2019 did not start out in the best of wishes for Apple, one of the largest and wealthiest companies in the world, with a letter from its CEO Tim Cook sent to investors announcing that revenues in the first quarter of the year could be lower by up to $ 9 billion than was expected. Cook attributed the decline to the slowdown in the Chinese economy and to the fact that – in Western countries – few have decided to switch to the new iPhone XS and XR, especially if they had spent just a year ago about a thousand euros to buy an iPhone X.
In the first hours after the opening of the stock exchange in the United States, Apple has come to lose almost 10 percent, influencing the performance of several other stocks and more generally the markets. The Milan stock exchange, already in trouble, closed at -0.61 per cent.
It has not happened for more than 15 years that Apple has revised its forecasts so much, and as a result the news has been widely picked up and analyzed and is having consequences on the stock markets. As one of the largest and most prosperous companies in the technology sector worldwide, Apple is considered an important indicator to understand the situation among smartphone manufacturers, already struggling with a generalized decline in sales. On Atlantic, Alexis C. Madrigal wrote an interesting analysis on Apple, identifying five different perspectives from which to observe the news: none positive.
China
The US and Chinese economies are closely linked, both in terms of exports / imports, and in terms of production and consumption systems for products . As China's economy has grown, expensive Western products – once unapproachable by many Chinese due to their prices – have become affordable for more people. Large US companies began seeing opportunities in the Chinese market at least 15 years ago, making it a relevant part of their business models. If the Chinese economy slows down, then, US multinationals are the first to suffer in terms of turnover. The case of Apple is exemplary in this sense, considering that the most conspicuous decline in sales of new iPhones was recorded in China.
Cook also writes in his letter that the so-called “trade war” between the United States and China has complicated the situation. Indeed, several analysts had predicted that an increase in tariffs on some goods could penalize the technology sector, but further analysis will still be needed to get a clearer picture.
iPhonecentrism
Apple produces devices of various types, from computers to tablets, but its main and largest source of revenue continues to be iPhones. The company was in a sense crushed by the results of its smartphones, failing to create other products with comparable success to differentiate its offer, in order to mitigate any drops in iPhone sales. The other products it makes have sold as much as expected, but it is clear that a reduction in iPhone sales is enough to significantly reduce revenues for an entire quarter.
The end of the golden age of smartphones
As shown by numerous analyzes, the smartphone sector is slowing down significantly: it has become saturated and above all people tend to keep their phone much longer, before replacing it with a more advanced model. The differences in quality between mid- and high-end smartphones have also narrowed: as a result, many people have no incentives to buy an expensive iPhone over a cheaper, but still quality, Android smartphone.
Features such as camera definition and battery life, which once made iPhones essentially one of a kind, are now present in many other smartphones produced for example by Samsung and Google, often at cheaper prices.
In his letter Cook writes that the ability to replace the battery for their iPhone at a discounted price throughout 2018 was another factor that prompted many to keep an older phone, facing only the expense of a new battery and its own. installation.
Outside the United States
Madrigal explains that a confirmation to be drawn from the Apple affair is that the US economy “is not the only place where US companies make money”. If we take into consideration the companies included in the S&P 500 stock market index, about 40 percent of the revenues produced derive from activities carried out abroad. In the case of the smartphone sector, already saturated in the United States and much of Europe, companies are looking to emerging markets such as Brazil, India and China to maintain their growth. The problem, especially for Apple, is that in these markets most buyers are not willing to spend up to the equivalent of a thousand euros for an iPhone, and prefer to buy a quality Android smartphone and perhaps more expensive than average, but still cheaper than an iPhone.
Bad sign
On average, the Chinese economy has grown by 10 percent in recent years, while the US has experienced numerous ups and downs. Analysts have long predicted a slowdown in China, which could have very serious effects on the US tech sector, starting with Silicon Valley. It is striking, writes Madrigal, that Apple was so taken aback by the change in sales, missing its usually quite accurate forecasts by several billion dollars. The worsening was likely to have had a pace and trend that Apple underestimated. There are no positive signs in any of this: just indications of how things could get worse in the coming months, and not just for one of the biggest smartphone sellers in the world.
