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The Falling Apple

Mar 19, 2019

2018 was littered with a value-decimating events. Of the major tech companies: Facebook, Apple, Amazon, Netflix and Google, Apple suffered the most – regardless of creeping privacy concerns within the tech industry, inching overvaluation was prevalent and with the US-China trade war in tow, tech companies were hit the hardest.

After removing environmental elements from Apple’s $231 billion drop in market value, Tim Cook’s shareholder reports outlining their unwillingness to share unit sales are most likely the reason why Apple suffered a catastrophic hit in Q4 of 2018. After the tech giant’s flagship products have failed to meet targets and revelations that production forecasts were to decrease in Q1 of 2019, Apple’s shareholders were expected to jump ship.

Whilst shareholder fears may be valid, Apple contemporarily enjoys absurdly large revenue streams from services.

Akin to the dot-com crash in 2000, we’ve seen a revaluation of tech companies in highly saturated markets. Are we witnessing a global economic slowdown in growth? Mixed forecasts and failure to meet quarterly targets are impactful to determining share value, forcing a mini-bear market onto the FAANG collective.

During the next global downturn, FAANG companies may face fierce competition from growing tech giants in China like Huawei, regardless of the telecommunications giant being ousted over security concerns.

If we look carefully at the smartphone market, oversaturation has segmented both the market and profits. China, Apple’s third largest consumer base, is seeing its domestic smartphone market grow aggressively. Apple have shifted their strategic focus to increasing profit margins on each product sold and improving their services’ consumer count and retention, yet investors don’t recognise this – Apple experienced record sales from their services yet this wasn’t enough to deter investors from fearing the worst.

The exponential growth Apple relished is beginning to mature.

With major competitors such as Huawei taking the spotlight worldwide and Apple’s third largest market (China) turning from Apple products to domestically manufactured substitutes, Apple must look to innovate like it once did in 2007 when it transformed the smart phone industry to compete with massively growing competitors. With forecasted sales diminishing, this inadvertently suggests long-term investment into Apple may be a poor decision. Comparatively, China has breached the ceiling of imitation and proceeds to produce innovation that rivals that of mobile tech giants in America. Even Samsung is suffering as their operating profits suffered a 29% drop in Q3 2018.

Oddly amongst FAANG companies, Apple has yet to recover from their depreciated stock value whilst others such as Netflix have conjured soaring valuations – another worrying indicator when deciding to invest in Apple.

Smartphone competitors are growing substantially in maturing countries like the US whilst Apple’s growth is stagnating. Both Apple’s stabilising growth and China forecasted to undergo decreasing growth levels of growth are indicative of global slowdown. Similarly, to the once revered giants such as Nokia and Motorola, Apple are regressively losing their dominant global market position, exemplified over the last three months after proudly reaching their £1 trillion market cap and then proceeding to lose $452 billion in market capitalisation, succumbing the title of most valuable company initially to Microsoft and now Amazon. Apple expectedly remains as a blue-chip investment, as we’ve seen before, Apple are likely to lose their market position if they refrain from truly innovative products like the iPhone (2007).