Apple’s shares have fallen to an 18 month low, on rumours of falling demand and a lack of innovation. Professor Loizos Heracleous argues that Wall Street is missing the big picture and neglecting Apple’s $137bn cash ‘’safety net’…
The main issue for the medium and long term is whether Apple has sustained its innovative capabilities, which seems likely given that it’s part of the company’s DNA. But the proof will be in the pudding, and we’ll know over the next 12 to 18 months.
What many forget though is Apple’s safety net of $137bn cash and liquid assets. Apple could easily buy any new technologies that appear to pose a threat to it, that offer synergies to its own offerings, or that can open up new markets for it.
Stock markets react, and sometimes overreact, immediately, but what matters is the big picture and Apple seems to be on a solid footing by that measure.
Apple’s revenues continue to grow at a fast pace, with an 18 per cent rise over the previous year announced in January and 25 per cent more when adjusting for the fact that the final quarter was for a 13-week period while the previous year was for 14 weeks.
Profits were $13.1bn, same as the previous year, but actually seven per cent higher if the 13 week vs 14 week issue is taken into consideration. Gross margin fell to 38.6 per cent compared to 44.7 per cent year-on-year, but Apple had prepared the market about the lower margin and actually delivered above its own guidance.
Lower margins would be expected given Apple’s rising sales in emerging economies, introduction of iPad mini and appearance of more competing products that are much cheaper.
The 38.6 per cent margins in the markets where Apple operates are still extraordinary.
Speaking of emerging markets, Apple’s higher transparency in reporting sales by geography shows that its revenues in China went up 67 per cent in this quarter compared to last year, with a huge potential upside. Further, its products are on different stages of the product life cycle, a pretty robust risk management strategy.”
By Professor Loizos Heracleous
Professor of Strategy
Warwick Business School