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The New iPhone Has a Weaker Start Than Its Predecessor
One indicator of demand for the new iPhone may be the lead times in various regions. Lead times are extending, particularly for the base models across most major markets like the USA, UK, China, and India. For comparison, the lead time for the most expensive iPhone 16 Pro Max was about 26 days during the first week of sales, whereas the iPhone 15 Pro Max had a delivery period of 41 days. For the pricier iPhone Pro and Pro Max models, lead times are reducing, especially in China, which is a key market for Apple. In this part of the world, there's another important factor to consider. Investment bank Jefferies pointed out that resale prices for the iPhone 16 among unofficial sellers in Hong Kong plummeted just hours after its launch. In contrast, prices for last year’s model remained high for several days. Resale of products like the iPhone after their market introduction is common in Hong Kong and China. Traders purchase new products at their official prices and resell them with premium price in high-demand markets where new products are not immediately available upon release.
New AI Feature Not Yet Available
Despite various technological improvements and innovations in the new iPhone 16, its most anticipated feature is yet to arrive. That would be Apple Intelligence, an artificial intelligence (AI) model from this tech giant, which has so far only been released in public beta for Mac and iPad. Apple Intelligence represents the company's effort to maintain its position in the tech sector, which is experiencing a tremendous boom with the development of AI and its integration into products and services. Public beta version on the iPhone 16 is expected to roll out in October, but customers will not enjoy the full version until next year. Moreover, the service will not be available in the European Union, another significant market, due to regulatory non-compliance. The delay and absence of this feature could negatively impact the overall demand for new iPhones.
How Important is the iPhone for Apple?
In its fiscal year 2023 (the 12-month period ending September 30, 2023), Apple achieved total revenue of $383 billion, with iPhone sales accounting for a 52% share, totalling $201 billion. In the first quarter of fiscal year 2024 (the 3-month period ending December 30, 2023), several months after the launch of the iPhone 15, this share represented around 70%. There is no doubt about what Apple's flagship product is, even though the company also manufactures a number of other popular devices like Mac and iPad, whose revenue impact is far less significant.
Stock Price Near Its Peak*
Since September 20, 2024, the day the flagship product was launched, Apple shares have experienced a slight decline, indicating a mixed response to the new features of the iPhone 16 and their upgrades compared to the previous model. However, just days before, the shares had gained, particularly due to a broader market rally driven by the tech sector, and despite recent mild decline, they remained just below the $230 per share mark. The price of a single Apple share was at its historical high of $234.82 in July 2024. As of September 25, 2024, the company's market capitalization stands at $3.46 trillion, maintaining its title as the world's most valuable company although it briefly lost its top position this year to Microsoft and later Nvidia.
Source: Investing.com*
Regulatory Pressures from the EU
The European Union seems to be becoming a problematic market for Apple. The company faces issues regarding compliance with various regulations that are part of the Digital Markets Act (DMA), aimed to combat unfair practices by big tech that disadvantage consumers or competition. In early September 2024, Apple lost an appellate court case against the EU regarding a tax obligation of €13 billion ($14.5 billion) and was fined €1.8 billion ($2.1 billion). The company is under strict scrutiny due to its app store, where it imposes various fees on third-party developers. Despite concessions, Apple continues to face increasing pressure from the EU, raising questions about whether it is advantageous to remain in this market in the long term. On the other hand, there are criticisms directed at EU lawmakers regarding excessive requirements for tech companies. These companies may lose their motivation to operate in the European market, and their exit could spell disaster for the economy.
Conclusion
Apple continues to maintain its position as the most valuable company in the world, but it faces numerous challenges related to potentially weaker interest in the new iPhone 16 compared to the previous version, limited options in artificial intelligence, and regulatory pressures from the EU. Nevertheless, it still manages to achieve stable revenues and profits. However, questions remain about the company's ability to maintain its competitiveness, particularly in innovation and the development of artificial intelligence, which are essential for functioning in a dynamic tech environment. [1]
David Matulay, analyst of InvestingFox
*Data related to past performance does not guarantee future returns.
[1] Forward-looking statements represent assumptions and current expectations, which may not be accurate or are based on the current economic environment that may change. These statements do not guarantee future performance. Forward-looking statements by their nature involve risk and uncertainty, as they relate to future events and circumstances that cannot be predicted, and actual developments and results may differ significantly from those expressed or implied in any forward-looking statements.
Disclaimer: This marketing material is not and should not be considered investment advice. Data related to past performance does not guarantee future returns. Investments in foreign currencies may affect returns due to currency fluctuations. All securities transactions can lead to both gains and losses. Forward-looking statements represent assumptions and current expectations, which may not be accurate or are based on the current economic environment that may change. These statements do not guarantee future performance. InvestingFox is a trading name of CAPITAL MARKETS, o.c.p., a.s., regulated by the National Bank of Slovakia.
Sources:
https://www.theverge.com/2024/9/19/24249206/apple-intelligence-ios-18-1-public-beta
https://www.forrester.com/blogs/apple-sales-and-profits-analysis-for-fy-2023-top-10-insights/
https://www.cnbc.com/2024/02/01/apple-aapl-earnings-report-q1-2024.html
