[Halloween Special Game] Trick or treat
$Apple(AAPL)$
• Apple announced plans to slow production of iPhones, spooking investors.
• Sales of the new iPhone 14 are below expectations, especially in Europe and China.
• Even with revised expectations, Apple still had a record-high third quarter.
Apple stock has been a favorite of investors for some time now. When Apple holds its Apple Events, it is trending news for days as both investors and avid customers of the Cupertino brand want to know what products the company will release next. Just because the stock is a favorite doesn't make it immune to pullbacks and price declines. Recently, Apple stock had a significant pullback. Here is what caused it and where investors can expect the stock to go.
For years, Apple stock has consistently performed above expectations, and it looked like its stock price would never stumble. However, a late September 2022 decision to slow down plans to increase iPhone production spooked investors. The news was announced on September 28, 2022 and caused the stock price to drop to as low as $144.84 at one point during the trading day. However, the stock closed at $149.84, gaining a little more than $2 in the price for the day.
Looking at the short-term trend, it's clear that Apple's stock value has been steadily dropping. Apple's stock price started at $157.96 on September 1, 2022 and finished the month at $138.20 on September 30, 2022. On September 7, 2022, Apple announced the release of the iPhone 14, which increased the stock price to $155.96 by the end of the day.
Investors were optimistic but seemingly underwhelmed by the annual iPhone release. The stock lost almost $20 per share over 30 days, a notable drop in value. Apple is down 19% for the year in contrast to the 23% drop suffered by the S&P 500. Barring a major decline in the market, Apple's stock is poised to perform well for the rest of the year.
Apple is also moving some of its manufacturing capability out of China and into India, an attempt to shield itself from political instability. It expects to have 5% of its production capacity up and running in India by the end of 2022. The long-term goal is to have 25% capacity running in India by 2025. This is a significant shift in production, especially since the iPhone’s manufacturing has been in China since its inception.
Stock analysts are seemingly unconcerned with Apple's current issues. They feel that the demand for the iPhone 14 is strong and will carry the technology company through the recent downturn in its value.
Apple’s income statement
The company reported (record) revenue of $83 billion for the third quarter of the 2022 fiscal year, an increase of 2% year-over-year. Quarterly earnings per diluted share were $1.20. Apple paid a quarterly cash dividend of $0.23 per share of common stock. Its net sales of products were $63.35 billion at the end of the third quarter of the fiscal year 2022, a slight decrease year-over-year against the $63.94 billion reported for 2021. Apple’s net service sales were $19.6 billion, an increase from $17.48 billion the previous year. After accounting for costs, operating expenses, operating income and provision for income taxes, Apple's net income was $19.44 billion, a slight decrease from $21.74 billion for the same quarter of the previous year
Apple reported a net income of $79.08 billion for the nine months ending June 25, 2022, an increase over the $74.12 billion for the same nine months ending June 26, 2021.
Apple’s balance sheet review
At the end of the third quarter of the 2022 fiscal year, Apple reported having $27.5 billion in cash and cash equivalents, $20.72 billion in marketable securities, and $21.8 billion in net accounts receivables. Its inventories totaled $5.43 billion, vendor non-trade receivables of $20.43 billion, and other current assets of $16.38 billion for a total of $112.29 billion in current assets. Apple reported total assets of $336.3 billion for the end of the quarter.
Its current liabilities for this period include $48.34 billion in accounts payable, other current liabilities of $48.81 billion, deferred revenue of $7.72 billion and other debts for total current liabilities of $129.87 billion. Its total non-current liabilities were $148.32 billion, and its total overall liabilities were $279.2 billion.
Why Apple stock has fallen
Lackluster sales of the entry-level iPhone 14 models is the main reason Apple’s stock has fallen. In response to the poor sales, Apple cut production of the lower-end models by six million units for the second half of 2022. The move to cut production is highly unusual and may signal that the popularity of the iPhone has leveled off amongst buyers around the globe. It remains unclear if this is a hiccup for Apple or indicative of buyer fatigue.
Smartphone technology has stabilized over the past few cycles of phone releases, and consumers aren't as willing to get a new phone every year as they once were. They're holding onto their phones for longer because older phones stay stable and usable for longer than ever before.
Another potential reason for the poor sales is that inflation has eroded a consumer's ability to justify spending $799 on an iPhone 14. The iPhone 14 Pro, the top-of-the-line model, starts at $999. The cost of the latest iPhones is reasonable for a flagship phone, yet consumers aren't showing up to buy in Europe or China. Apple and its suppliers had readied themselves for a 7% increase in orders due to an upgrade in Apple's sales projections. Those sales never materialized, causing Apple to roll back its sales projections to their original forecast of 90 million units—about the same number of units sold in 2021.
The bottom line
Every business experiences a downturn at some point, and Apple is not immune to a change in fortune. Only time will tell if this is a short-term issue or if Apple will enter into a long-term phase of slower growth. The good news is that the services side of Apple's business model continues to perform well, which will help to offset a slowdown in new phone sales. But how much or for how long they can prop up the business is yet to be seen. It is certain that Apple is here to stay and will continue to produce electronics desired for their quality, usability and perception as a status symbol.
Apple will undoubtedly be a part of the tech rally, one of the sectors expected to be at the forefront of our inevitable economic turnaround.
Comments