The Revival Of Apple Inc.
Accendo Markets | Feb 02, 2017 17:53
After five years of stalling in second place, Apple Inc. (NASDAQ:AAPL) has reclaimed its throne as the leading smartphone provider. However, could future successes be indebted to its ever-expanding service sector?
Steve Jobs’ trademark brand has reclaimed its position as the world’s leading smartphone provider for the first time in five years. Furthermore, with a market cap of $675 billion (Bloomberg), the company is currently the most valuable on the US stock market. As reported by Reuters, Apple sold 78.29 million iPhones in its first fiscal quarter (to end-December), up from 74.78 million handsets sold the year prior. On average, analysts had predicted sales of just 77.42 million units, according to research firm FactSet StreetAccount. Subsequently, these results define the strongest quarterly performance in the history of Apple.
However, in its forecasts, Apple anticipates that consumers will refrain from upgrading until a newer model of iPhone is revealed, perhaps foreseeing a return to decline occurring over the next few quarters. Such is due to the release of the 10th-anniversary model come September, in which many are hoping to find a major new innovation as opposed to the slightly more incremental adjustments made to the phone in the past few succession of releases. Nevertheless, on 1st February Apple shares closed leading the Dow, up by 6.1% on the day.
Moreover, the company’s stellar performance in the first fiscal quarter exceeded Samsung Electronics' (LON:0593xq) 77.5 million smartphone sales, according to technology data firm Strategy Analytics, marking the first time that Apple has surpassed its largest rival manufacturer since the fourth quarter of 2011.
Prior to the first fiscal quarter, the firm’s total revenue fell over the three previous quarters as mounting competition, most notably from its Asian peers, contributed to a significant decline in the demand for the iPhone. The lagging performance of the handset – which accounts for nearly two-thirds of Apple’s income – resulted in the company reporting a substantial fall in annual revenue last October, the first such decrease to occur in 15 years.
Apple Inc. 12-month, daily chart - Bloomberg
For some time now, investors and bystanders alike have been forecasting a decline in the company, as Apple’s world-renowned innovation seems to have decreased in the post-Steve Jobs era. The original iPhone was nothing short of iconic, but reproducing such things time and time again is far from a humble pursuit. However, despite Apple's landmark quarter having been spearheaded by a return to growth in iPhone sales, the largest percentage gain came on a line that year-on-year continues to establish itself as an increasingly important asset within the business. The services sector.
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The company reported an annual net profit of $7.17 billion in its services division, up 18% from last year’s earnings. On account of this, it appears to be a mere matter of time before services become the second-highest grossing unit at Apple, given it is the only division currently growing by double digits as things currently stand. Accordingly, analysts at RBC suggest that now is a good time to buy the stock, primarily thanks to this high-margin service sector.
Thus, in terms of the future of Steve Jobs’ tech enterprise, the growth of the services sector signifies Apple shifting towards becoming a business that is ever more reliant on services for revenue, and less reliant its consumer staple hardware.
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