Apple's Good Quarter Is No Reason to Buy the StockAAPL) earnings came in ahead of expectations, which saw the company’s shares jump almost 4%. While the numbers were decent, I don’t expect Apple’s upward momentum to continue as the company is facing several problems going forward.
Throughout the cycle, Apple’s earnings declined for the first time. And it seems like the company’s iPhone sales have peaked. Furthermore, the company is losing its robust momentum in China, which it gained in late 2014. This is mainly because of surging domestic rivalry as well as a declining smartphone market.
Apart from these, for the next quarter, the endured trend of decelerating iPhone sales is projected to negatively impact Apple’s gross profit margin again. The company’s third quarter’s gross margin came in at 38 percent, declining from 39.7 percent in a year-before quarter. As a consequence, the drop in gross margin is having an adverse effect on the company by making its net income and EPS tumble more abruptly.
On the other hand, the company is on its way to introduce the iPhone 7. Apple’s iPhone 6 and 6 Plus models greatly helped the company to achieve great success, but placed the bar too high for Apple itself as its iPhone 6s/6s Plus and iPhone SE, did not manage to meet the sales record of their predecessors. This was due to the lack of major hardware and design changes in the 6s/6s Plus, compared to iPhone 6/6 Plus.
Though Apple has not revealed anything about its upcoming iPhone, it is highly likely that the company’s new iPhone will not comprise of major design changes. However, there are some rumors regarding elimination of the earphone jack. Elimination of the earphone jack isn’t really a revolutionary feature that will compel buyers to shell out hundreds of dollars on the iPhone. Apple really needs to deliver significant upgrades if the company wants the next installment of the iPhone to not fail.
Apart from these, the company is facing tough competition from its foremost rival, Samsung. Samsung’s latest flagship Galaxy S7 models have outperformed the market. And it is likely that Apple’s upcoming iPhone will also face tough competition from Samsung’s Galaxy S7 models.
Going by the reports, it is highly likely that Apple’s upcoming iPhone will not have significant technological advancements, which is why I am bearish on the stock going forward.
Published on Jul 28, 2016By Akshansh Gandhi