereas in comparison Samsung, Apple’s nearest competitor sold nearly 400 million phones. Despite this, Apple’s revenue per phone is the best in the industry, allowing it to exceed Samsung. Since the first unit rolled out of the retail store Apple has sold over a billion handsets establishing it as the second largest mobile device manufacturer.
- Apple becomes the most valuable company on the planet - On August 9th, 2011 Apple passed oil giant ExxonMobil to become the most valuable company of the world. Apple had been closing in on ExxonMobil ever since it passed tech leader Microsoft in May 2010. Apple reported healthy earnings for the first quarter of 2011 surpassing expectations of many analysts. With revenue up 90% year-on-year, Apple’s profits surged 124%. One Tuesday trading session Apple’s stock was trading at $366.62 up 3.02%, giving it a market capitalization of $337.11 billion whereas ExxonMobil was trading at $68.90 down 2.0% with a market capitalization of $333.54 billion. Since then Apple stock has surged forward and widened the gap between then leader ExxonMobil and itself. In August 2018, Apple became the first company surpass a trillion-dollar valuation but has since declined and has lost its crown to Amazon.
- Launch of Apple watch – On March 9th,2015 Apple announced the launch of its newest addition to the apple ecosystem in the form of the Apple watch. Apple watch wasn’t the first ever smartwatch or doesn’t do anything that rival products don’t. But what it does do, it does it better than most of the smartwatches out in the market. The watch was decided to be retailed at price ranging from £300 to £8,000 depending on the level of customisation asked for by each customer. According to the tech research firm ABI Research, Apple shipped nearly 13 million watches within one year of the launch. Considering, about 27 million smartwatches were shipped that year, Apple had instantly captured nearly 50% of the smartwatch market.
- Navigating Trade Uncertainty - In December 2018 president Donald Trump expressed interest in the idea of slapping trade tariffs on goods made in China. President Trump when questioned stated that “Other people may be willing to just stand that (deal) simply, but we wouldn’t”. The tariffs may force Apple to increase price for some of its products including the China manufactured iPhone, Apple Watch, Air Pods and Beats headphones. It is a growing consensus amongst investors that an increased tariff could adversely affect the demand and hence the top line. Bank of America Merrill Lynch said that about third of the $26 billion revenue that Apple earns from these products comes from United States and hence can prove to be detrimental to the financial position of the company. It is estimated that every $1 billion of demand destruction could impact earnings by almost 0.05%. If tariffs are passed it is expected that they will lower the profitability from Apple Watch and Air Pods by nearly 15-20% resulting in approximately 1% negative impact on the revenue for the company. Apple has already devised plans to invest over a $1 billion towards building new plants in Texas and Seattle and relocate nearly 5,000 jobs from China to Unites States as a counter measure. It is important to note that considering there be an additional 10% tariff on a phone that costs nearly $1000, the import assessed cost of a single device will not increase by more than approximately $50. It would be surprising to expect people willing to pay such high prices due to brand loyalty to be phased by an additional $50 added to their receipt.
- Backlash of not reporting number of units sold – In November 2018, Apple announced that it will no longer be reporting sales number for iPhones or any of its products on futures earnings calls. Apple’s stock took a hit of 7% in after-trading hours and was down 5% in the next session too. Apple CEO Tim Cook was prompt to address the potential negative perception by explaining to the analysts that the figure for unit sales is not as significant of an indicator of the business model of Apple as it was previously. He said that “it is like bringing a cart to the cashier, it doesn’t matter how many items are in the cart, but rather the profitability of the items as a whole” which should paint a fairer picture of Apple’s revenues. There is some merit to this argument put forward by the CEO Time Cook and CFO Luca Maestri as in recent years, especially since the launch of the iPhone X, Apple has increased its revenues largely by raising the price of the iPhone and not selling more phones per se. The number of units sold have been indeed holding flat or dipping over the last few quarters. Sales of “Services” – the App Store and other paid software downloads – have increased by nearly 17% in 2018. This shows that people are holding on to their phones for longer periods but are willing to spend for services to use those phones on a continuous basis. However, it’s going to take more than a one-line explanation to calm the nerves of the analysts and the general investors since at the current levels, iPhone sales represent nearly 60% of the top line revenue for the company. This move is more than likely to be perceived as implication of reduction in iPhone and other product sales on a year-on-year basis. Analysts from Citi, Nomura and others have been up front to criticise the move and would surely be giving the management a hard time in the coming years.
- Maintaining brand value after Batterygate – End of December 2016, reports of older iPhones trickled in, citing reliability and usability problems such as sudden shutdowns. In November, Apple announced that this was an issue affecting only a “very small number” of iPhone 6s devices. It is still unclear if Apple intentionally tried to downplay the problem or was unaware of the seriousness of it at the time. Apple attempted to resolve the problem—secretly—via iOS update 10.2.1, which made changes to power delivery on all devices newer than the iPhone 6. This feature was obfuscated by a myriad of fixes for security and design bugs that were introduced by iOS 10.2, released just 42 days prior. Apple remained tight-lipped about the full intent behind the update, but, inevitably, the internet jumped on Apple’s case: Tech journalists and Redditors alike speculated that the update was an attempt to prevent battery shutdowns. Consequently, this throttling did fix most unexpected shutdowns, but at the hidden cost of reduced performance. Consumers were essentially led to believe that the update, and any resulting performance issues, were the sole solution for their ailing phones. They weren’t told that the fix was limiting battery overexertion. A Reddit post breaking down the aging process of Li-ion batteries, followed by research into the CPU of affected iPhones, found that the throttling was, in fact, a battery issue. Replacing the battery in a throttled phone resulted in increased performance, conclusively shining light on Apple’s throttling shenanigans. The phones weren’t the problem—old batteries were. Public outcry and lawsuits ensued. Finally, Apple publicly admitted to CPU throttling for aging batteries. In another attempt to mitigate damage to their reputation, Apple issued a $50 credit to customers who had paid for an out-of-warranty battery replacement for an iPhone 6 or older device in 2017. However, there was public backlash for the company and it now faces the challenge to make sure no future scandals taint the most valuable asset of the company: Brand name.
Weaker demand for Apple products as well as a lacklustre reception for the iPhone XR outside the United States will prevent shares from advancing over the next year. Goldman Sachs reiterated its neutral rating on Apple shares and cut its price target to $182, down from $209. Shares of Apple fell back into a bear market in early March as growing concerns surrounding iPhone production weighed on the stock. Apple shares have fallen more than 20 percent from its 52-week high of $233.47, losing about $400 billion in market cap as its stock slid to $150. A steep decline in Chinese demand during the late summer and a stronger U.S. dollar can prove to be headwinds for the company in coming months. However, Apple's earnings per year for calendar year 2019 have been fixed at $13.40, roughly in line with the company's last three years next-12-month average. Apple has cut production orders in recent weeks for all three iPhones launched in September. The company’s monumental decision to not reveal number of sales of unit for iPhone, iPad and Mac which can be interpreted negatively by both institutional and individual investors will presumably weigh in on the stock for early part of the year.
The three main product lines will be wrapped into one reported revenue figure. Apple has said that it is morphing from a business propelled by the volume of devices it ships into one focused on luxury products and software sales. Apple’s revenue from Services such AppStore, iTunes Store, iCloud amounted to nearly $37 billion. This represents nearly 16% of the total revenue of Apple and is equal to revenue earned through sales of Mac and iPad combined. Services are the fastest growing segment of Apple’s many income streams, and Apple has planted seeds to accelerate the growth in the future. Many services are subscription based; they don’t depend on people upgrading device or making an impulse purchase, but rather bring in money every month. Against expected falling sales of iPhone in countries like China and India and flat sales overall, services growth while it won’t replace lower iPhone revenue, will still prop up the company. If Apple can start nudging its existing customers to start spending money on services, like Apple Music, iCloud storage upgrades or Apple Care plans, the company can better monetize its loyal user base and pull even more money from them in the form of subscriptions.
NB: This page is for information purposes only. Nothing in this page shall constitute investment advice of any nature. Please see our disclaimer for more information.