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    AAPL   US0378331005

APPLE INC.

(AAPL)
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Apple Inc. : Is it really the end of the Apple supercycle?

06/22/2021 | 05:31am EDT

(Cercle Finance) Pretty much at a standstill since the start of the year, Apple is no longer the driving force behind the US stock market, a role it has convincingly played for over ten years now. This is due to the major sector rotation in investments, which is now pushing fund managers to opt for cyclical and industrial stocks, which are better exposed to the post-Covid recovery, and which will obviously benefit from it.

It's also due to the stock running out of steam, as the company now seems to be innovating less than it used to. Here, we investigate what could be an impending decline.

When Tim Cook stepped forward on Monday, June 7 for his traditional keynote - held virtually this year due to the pandemic - hi-tech journalists and geeks from all over the world expected the Apple boss to unveil a new MacBook equipped with the latest Arm processors, or even to pave the way for Apple's keenly-awaited move into augmented reality (AR).

His approach proved to be much calmer. Instead of presenting new devices, Tim Cook’s speech focused on unveiling a string of updates for the iPhone, iPad, and Mac operating systems, as well as a whole series of health-related features, including the ability to transmit data collected by the Apple Watch to the medical profession.

He focused his presentation on issues relating to the confidentiality of private data, a theme that has become his warhorse in recent weeks, against the ambiguity cultivated by Facebook in this domain.
This was a far cry from Steve Jobs’ legendary keynotes, who, at the end of the 2000s, could at the same time unveil a new iPhone, iPod nano and an ultra-light MacBook.

In spite of everything, financial analysts have welcomed Cook’s comments, and in particular hailed the group's progress in artificial intelligence (AI) and "neural" networks, a technology that offers exceptional performance in machine learning.

It is true that all these announcements are in line with the strategy recently adopted by Apple, which consists in  gradually moving away from hardware to focus on a model that is increasingly based on services and subscriptions (music, TV streaming, etc.). This is a business mix that has the benefit of offering recurrent and comfortable revenues… and which is much appreciated by the financial community because of the visibility it brings.

This change of direction has paid off on stock markets, resulting in Apple's share price almost doubling in value last year, finally reaching an all-time high of over $145 at the very start of 2021.

However, this beautiful upward path has seemingly ground to a halt – or at least stalled. Even the stellar quarterly results published at the end of April, boosted by explosive iPhone 12 sales, have failed to reassure investors.

So has Apple already become a “has-been” on stock markets?

According to Dan Ives, a star analyst at Wedbush Securities,  investors believe that the group's frantic rise to power - both in terms of technological innovation and results – is not sustainable in the long term.

"The Street right now is concerned that the best days of the iPhone 12 supercycle have already played out and worries that Apple’s growth into 2022 has become an overhang," the analyst said.

After the frenzy of marketing the iPhone 12 against the backdrop of the advent of 5G, some specialists fear that Apple will limit itself to launching an iPhone "12S" this autumn, which will have just minimal innovations, and would be less popular with technophiles.

As the economy reopens, observers also expect consumers to cut back on technology purchases, so they can spend more money at cafes, restaurants and on travel.

In other words, future iPhone shipments may well disappoint.

Another detail behind the stock's underperformance is the tug-of-war with Epic, the creator of the video game Fortnite, which is accused of having set up its own pricing system on the App Store.

Apple has a lot at stake in this: it generates almost 8% of its total revenue from its App store, which enables it to generate high profit margins (between 75% and 80%) on all the services sold there. A defeat in the Epic case could jeopardize this particularly well-oiled model.

In addition, there are recurring fears that the Biden administration will tighten regulation of tech giants, with some Democrats now even advocating for the outright dismantling of these omnipotent companies.

Despite these uncertainties, analysts continue to believe in the stock. Out of the forty or so professionals who track it, 33 are buyers, nine have a neutral opinion and only two recommend investors sell it.

Dan Ives, the Wedbush analyst who is rather optimistic, says that it is still too early to bury the stock altogether.

"In our opinion, Apple is still in the middle of a massive product cycle and the biggest one we have seen out of Cupertino in the last seven years," he says.

Next year, Ives expects that Apple will unveil "Apple Glass", its augmented reality headset, and lay the groundwork for a self-driving  Apple Car –which is due out in 2024.

According to Gene Munster, a star analyst who covered the stock for a long time before joining a private equity fund, Apple's upcoming augmented reality/mixed reality (AR/MR) headset could simply revolutionize online shopping by turning users' living rooms into a virtual shop where it will be possible to try on, touch and test items before buying them.

He said  this is what Airbnb already did - in its own way - by turning homes into hotels.

The 'Apple Car', which has been the subject of recurrent speculation for many years now, could also be a "disruptive" innovation, professionals say.

Apple - which no longer hides its interest in the sector - recently began talks with South Korea's Hyundai and recruited several experts from the automotive industry, including Ulrich Branz, the former head of BMW's electric vehicles, as well as several executives from Tesla.

Strategically, Apple has several options, says Jean-Christophe Liaubet, managing partner at Fabernovel, a consulting group specializing in the creation of digital products and services.

He adds that the group could create a car on its own or by joining forces with a carmaker - or even an industrial partner that does not have its own brand.

In addition, it could also position itself as a supplier of software for vehicles (particularly in terms of operating systems) or launch an autonomous taxi service that would compete with Amazon and its Zoox service, he adds.

Whatever happens, such an ambitious project would definitely revive creativity that currently seems to be running out of steam, which would then boost the share’s price.

"We believe a year from now Apple will be a $3 trillion market cap and view this latest sluggishness as a golden buying opportunity," says Dan Ives.

In comparison, the group's market capitalization is currently $2.2 trillion, which makes it the world's largest market capitalization, ahead of Microsoft ($2 trillion).

However, Fabernovel points out that innovation is not just a matter of launching new products or services.

Apple could also change its business model to focus on equity and no longer confine itself to models where value only comes from being in a dominant position, says Jean-Christophe Liaubet.

Perhaps the best is yet to come for the Cupertino company…

Copyright (c) 2021 CercleFinance.com. All rights reserved


ę MarketScreener.com 2021
Stocks mentioned in the article
ChangeLast1st jan.
AMAZON.COM, INC. -7.56% 3327.59 Delayed Quote.2.17%
APPLE INC. 0.15% 145.86 Delayed Quote.9.93%
BMW AG 1.70% 85.33 Delayed Quote.16.13%
EPIC CORP. -1.37% 0.2595 Delayed Quote.29.75%
FACEBOOK INC -0.56% 356.3 Delayed Quote.30.44%
HYUNDAI CORPORATION -1.26% 19600 End-of-day quote.22.88%
HYUNDAI MOTOR COMPANY -1.80% 218000 End-of-day quote.13.54%
MICROSOFT CORPORATION -0.56% 284.91 Delayed Quote.28.10%
S&P 500 -0.54% 4395.26 Delayed Quote.17.65%
TENABLE HOLDINGS, INC. -2.44% 42.8 Delayed Quote.-18.10%
TESLA, INC. 1.45% 687.2 Delayed Quote.-2.62%
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Financials (USD)
Sales 2021 365 B - -
Net income 2021 93 366 M - -
Net cash 2021 78 467 M - -
P/E ratio 2021 26,3x
Yield 2021 0,59%
Capitalization 2 411 B 2 411 B -
EV / Sales 2021 6,39x
EV / Sales 2022 6,17x
Nbr of Employees 147 000
Free-Float 99,0%
Chart APPLE INC.
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Technical analysis trends APPLE INC.
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 47
Last Close Price 145,86 $
Average target price 162,20 $
Spread / Average Target 11,2%
EPS Revisions
Managers and Directors
Timothy Donald Cook Chief Executive Officer & Director
Luca Maestri Chief Financial Officer & Senior Vice President
Arthur D. Levinson Independent Chairman
Kevin M. Lynch Vice President-Technology
Jeffrey E. Williams Chief Operating Officer
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SHENZHEN TRANSSION HOLDINGS CO., LTD.7.07%20 168
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