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Is Apple Losing its Midas Touch?

|Apr 19|magazine10 min read

 

For the first time since December 2011, Apple shares fell below $US400 on Wednesday. This comes after one of its chip supplier’s forecast disappointing revenue, which sparked fears that there may be weakening demand for the iPhone and iPad.

The tech giant, who for so long seemingly couldn’t be touched by competitors, saw its shares drop below $US400 briefly before closing the day 5.5 percent lower at $US403. Apple has reportedly lost more than 40 percent of its market value since its record high last September. Fears of mounting competition are taking its toll of Apple’s industry leading margins.

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The fall in share price also means Apple has lost its title as the world's most valuable listed company. Apple's market capitalisation slipped to $US378 billion and oil and gas giant Exxon Mobil, with a market cap of $US385.7 billion, took its place.

Cirrus Logic's, which makes analog and audio chips for the iPhone and iPad, made a statement late on Tuesday night, which said it will record a total net inventory reserve for its fiscal fourth quarter ended March 30 of $US23.3 million, most of it due to reduced forecast for one product from one customer.

Cirrus did not name the customer, but rumours are rife because Apple accounted for over 90 percent of its business in the December quarter, something that makes Cirrus's forecast a key indicator of Apple demand.

Cirrus also forecast revenue for its first quarter ending in June of $US150 million to $US170 million, well below Wall Street's average forecast of more than $US190 million. Apple is due to report quarterly results on Tuesday.

Is Apple Losing its Crown?

Many analysts are voicing concerns that Apple is losing its grip on the tech market, with competitors such as Samsung proving to be a thorn in the tech giant’s side; competition in the tablet and smartphone market is lowering prices and giving consumers options. You only have to look at advertising campaigns from Kindle, which states that the only difference between the Kindle Fire HD and the iPad is the price, to see this.

Furthermore, shorter product cycles limit Apple's ability to bring down component costs, affecting their profit margins further.

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Declining Profit

Apple, which relies heavily on new products to drive its revenue growth, has not had a launch since last October when it unveiled its 7.9-inch iPad mini and an updated full-size iPad.

The company typically launches a new iPad in the spring, but it is unlikely to do so because of the October update. Looking forward, investors now expect an upcoming new iPhone to power earnings in the second half. The two versions of the iPad are also likely to get an update in the fall.

In the past week, analysts had reduced their estimates for Apple's March quarter revenue on average to $US42.53 billion from $US42.68 billion. Following Cirrus' warning on Tuesday, some think Apple's results could miss those already reduced expectations.

Apple is expected to report a 9 percent increase in quarterly revenue, with net profit expected to decline 17 percent to $US10.08 a share, for its fiscal second quarter, according to average analysts' estimates.

This results have left many asking what is the cause of the weakened profits; is it competition within the market, lack of product launches and innovation, or is the company suffering without the guidance of its late founder and CEO Steve Jobs?

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