Analysts as upbeat as ever on Apple. Investors not so much

23 Jul 2015 | Author: | No comments yet »

Apple Feels Tug Of Gravity: Shares Fall On Outlook, Uncertainty Over Watch Sales.

Apple (AAPL) saw its shares fall 4.2% to $125 on Wednesday, the worst drop the company has seen since January 2014. On Wednesday WatchAware reported on new findings by research firm Strategy Analytics claiming that the Apple Watch is already the “star performer” of the smartwatch industry.CUPERTINO (KCBS) — Apple was getting bruised Wednesday despite its earnings report showing soaring profits as investors appear spooked by its lukewarm outlook and uncertainty over sales of its smartwatch.

However, Apple (AAPL) didn’t sell quite as many iPhones as expected, and it disappointed analysts by not providing specific Apple Watch sales figures, rather lumping them in with the “Other Products” category which includes iPods and Apple TV. Cowen and Company was one of the few firms to turn cautious on Apple, downgrading the shares to “market perform” from “outperform,” citing concerns about China, where competition is growing. That’s about $952 million more than the previous quarter, when the watch had not yet gone on sale, or significantly less than the $1.8 billion in watch sales that analysts surveyed by FactSet were expecting. Apple’s stock was impacted by China’s recent stock slide, given its rapid growth in China, where demand has been high for the larger-screen iPhone 6 and 6-Plus. The company was still reluctant to mention how many Apple Watches it sold, since its April release, giving some the impression that the launch was a disappointment.

They had expected something closer to 50 million, and the disappointment in that gap ended up shaving $62 billion off of Apple’s market value in three minutes. More smartwatches were sold from April to June 2015 than all of last year, according to the research firm. “Apple Watch has clearly raised the bar for the global smartwatch industry. While it only accounts for a fraction of Apple’s current revenue, some investors viewed the new product category as a growth opportunity for the company. And chief financial officer Luca Maestri said Apple sold more Apple Watches in the first nine weeks after its launch than Apple sold in the first nine weeks of the iPhone or iPad. That’s also not a total surprise, though; the further into the (extraordinarily predictable) iPhone product cycle we go, the fewer people there are left to buy them.

Mounting a defense for the iPhone feels a little like holding Goliath’s spit bucket, so let’s think of this more as a light dusting of context, a gentle reminder that the iPhone dominates the premium smartphone space as it seldom has before—and will continue to do so barring extraordinary events. “Whether you’re talking about phones or tablets or PCs, even the digital music players, it’s always been known as the premium, high-end play,” says Gartner analyst Tuong Nguyen. “So the fact that they’re well secured in this end of the market is not so much of a surprise to me.” Nguyen isn’t just referring to Apple’s most recent quarter, but to a Gartner study published earlier this year that highlighted just how dominant Apple became by the end of 2014. The reason Samsung led the smartphone race since 2012 isn’t just that it flooded the market as many models as it could dream up, though that doesn’t hurt.

Not only is the iPhone siphoning disillusioned Galaxy owners away from Samsung, a large swath of Cupertino loyalists haven’t yet upgraded. “In terms of the percentage of customers that have upgraded to a 6 and 6 Plus versus that have not upgraded, it’s 73 percent,” Cook shared last night, “meaning that 27 percent of the installed base of customers prior to the launch of 6 and 6 Plus have now upgraded.” Roughly speaking, three out of four current iPhone owners are still on the table. Thanks to a handy transcript from Seeking Alpha, we know that the word “China” came up on yesterday’s earnings call 29 times. (For context, “iPad” only merited 23 mentions, while “watch” hit 40). That’s no coincidence; if Apple has room to grow, it’s there. “I think it’s fair to say that most if not all people who have or want iPhones in mature markets have them,” says Nguyen.

Not so overseas. “China is very important because it’s such huge market just in terms of total numbers… Similar to what we saw in the U.S. with pent-up demand, there’s pent-up demand there as well.” Nguyen notes that Apple may not find as much success there, proportionally, as it has in the United States because of a different socioeconomic environment. A bigger threat to the iPhone’s continued ascension—and maybe, at this point, the only thing that could possibly topple it—would be the introduction by a rival of some previously unthinkable feature, a premium offering to which Apple is slow to respond. Even then, though, the hit might be muted; it already happened, after all, when customers migrated to bigger Android phones between the iPhone 4 and the iPhone 6. If anything, the best shot at unseating the iPhone may come from smaller manufacturers like OnePlus, the decent-quality, off-contract imports for those tired of spending more on their phone than they do on a month’s rent. Especially as smartphone plans evolve away from subsidies and toward installment plans, constant reminders of just how much that hunk of anodized aluminum really costs.

But in the shadow of such an “off” quarter, it’s probably worth shining some light on just how ubiquitous it’s become, how much further it can go—and how hard it will be for anyone else to stop it.

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