Apple, the world's most valuable company, will encounter a "bad start" in 2024. On January 3, Apple's closing stock price was US$184.25, down 0.75%. It continued to fall by 1.27% on January 4. In addition to the previous drop of 3.58% on January 2, the market value evaporated by US$1,071 in a single day. In the following three days, the stock price continued to fall, and the total market value fell by US$186.4 billion, which is approximately RMB 1.3 trillion at the latest exchange rate.
Compared with the high of $199.62 on December 14, 2023, the market value has evaporated by $275.3 billion. In less than a month, Big Mac Apple has evaporated by 1.56 trillion yuan.
At the beginning of the new year, the stock price crashed, setting Apple's largest single-day decline since August 4, 2023, and hitting a new closing low since November 9, 2023.
Apple lost 766 billion yuan overnight and became a hot search topic on Weibo, becoming the focus of many “fruit fans”. Even so, Apple is still the company with the highest market value in the world. As of the close of trading on January 2, its total market value was US$2.887 trillion, or about 20.6 trillion yuan. It is still the only one in the world. However, why did Apple's stock price suddenly collapse?
The agency downgraded its rating
Apple has been the darling of capital before, with its stock price soaring from about $4 in 2011 to nearly $200. Many institutions have rated Apple as "overweight" and "buy." On January 3, 2023, the first trading day, Apple opened at $129.33. In the full year as of the close of January 2, 2024, Apple's stock price increased by 44%. This performance is actually good enough.
At the beginning of the new year in 2024, Barclays analysts rarely lowered Apple's rating. Barclays analyst Tim Long downgraded Apple's stock rating to underweight and lowered Apple's target price to US$160. Based on the closing price of US$185.64 on January 2, this means that Apple's stock price still has 14% room to fall. Based on this calculation, Apple's market value will evaporate another US$400 billion, which may be the company with the largest evaporation of market value in the world.
In a research report released by Barclays on January 2, analyst Tim Long wrote: "While most quarterly results over the past year have failed to meet expectations, Apple's stock price has outperformed other companies. We expect this situation to change." The analyst also pointed out that the new iPhone 15 performed mediocrely, with sales and configurations falling short of expectations, and the same is expected for the iPhone 16, with no more attractive features or upgrades.
In Long's report, he further revealed Apple's dilemma: "We found that not only iPhone, but also Mac, iPad and wearable device sales are unable to meet their expectations and lack the motivation to rebound."
The report revealed that the current sales of iPhone 15 are sluggish, especially the bleak market in China, which indicates that the future prospects of iPhone 16 are not optimistic. Combined with the shortcomings of the iPhone 15 in terms of feature upgrades, the report predicts that the iPhone 16 series may not see major changes, with no more attractive features or upgrades.
Many netizens expressed support for the analyst's report, "Don't blame the analysts, the main reason is that the upgrades of the past few generations of Apple mobile phones are really too small." Some netizens directly pointed out that Apple's current CEO Cook has been eating from Apple founder Steve Jobs's legacy, and there is basically no disruptive innovation. The new phones launched are just tinkering, and there is no real innovation at all.
In fact, as early as October 2023, some analysts were bearish on Apple, mainly because of Apple's weakness in the Chinese market. Counterpoint Research pointed out in a report on the global smartphone market, "We expect that Apple, which usually leads the market in the fourth quarter with its new phone series, will see a sales decline of 3% in the fourth quarter of 2023. Huawei's strength in the Chinese market is the main reason. In addition, the extended replacement cycle of Japanese smartphones is also a major factor affecting sales."
In October 2023, after Cook sold Apple shares, Apple also encountered capital decline. At that time, Kban Capital downgraded Apple's rating from "overweight" to "in line with the industry" on the grounds that "Apple's stock valuation is close to its highest level in history, but Apple's mobile phone sales growth may slow down as consumer spending slows." Although Cook's reduction is reasonable and legal, Cook's special status has a huge impact on investors.
Performance declined significantly
Although Apple's stock price has increased by more than 40% in 2023, it is difficult to cover up Apple's weak performance.
Apple's annual financial reports for the past three years show that revenue in 2021 is US$365.8 billion, a year-on-year increase of 33.26%. Net profit attributable to parent companies was US$94.68 billion, a year-on-year increase of 64.92%. Both increases were the highest in the past decade. But in 2022, Apple's growth rate dropped sharply, with revenue of US$394.3 billion, a year-on-year increase of 7.79%. Net profit attributable to parent companies was US$99.8 billion, an increase of 5.41%. After all, there will still be positive growth in 2022. In fiscal year 2023, both revenue and net profit attributable to the parent company have achieved negative growth, with revenue of $383.3 billion, a decrease of 2.8%, and net profit attributable to the parent company of $97 billion, a decrease of 2.81%.
It should be noted that Apple's gross sales profit margin has increased significantly, from 41.78% in fiscal year 2021 to 44.13% in fiscal year 2023, an increase of 2.35 percentage points, but its net sales profit margin has increased from 25.8% in fiscal year 2021. 8% dropped to 25.31% in fiscal year 2023, a decrease of 0.57 percentage points. For a giant like Apple with revenue of more than 300 billion US dollars, even a 0.1 percentage point decline in net sales profit margin is a gap of hundreds of millions of dollars.
Entering fiscal year 2023, Apple's performance is still weak. In 2023Q1, Apple’s revenue was US$117.2 billion, down 5.48% year-on-year, and net profit attributable to its parent company was US$30 billion, down 13.38% year-on-year. Apple’s Q2 revenue was US$94.8 billion, down 2.51% year-on-year; net profit attributable to its parent company was US$24.16 billion, down 3.40% year-on-year. Q3 revenue was US$81.80 billion, down 1.40% year-on-year; net profit attributable to parent companies was US$19.88 billion, up 2.26% year-on-year. Q4 revenue was US$89.50 billion, down another 0.72% year-on-year; net profit attributable to parent companies was US$22.96 billion, a year-on-year increase of 10.79%. Apple's revenue from Q1 to Q4 in 2023 has been negative growth, which indicates that the revenue for the entire fiscal year will also be negative growth, and a decline in performance is inevitable.
Regarding the decline in performance, Apple CEO Cook gave three reasons. The first is the exchange rate factor caused by the strong US dollar; the second is the impact of the epidemic, Apple’s supply chain is restricted; the third is the impact of the global macro economy.
In fact, there are early signs of Apple's performance decline. The fourth quarter financial report of 2022 shows that Apple mobile phone sales fell to US$65.78 billion from US$71.63 billion in the same period of the previous fiscal year, a year-on-year decrease of 8%. Sales of wearable, home and accessories products fell to $13.48 billion from $14.7 billion. Services revenue may be the only bright spot, rising to $20.77 billion from $19.52 billion in the same period last fiscal year, a year-on-year increase of 6.4%. Greater China is Apple's main market, and revenue fell to US$23.905 billion from US$25.783 billion in the same period of the previous fiscal year, a year-on-year decrease of 7%. This is related to Huawei's strong return and is also directly related to the short-term decline in Foxconn's production capacity.
As Apple's main revenue component, the iPhone business has always been the core component of its revenue. Hardware sales revenue once exceeded 80% of total revenue. However, after entering 2022, the mobile phone business has declined sharply. UBS analyst Vogt also pointed out in a research report on January 1 that iPhone sales in November 2023 were only 21.4 million units. Although it increased slightly by 1.7% year-on-year, it plummeted by 18% month-on-month. What is even more worrying is that iPhone sales in the US market fell by 13% year-on-year, and in the Chinese market they also fell by 6%. Vogt bluntly stated that Apple’s decline in the Chinese market is mainly due to the fierce offensive of local companies.
Citibank expressed concern about this: "Due to the macroeconomic downturn and the rise of domestic brands, this may lead to further loss of Apple's share in the Chinese market. The sales demand for iPhone is still the focus of recent market debate."
Currently, the iPhone business accounts for 52.1% of Apple's revenue, which is gradually declining. This has put huge pressure on Apple's operations. Therefore, in order to seek development, Apple has begun to make a big fuss about service revenue. Whether it is the revenue from the App Store or Apple's continuous efforts in advertising revenue, it is constantly balancing its revenue. Of course, this move also triggered widespread doubts in the market. Many investors questioned whether Apple's vigorous development of advertising business was not doing its job properly.
It is worth noting that Barclays analyst Long warned that Apple’s services business is not a panacea. He noted that growth in Apple's lucrative services business will also slow as regulatory scrutiny intensifies. In the long term, the growth of the services business may not be reliable, which undoubtedly pours cold water on those investors who hope that the services business can save Apple.
The Long analyst mentioned above expressed deep concern about the gap between Apple's overvaluation and actual performance. He believes: "Apple's continued weak performance coupled with multiple expansions is unsustainable." In this context, Barclays's "sell" rating for Apple seems to be reasonable.
Huawei returns
Since Huawei launched Mate60, Apple has obviously felt pressure. Previously, when Huawei was subject to chip sanctions, Apple once occupied more than 80% of the global high-end mobile phone market and had an absolute advantage in the field of high-end mobile phones. However, with the strong return of Huawei and the influence of patriotic sentiments in the Chinese market, even if Huawei Mate60 needs to wait or even increase the price, there are many consumers who support it. Many high-end consumers who originally belonged to Apple have turned to Huawei because of Apple's new "matryoshka" phones. Huawei's more than 17 million orders during the launch period alone illustrates Huawei's strong influence in the Chinese market.
The sales volume of Huawei Mate60 alone has taken away 30% of the high-end mobile phone market share in the Chinese market from Apple. The loss of these market shares may cause Apple to lose hundreds of billions of yuan in revenue. What worries the market even more is that Apple is no longer the only choice for high-end mobile phones, and is now only the second choice after Huawei Mate60. On the day Huawei Mte60 was launched, Apple's market value plummeted by more than 100 billion US dollars.
The iPhone 15, which Cook has high hopes for, has been sluggish in the Chinese market. The new model has serious fever, screen burn-in, and the iPhone 15 Pro and 15 Pro Max models are easy to leave fingerprints due to the use of titanium. After the intensive launch of the iPhone 11, iPhone 12, iPhone 13 and iPhone 14, the innovative capabilities of the iPhone 15 are not strong compared to the previous models. Many problems of the iPhone 15 have been criticized by netizens, and the issue of price reduction has also been hotly searched.
The price reduction of the new iPhone 15 may indicate that Apple has to put down its airs and start a price war in the face of competitive pressure. When the Mate60 became popular, the iPhone 15 had to cut its price. According to inquiries on Pinduoduo, Tmall and other platforms, the iPhone 15 series has a maximum price reduction of more than 1,000 yuan, and the price is generally more than 500 yuan. The price of a mobile phone bought today will be reduced by more than a thousand yuan tomorrow, which may be a huge blow to Apple's brand power.
The sales of new machines at reduced prices indicate that Apple's inventory has increased. Against this background, analysts have begun to change their views. Piper Sandler analyst Harsh Kumar, who has long been optimistic about Apple, also downgraded Apple's rating from "overweight" to "neutral" with a target price of $205, citing concerns that iPhone inventory levels and sales growth have reached their peak. He wrote in the report: "We are concerned about mobile phone inventory entering the first half of 2024, and also believe that sales growth has reached its peak."
In the last two hours of "Double 11", Apple's official flagship store on Tmall reduced the price by 200 yuan on the basis of the original discount. Among them, the price of iPhone15Pro and iPhone15ProMax was reduced by 300 yuan. Users who purchased before felt like being "stabbed in the back". Faced with this situation, the China Consumers Association publicly named Apple for allegedly breaking its promise to lower prices. Some netizens revealed that Apple began to refund the price difference after being named. However, Apple's brand image was greatly damaged. This kind of damage to the brand cannot be repaired in the short term.
Sales ban at base camp
If the Chinese market is affected by the strong rise of Huawei Mate60, then the risk of a sales ban in Apple's U.S. base may cause Apple to "lose" even its base. Both of its smartwatches are at risk of being banned across the United States due to patent disputes.
On October 26, 2023, the U.S. International Trade Commission ruled that Apple violated Section 337 of the Act. The blood oxygen sensing technology of two smart watch products, Apple Watch Series 9 and Apple Watch Ultra 2, infringed on two patents of the American medical device manufacturer Masimo. It banned the sale or import of these two Apple watches in the United States before the lawsuit was completely resolved.
According to relevant U.S. laws, the U.S. federal government has the right to overturn the ruling within two months before it officially takes effect. To Apple's dismay, the U.S. Trade Representative's Office decided not to overturn the U.S. International Trade Commission's ruling. On December 26, 2023, the U.S. International Trade Commission officially rejected Apple’s request to suspend the implementation of the ban, which means that the ruling on the alleged infringement of the two smart watches has come into effect on December 26, 2023.
Apple was unwilling to sit still and filed an emergency request with the U.S. Court of Appeals for the Federal Circuit. Just one day after the sales ban took effect, the U.S. Court of Appeals for the Federal Circuit agreed with Apple's request and decided to suspend the implementation of the sales ban. On the surface, Apple has survived a crisis, but in fact the crisis has not been resolved. In particular, the decade-long feud with Masimo is almost impossible to reconcile in the short term.
In 2013, Apple tried to cooperate with Masimo, and even had the intention to acquire Masimo. However, in the end, not only was the acquisition unsuccessful, but technical cooperation was also not negotiated. This is not the point. The point is that more than 20 technical backbones, including Masimo's chief medical officer, have switched jobs to Apple. This has become the fuse of the "hate" between the two parties. In 2019, a core engineer who switched jobs from Masimo to Apple applied for a blood oxygen detection patent at Apple. Masimo believes that the sensor design used in the patent is very similar to Masimo. Considering that the employee joined Apple from Masimo, Masimo's suspicion is normal.
Then in 2020, Apple began to integrate the blood oxygen detection function into its smart watches, and it was first used in Apple Watch Series 6. Unfortunately, this technology may also come from Masimo. Soon Masimo filed a complaint with the U.S. International Trade Commission, accusing Apple of infringing its company's patent on the pulse oximetry technology used to monitor blood oxygen levels in two watch products starting in 2020.
Faced with Masimo's pressure, Apple sought approval from the U.S. Customs and Border Protection for the redesigned software version, hoping to legalize the new version. At the same time, Apple asked the court to temporarily lift the sales ban on the two watches while the U.S. Customs and Border Protection determined whether it was infringing. It is understood that the U.S. Customs and Border Protection will make a decision before January 12. Therefore, the risk of these two watches being subject to a sales ban in the United States has not been eliminated. Judging from the U.S. precedent for protecting intellectual property rights, Apple is extremely likely to lose the lawsuit.
Gil Luria, an analyst at D.A. Davidson, said: "Although Apple continues to launch new form designs, especially in the field of wearable devices, the form design of mobile phones and watches seems to have stagnated in the past three or four years. At the same time, other innovative companies are challenging Apple."
Today, Apple is in trouble internally and externally, with constant troubles at its base camp. Revenue in the Chinese market continues to decline, and there is no hope of improving performance. It is also involved in patent lawsuits, and has been losing ground in the face of pressure from competitors. The world's most valuable technology company is facing its most severe test in a decade. This may mean that the "brand-only" economics that Cook has always pursued has failed. After all, the high-end mobile phone market is no longer dominated by Apple, and consumers have more choices. Just relying on new "matryoshka" phones that lack research and development may not be able to satisfy increasingly picky consumers.