Moving from Android to iPhone? This handy guide can make the process simpler

23 Jul 2015 | Author: | No comments yet »

Analysts as upbeat as ever on Apple; investors not so much.

SAN FRANCISCO: Apple shares took a bruising following a disappointing quarterly report, while an analyst report showed the US tech giant’s freshly launched smartwatch rules the growing market. Forget that iPhone unit sales were not as strong as many had expected; that the revenue forecast fell short of the average estimate, and that there was no clarity on Apple Watch sales.

US tech giant Apple was poised to see as much as $50bn (€46bn) wiped off its market capitalisation yesterday amid concerns about the long-term prospects of its much-vaunted smartwatch and iPhone sales that were lower than expectations.Apple Inc.’s cash topped $200 billion for the first time as the portion of money held abroad rose to almost 90 percent, putting more pressure on Chief Executive Officer Tim Cook to find a way to use the funds without incurring U.S. taxes. Apple Watch was the “star performer” in a global smartwatch market that more than quadrupled to 5.3 million units in the second quarter of this year when compared to the same period in 2014, according to the research firm Strategy Analytics. “Predictions of (Apple CEO) Tim Cook’s first product flopping have been greatly exaggerated,” Strategy Analytics director Cliff Raskind said in a blog post. “While existing smartwatch vendors held their own and even grew modestly in some cases, the story in the second quarter was really all about Apple raising the tide for all.” While Apple has not disclosed its smartwatch sales figures, Raskind estimated that some four million units were shipping during the second quarter of this year giving it about 75% of an overall market that grew 457% in a quarter-over-quarter comparison. Analysts, for the most part, remain as upbeat as ever on Apple Inc after investors knocked more than US$65bil (RM247.44bil) off the company’s market value in initial reaction to the company’s quarterly results on July 21.

The tech giant had previously announced it would write off about 80 percent of its Nokia phone business after failing to generate much buzz around its Windows Mobile smartphones. The Cupertino-based company’s sales of iPhones in India grew 93% in the third quarter — albeit off a far lower base — faster than 87% growth in Greater China markets, comprising China, Hong Kong and Taiwan. 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.

In a quarterly earnings report released late July 21, Apple folded smartwatch revenues into an “other” category that included money made from sales of accessories such as Beats headphones. Congress in 2013 to defend Apple against allegations of dodging taxes, is facing questions on what Apple will do with its cash pile and fielding calls from investors, such as billionaire activist Carl Icahn, to return shareholder capital. “They don’t really have that much on-shore cash,” said Tim Arcuri, an analyst at Cowen & Co. “They’re still sort of hamstrung on what they can do, barring the ability to repatriate a bunch of off-shore cash.” Cook has been vocal about his desire for U.S. lawmakers to amend the country’s tax laws so that companies can repatriate more cash. While the base of growth in India has improved for Apple over the past year or so, the sales numbers of 0.5 million in the quarter are tiny compared to Greater China’s volumes of about 14.5 million, industry insiders said. iPhone sales in China were 13.2 million in the just ended quarter, a growth of 86% on year.

Apple chief executive Tim Cook said during an earnings call that it would not be unreasonable to attribute most of the increase in “other” revenue to the smartwatch, which would mean sales accounted for a meaningful chunk of the US$1.3bil (RM4.94bil) increase. Apple shares, which have risen almost 19% this year, closed down 4.3% at US$125.14 (RM476.40) on July 22, the stock’s biggest intra-day percentage fall since December 2014. “As Apple has become the ‘gold standard’ of technology, it is held to a higher standard,” said FBR analyst Daniel Ives, who described the iPhone maker’s quarter as “good but not great.” “With a new iPhone around the corner, the seasonally stronger quarters ahead and a possible Apple TV update, coupled with valuation, we would be buyers on weakness,” said analysts at Robert W.

Apple’s overseas cash has climbed 70 percent since Cook spoke to Congress, and now makes up 89 percent of Apple’s $202.8 billion in cash and investments at the end of June, the company said Tuesday, up from 72 percent of $146.6 billion in cash two years ago. Still, the potential of the South Asian market, along with China, can’t be undermined given the pace of smartphone growth and level of current penetration, especially when smartphone growth of many developed markets have nearly peaked, analysts say. Apple shares, however, sagged on Wednesday under the weight of heavy expectations by investors accustomed to the California-based company delivering dizzying earnings results.

Apple’s latest quarterly profit leapt as consumers around the world snapped up big-screen iPhones but its shares slipped as analysts had expected even more stunning sales along with clear signs Apple Watch would be a big money maker. 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. At the same time, Apple’s U.S. federal lobbying spending has been climbing, and reached a record $4.1 million last year as it advocated on a wide range of issues. 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. Growth in emerging markets such as China and India, where many believe Apple is likely to take market share from Android, is key a reason for optimism, analysts said. “We believe the company is positioned to exploit the rise of the middle class in these geographies over the next several years,” William Blair analyst Anile Doral, who has an “outperform” rating on Apple, wrote in a client note.

Cook brushed aside any worry about iPhone sales growth, expressing confidence it has “lots of legs” that it will be running with for many years to come given market factors such customer satisfaction rates and the booming overall global smartphone market. Apple stocks were down 5.2 percent in midday trading Wednesday and accounted for more than half of the Dow Jones industrial average’s 86-point drop in the middle of the day. Cantor Fitzgerald experts believe Apple Watch will be a “go-to gift” during the year-end holiday season and become the best selling new product in Apple’s history. Earnings season is far from over, but a few major themes are starting to take shape that could make or break a company’s quarterly performance (and subsequent stock valuation). It said its results included the impact of a $7.5bn non-cash impairment charge related to assets associated with the acquisition of the Nokia handset business, as well as a $780m restructuring charge.

Microsoft, headed by chief executive Satya Nadella, said the decline was because computer makers were tightly managing PC inventory ahead of the launch of Windows 10 next week. This was abundantly clear in the first quarter when Pepsi, for example, saw its year-over-year revenue from its PepsiCo Europe segment drop 25 percent, thanks in large part to a euro that in March fell to a 12-year low against the dollar. The company has been pitting the iPhone 4s at very aggressive price points and has introduced buybacks and upgrade offers for the new iPhone 6 and iPhone 6 Plus for the Indian market, where it’s locked in a bruising battle with Samsung in the Rs 30,000-plus premium segment. Emerging markets accounted for about two-thirds of Tupperware’s total sales, meaning the company’s dollar earnings were weighed down by South America (where sales were up 21 percent locally but down 25 percent when converted to dollars) and the Asia-Pacific region (where sales were up 1 percent locally but down 8 percent in dollars).

In April, the company unveiled plans to boost capital return program by $70 billion, increasing a share-buyback authorization by $50 billion and increasing dividends by 11 percent. The iPhone holds a huge aspirational value for users in the entrylevel to mid-level segments where home-grown players like Micromax, Intex, Lava, Karbonn and a plethora of Chinese players, led by Xiaomi, operate. It’s said that one has to spend money to make money, but there’s inherently a limit to how much a company can spend and still turn a reasonable profit. A representative for Apple declined to comment. “It’s not smart for all of these companies, including us, to have all this money offshore, which can’t be invested in the United States,” the CEO said at a tech conference held by the Wall Street Journal last year. “It would be reasonable to, say, force a tax on the offshore piece but let it all flow free — let the capital have a free flow.” Noninterest expenses at Wells Fargo also weighed on the bank’s quarterly performance, although net income only ticked down to $5.72 billion, about $10 million shy of 2014’s second quarter.

On the other side of the fence, major banking and financial firms like JPMorgan Chase & Co., Citigroup and Bank of America saw positive second quarters thanks in part to their abilities to shave expenses (though the period ended before Citigroup will be refunding hundreds of millions of dollars to its customers for allegedly deceptive credit card practices). But you’d never know that by looking at Apple’s stock performance following its earnings announcement. “This was an expectations problem, not a problem with the numbers themselves. The analysts got it wrong,” Chris Caso, a senior analyst at Susquehanna Financial Group, said on “Squawk Box” Wednesday. “You’re at the tail end of the iPhone 6 cycle, and I think since February when the stock peaked, the question has been, ‘Is this as good as it gets?'” Apple isn’t expected to just beat market expectations – it’s expected to shatter them, which is a bit unfair considering analysts have relatively low expectations for most other companies reporting quarterly results. Even Harley-Davidson and Microsoft, whose quarterly performances were largely forgettable, managed to surprise analysts who were expecting much worse. “Am I happy that the stock’s down as an owner? But everything I heard on that [Apple earnings] call demonstrated to me that the business is actually getting better, not worse,” Ernst said Wednesday. “I would be worried if these numbers were going in the other direction.”

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