Mark Hawtin, Investment Director, GAM, on the challenges facing Apple…
The numbers reported by Apple last night showed that Apple is struggling to grow in a smartphone market that is becoming saturated at the high end. The move to the iPhone 6 and the large screen format gave them a final boost into a segment of the market they were not present in. What next? China is a real concern for Apple because it is clear now that the iPhone is not seen as a utility product but as a luxury item. Luxury brands are struggling in the slow-down; more utility names are not – Starbucks and Nike to name but two. Apple is clearly in the luxury category and the Chinese are pulling back from big ticket items.
At the same time the move to new products and services is not doing enough to compensate. We think it is quite possible that the full 2016 year will struggle to beat 2015 in iPhone shipments and this will start to confirm the ex-growth thesis. The shares are cheap and so for value investors the case may remain intact particularly if markets continue to drop sharply. But, the shares are only cheap if the E in the PE remains solid. This is why the gross margin is so important. Any sign that this starts to give way – something that a stronger dollar or a decision to compete on price will induce leaves the path to E a very uncertain one. There are much better investments within the technology sector right now.
