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Will Apple recover its value?
2019-11-11 • Updated
The company has big long-term challenges but current problems can be solved.
The news from Apple Inc has shocked the market last week. The company cut its sales forecast for the first time in almost two decades because of the weaker demand in China which is experiencing an economic slowdown. According to CEO Tim Cook, Apple’s revenue for the final quarter of 2018 will be $84 billion versus the previous estimate of $89-$93 billion.
Although the signs were there before, the market got surprised. Apple shares fell by 10% on Thursday and provoked a drop in the entire Wall Street. All in all, Apple stocks are more than 30% down from October highs.
On the one hand, the problem looks rather serious. The company gets two-thirds of its revenue by selling iPhones. The latest model released in September is not selling well. Fewer people than expected bought it to replace older iPhones. Demand for new smartphones isn’t expanding. Given the weakening economic growth, Apple’s high pricing policy may prove to be a disadvantage. Since Tim Cook took the position in 2011, the company hasn’t introduced any revolutionary solutions. There were AirPods and Apple Watch but they are tightly linked to the iPhone. Obviously, Cook is now facing a great challenge: he has to show the world that things will improve. To achieve that goal, Apple may try to cut costs and increase marketing efforts.
On the other hand, as long as the current sales troubles are limited to China, the company will be able to deal with them. However, it’s clear that in the longer term Apple has to diversify its products in order to retain its market position. It’s not possible to rely only on iPhone anymore. The company, of course, is developing other projects like self-driving car and augmented reality glasses but they are still far away. Even the iPhone for fifth-generation networks won’t be released this year. The possible solution here for Apple is to spend cash on buying other companies and thus getting in new businesses.
On the positive side, while the company cut the outlook for iPhone revenue, its other product categories, including the iPad and services generated a 27% higher revenue than compared with the previous year.
Finally, Apple’s case of weaker sales is not unique. Other American companies have similar problems in China. This fact may act as an incentive for the US authorities to find a compromise in the trade talks with the Asian nation.
The weekly chart shows that Apple is oversold. The last time RSI was this low was during the global financial crisis in 2008. As a result, the stock may recover to the resistance at $155.00.
Apple will publish its quarterly report on January 29. Now a lot of bad news is already priced in, so the asset may find support and restore some of its value.
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