Tag: Inc. (AAPL)

Time to Reevaluate AAPL Holdings Amid Growing Anti-Apple Sentiment in China?

Posted on by The INO.com Team

The swift acceleration of pioneering technologies, coupled with a remarkable upswing in digital growth, has notably amplified the allure of customized hardware solutions. However, not all technology hardware firms are enjoying these benefits.

Tech behemoth Apple, Inc. (AAPL), known for revolutionizing numerous product sectors, encompassing personal computers, smartphones, and tablets – added another milestone by becoming the first company ever to surpass a market cap of $3 trillion.

In March, AAPL’s CEO Tim Cook belonged to the pioneering group of international executives to engage Beijing's high-ranking officials following the relaxation of COVID-19 restrictions. Cook lauded the mutual enrichment of both the company and China, characterizing their relationship as "symbiotic.”

Half a year later, in September, this association was showing signs of tension. AAPL found itself navigating through new competitive challenges within China, which was its major manufacturing base and its most significant international market.

In September, AAPL experienced a stock sell-off that slashed almost $200 billion from its market cap. This followed revelations that multiple government departments had inflicted bans on AAPL product usage within government agencies and state-owned enterprises. The doubts encircling AAPL's future production and sales in China have triggered a considerable decline in its stock value.

AAPL's China problem could be intensifying as the Chinese government purportedly broadens its stringent measures against the iPhone. Governmental agencies and state-backed firms across at least eight provinces in China have recently directed their staff to transition away from foreign electronics and adopt local Chinese brands instead.

This shift has accelerated in the last couple of months, indicating a significant rise from the September situation. If this trend continues, it may negatively impact AAPL's sales in China, which accounted for about 16% of its revenue in the fiscal fourth quarter that ended September 30, 2023. This situation could position AAPL's operations, especially its key product, the iPhone, under close watch in the country.

Fueling a broader initiative by China to reduce dependency on American technology, this intensified effort promotes well-known Chinese brands such as Huawei Technologies Co. Chinese software and hardware products have steadily replaced their American counterparts over the years, including software from Microsoft, computers from Dell, and chips from Intel. However, these new regulations are now likely to affect AAPL's market dominance within China directly.

The effects of the recent ban are reflected in AAPL's financial results for the fiscal fourth quarter that ended on September 30, 2023. The company’s total net sales reached $89.50 billion, indicating a marginal year-on-year decline. Notably, net sales within Greater China for the quarter dipped slightly by 2.5%. Its net income grew 10.8% from the prior-year quarter to $22.96 billion.

For the fiscal year of 2023 ended on September 30, 2023, AAPL witnessed a 2.8% drop in annual revenue, standing at $383.29 billion. This represents a downward trend across the past four quarters, consistently recording a slump in sales. Additionally, the iPhone maker is trailing behind local Chinese competitors Huawei and Xiaomi, posting sales boosts of 66% and 28%, respectively.

A significant factor contributing to AAPL's underwhelming performance is the turbulence experienced in previous quarters. The company suffered from factory disruptions that endured over several periods, with the tacit demand created by these disruptions subsequently met the following quarter, creating an anomalously high baseline effect. Amid the macroeconomic fluctuations of the September 2023 quarter, AAPL also dealt with various foreign exchange challenges.

On the brighter side, apart from cornering the premium tech market, APPL has earned its stake with one of the most substantial capital return frameworks. In fiscal 2023, AAPL repurchased $77.55 billion worth of AAPL shares. Over the past ten years, the stock buyback program has facilitated a record-breaking $604 billion.

Against the average P/E ratio of 24.49x in the tech sector, AAPL stands at 30.03x. The company continually improves its P/E ratio by consistently reducing the number of its outstanding shares.

AAPL's share value has escalated over 11 times over the past ten years, with gross profit increasing by 2.6x since 2013, approximately 1.3x from buybacks, and threefold due to P/E multiple expansion. This growth may not be readily apparent given the already inflated multiple.

Investors can bank on the continuity of buybacks as long as the cash flow remains robust. However, it prompts a crucial question: What will become of the shares in a financially unstable year when the cash flows are disrupted, customer sentiment sours, and the company lacks the $90 billion in buybacks fortifying the share price?

Mixed Outlook

The tech giant issued a warning in November that it did not foresee any growth in annual revenue for the crucial December quarter, which represents the first complete quarter incorporating iPhone 15 sales.

For the first quarter ending December 2023, its revenue and EPS are expected to increase 1% and 11.6% year-over-year to $118.19 billion and $2.10, respectively. For the fiscal year ending September 2024, its revenue and EPS are expected to increase 3.6% and 7% year-over-year to $397.18 billion and $6.56, respectively.

Wall Street analysts expect the stock to reach $202.18 in the upcoming 12 months, indicating a potential upside of 3.8%. The price target ranges from a low of $150 to a high of $250.

Bottom Line

Investors perceive AAPL as a solid financial bastion characterized by impressive cash flow, global demand for its product portfolio, and robust shareholder return schemes despite grappling with decelerating growth and challenges in the Chinese market.

In December, the company reclaimed its $3 trillion market cap, a milestone not seen in roughly four months. Significantly outpacing the general S&P 500 index this year, the company's shares are poised to yield their highest annual returns since 2020.

However, 2023 has presented a series of macroeconomic challenges for AAPL, particularly impacting consumer tech spending patterns. The most significant obstacle was foreign exchange headwinds, which played a considerable role in dampening the firm’s revenue during the fiscal year of 2023 that ended in September.

Nonetheless, it is worth recognizing a potential reversal of fortune. AAPL saw a 4% decrease in its revenues year-over-year for the first half of fiscal 2023; these losses tapered to only a 1% fall in the second half, signaling improving revenue trends moving forward.

The most recent actions by China signify a continuation of a long-standing campaign to eliminate foreign technology in sensitive sectors, in line with China's ambitions to achieve self-reliance in key industries. What remains uncertain is the extent to which China intends to resist the implementation of AAPL's products domestically.

Primarily, AAPL sources most of their iPhones from Chinese factories managed by suppliers such as Foxconn Technology Group, which employs millions of Chinese citizens. However, amid these developments aiming to control iPhone usage, AAPL has gradually shifted its production hub to alternative countries, including India, and may consider reducing its output in China further due to these new constraints.

Additionally, AAPL is expected to launch its groundbreaking Vision Pro virtual reality headset next year – its first significant computing platform since it introduced the Apple Watch in 2014. The impact of this innovation on near-term performance is yet to be determined.

AAPL, traditionally a hardware company, now faces the challenge of innovating within its lineup of smartphones, tablets, and other electronic devices. Despite these challenges, the tech giant is well-positioned to outshine its industry competitors in the upcoming year, owing to the robust performance of its services segment. This division, encompassing Apple Pay, subscription-based offerings, and licensing fees, continues to yield consistent revenue, underscoring the resilience and diversified strength of AAPL's business model.

AAPL's PEG ratio is 3.29x, which by standard measure is deemed to be expensive as any value surpassing 2x is considered high. Further, the Price/Cash Flow ratio is pegged at an elevated 24.76x. These metrics simply reflect an overvaluation of the company's shares.

In conjunction with these inflated valuations, the projected growth rate over the next five years is a mere 6.14%. Such conditions could suggest inevitable losses at some stage. Those considering investment now run the risk of experiencing significant losses.

Therefore, it could be wise to wait for a better entry point in the stock.

Should QUALCOMM (QCOM) Downsizing Be a Warning Sign to Investors?

Posted on by The INO.com Team

The extensive chip utilization in diverse industries and the rising inclination toward innovative technologies are projected to propel semiconductor demand. The industry is further bolstered by enticing governmental incentives and investments.

QUALCOMM Incorporated (QCOM), with a market cap of $123.06 billion, specializes in wireless technology development, licensing, and smartphone chip design. The company's key patents pertain to CDMA and OFDMA technologies, pillars of all 3G, 4G, and 5G networks. As the world's principal vendor of wireless chips, it provides top-tier handset manufacturers with cutting-edge processors.

Despite its position, recent news of impending layoffs has raised some concerns. The company predominantly plans staff reductions and other resizing endeavors for the fourth quarter of the fiscal year, which is expected to be completed in the first half of 2024.

QCOM, having a presence in over 12 Chinese cities primarily for its semiconductor and mobile telecommunications businesses, reiterates its steadfast commitment to spearheading advanced technology development within the country. Furthermore, it ensures a supportive transition for its employees affected by restructuring, providing them with substantial redundancy packages.

QCOM's staff reduction strategy in China and Taiwan forms a part of its broader restructuring initiative, intended to navigate through the dwindling consumer demand for smartphones and other gadgets equipped with its technology.

According to Canalys’ figures, the global smartphone market suffered a sixth straight quarterly decline for June 2023. Despite a cautious optimism for potential market recovery, QCOM is feeling the impact of this downturn. This contraction, intensified by escalating competition from Chinese chipmakers, took a toll on the company’s revenue and profit margins in the last quarter.

The layoff news timing coincides with the ongoing trade tensions between the U.S. and China and Beijing's imposition of a partial ban on using iPhones by government personnel. This situation creates additional strain, as QCOM is a significant supplier to Apple, Inc (AAPL). However, the successful introduction of the iPhone 15 in mainland China might help mitigate some of these ordeals.

Moreover, China’s overarching smartphone market is contending with challenges, too. Sales declined by 4% during the second quarter of 2023, marking a record low for second-quarter sales since 2014, as per the market research firm Counterpoint.

Furthermore, QCOM cautioned that the cost-cutting measures will result in restructuring charges, a significant portion of which will be accounted for in its fourth-quarter report. QCOM projects its August sales to range between $8.1 billion and $8.9 billion, a dip from $11.4 billion in the year-ago quarter, while EPS is anticipated to decline between $1.37 and $1.57 from $2.54 during the prior-year quarter. This represents a notable setback for the organization.

Potential Implications of the Impending Layoffs

On the positive side, these drastic steps may enable the company to curtail its operating costs, enhancing profitability and cash flow. This could augment the firm's earnings per share and future dividend payouts. It may also steer QCOM toward concentrating on its principal business and strategic growth areas like 5G technology, automobiles, and the IoT.

Conversely, there may be negative repercussions. These layoffs could tarnish QCOM’s reputation and affect employee morale and customer trust. It may also decelerate the firm's research and development activities, consequently diminishing the potential for innovation in the long run. The company could find itself vulnerable, exposed to legal complications and heightened regulatory scrutiny, particularly in China, where it grapples with anti-trust investigations and patent disputes.

Therefore, the repercussions of these layoffs on shareholders will likely hinge on QCOM's capability to efficiently carry out its restructuring plan and adapt to shifting market conditions. The company's stock prices have been volatile after the layoff announcement, signifying a wave of uncertainty and investors' ambivalent responses.

Nevertheless, within this challenging scenario, it is also crucial to point out a few potential areas of optimism. Here are some additional factors that could potentially influence the QCOM’s course in the upcoming months:

Recent Developments

On September 11, QCOM confirmed a strategic alliance with Apple Inc. (AAPL) to supply its Snapdragon 5G Modem-RF Systems for upcoming smartphone iterations set to launch in 2024, 2025, and 2026. The partnership reaffirms QCOM’s sturdy standing within the industry.

Moreover, on August 4, QCOM joined forces with Robert Bosch GmbH, Infineon Technologies AG, Nordic Semiconductor, and NXP Semiconductors to financially back a German-based company specifically committed to bolstering global adoption of RISC-V.

The joint venture aims to accelerate the development and market introduction of products rooted in RISC-V technology across diverse industries. The widespread acceptance of the RISC-V technology envisages fostering more diversity within the electronic field - diminishing entry obstacles for nascent and smaller enterprises while facilitating greater scalability for well-established firms.

Robust Financials

For the fiscal third quarter ended June 25, 2023, QCOM’s total revenues came in at $8.45 billion, while its Earnings Before Taxes (EBT) stood at $1.76 billion. Its net income and earnings per share stood at $1.80 billion and $1.60, respectively.

For the same quarter, QCOM’s net cash provided by investing activities amounted to $1.74 billion, compared to net cash used by investing activities of $4.88 billion. Moreover, total cash and cash equivalents at the end of the quarter stood at $6.18 billion, up 93.2% year-over-year.

Furthermore, as of June 25, 2023, QCOM’s total current liabilities amounted to $8.46 billion, compared to $11.87 billion as of September 25, 2022.

Attractive Valuation

In terms of forward non-GAAP P/E, QCOM’s 13.23x is 37.8% lower than the 21.28x industry average. Likewise, its forward EV/EBITDA multiple of 9.84 is 28% lower than the industry average of 13.66. Its 11.33x forward EV/EBIT is 36% lower than the 17.71x industry average.

Robust Growth

QCOM’s revenue grew at CAGRs of 24.5% and 11.2% over the past three and five years, respectively. In addition, its levered free cash flow grew at 43.9% and 9.9% CAGRs over the past three and five years, respectively.

High Profitability

QCOM’s trailing-12-month EBITDA and EBIT margin of 34.28% and 29.51% are 274.5% and 553.9% higher than the 9.15% and 4.51% industry averages, respectively. Moreover, its trailing-12-month cash from operations of $8.65 billion is significantly higher than the industry average of $60.08 million.

Growing Institutional Ownership

QCOM’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their QCOM stock holdings.

Institutions hold roughly 73% of QCOM shares. Of the 2,508 institutional holders, 1,111 have increased their positions in the stock. Moreover, 142 institutions have taken new positions (7,940,217 shares).

Price Performance

Even though QCOM’s shares have plunged marginally year-to-date to close the last trading session at $109.19, over the past five days, the stock gained 1.2%.

Wall Street analysts expect the stock to reach $136.30 in the next 12 months, indicating a potential upside of 24.8%. The price target ranges from a low of $100 to a high of $150.

Favorable Analyst Estimates

For the fiscal fourth quarter ending September 2023, analysts expect QCOM revenue and EPS to come at $8.51 billion and $1.90, respectively. Moreover, for the fiscal year ending September 2024, analysts expect QCOM revenue and EPS to surge 5.6% and 10.9% year-over-year to $37.67 billion and $9.19, respectively.

Bottom Line

Despite experiencing a deceleration during the latter half of the preceding year, the semiconductor industry hit an unprecedented milestone in annual sales with a growth of 3.3% year-on-year. While there are hurdles ahead, expert views remain largely optimistic considering the industry’s pervasive applications expansion.

In addition to industry tailwinds, QCOM finds itself poised in an enviable financial space. Optimistic analyst forecasts, compelling valuation metrics, steadfast profitability, and distinctive growth prospects augment this fortitude.

Further solidifying this perspective is QCOM's unwavering commitment to its investors, substantiated by its uninterrupted history of dividend payouts over the past 19 years. It pays a $3.20 per share dividend annually, translating to a 2.92% yield on the current share price. Its four-year average dividend yield is 2.31%. The company’s dividend payouts have grown at a CAGR of 6.9% over the past three years and 5.4% over the past five years.

However, potentially casting a shadow over these optimistic forecasts are QCOM’s planned layoffs, which could influence the company’s performance and stock prices. But the impact largely hinges on its historical performance and future earnings estimates.

Is Apple (AAPL) Stock Facing Major Trouble Soon?

Posted on by The INO.com Team

The rapid advancement of groundbreaking technologies and a significant surge in digital development have considerably heightened the attraction towards tailored hardware solutions. Yet, not all technology hardware enterprises are reaping the benefits.

Tech titan Apple, Inc. (AAPL), renowned for its history of transforming product sectors, including personal computers, smartphones, and tablets, has added another feather to its cap by being the first-ever company to surpass a $3 trillion market capitalization as of last month.

Despite being a leading consumer electronics brand consistently offering returns to its investors, AAPL has recently navigated through a volatile phase. Last month’s uninspiring earnings report led to a 2% dip in its stock prices, which now trade below the crucial 50-day moving average of $185.06, dampening investor sentiment.

Undoubtedly, several corporations and their affiliates are making strides toward significant transformations with Generative artificial intelligence (AI). However, to expand the innovative capacities of these technologies beyond the existing hype, it is paramount to impact consumers' lives in integrated ways that extend beyond launching an array of game-changing announcements.

In contrast to other firms seeking notable AI revolutions, AAPL is leveraging this cutting-edge technology to augment fundamental features in its latest devices.

The tech giant recently unveiled a new range of iPhones and a watch equipped with enhanced semiconductor designs powering fresh AI capabilities. Most significantly, these enhancements target primary operations such as managing calls or capturing superior photographs.

The tech giant has announced its pioneering entry into the AR/VR market with the Apple Vision headset, signaling the beginning of a new chapter in its success narrative. Slated for release early next year, this product will retail at $3,499.

AAPL has a commendable record of executing enormous share repurchase plans in the last decade, having invested over $573 billion in buybacks since 2012. Despite witnessing a third consecutive quarter of dwindling revenues, the company shelled out an additional $18 billion for buybacks in the most recent quarter.

However, despite such positive strides, AAPL is anticipated to encounter significant obstacles soon. Let’s delve deeper and examine the factors that could contribute to such a scenario.

Mixed Financials

Tarnishing AAPL’s image is its disappointing financial results of the fiscal third quarter, which ended July 1, 2023. Total net sales dropped by 1.4% year-over-year to $81.80 billion, largely due to a 4.4% year-over-year decline in product revenue to $60.58 billion.

iPhone sales, which traditionally account for nearly 50% of the company's total income, suffered a 2.4% setback from last year, dropping to $39.67 billion. Mac and iPad sales also fell 7.3% and 19.8% from the prior-year quarter to $6.84 billion and $5.79 billion, respectively.

On the contrary, the company's services segment boasted an 8.2% year-over-year increase, fetching $21.21 billion, contributing to the company's third-quarter profit. However, the weaker-than-anticipated iPhone sales disappointed investors.

Stretched Valuation

AAPL trades at a considerably premium valuation compared to its competitors, evident from its forward non-GAAP P/E and EV/Sales of 28.73x and 6.96x, which are 28.9% and 156.5% higher than the industry averages of 22.29x and 2.71x, respectively. AAPL’s forward EV/EBITDA multiple of 21.26 is 47.7% higher than the 14.39 industry average.

AAPL’s Recent Developments and Their Implications

Reinvestment of Funds

Despite the advent of a VR headset and the possibility of an autonomous car, the iPhone remains AAPL’s primary product and chief revenue generator. In 2022, global smartphone shipments reached a staggering 1.23 billion units, whereas the number of AR and VR devices shipped worldwide reached just 9.11 million units – a scale difference of 135 times.

In June, AAPL introduced its first major product since 2014, the Vision Pro, an AR headset priced at $3,499. Despite signaling an expansion into new tech landscapes for the company, industry analysts predict that this new offering is unlikely to impact its revenue needle for several years. It is expected to generate annual revenue of over $20 billion by 2037 – more than a decade away.

Meanwhile, the company has spent tens of billions of dollars developing this product. Some analysts believe that Vision Pro production and shipments are expected to be “quite small” for 2024, having negligible benefits for AAPL stock price.

If the company had halved its share repurchases over the past decade, it would have had an additional $250 billion in investment capital, potentially leading to an even superior product at this stage.

iPhone Ban

China has proven instrumental to AAPL's growth and expansion. Over 95% of AAPL's globally acclaimed products – iPhones, AirPods, Macs, and iPads - are manufactured in China. AAPL’s CEO, Tim Cook, cited China's proficient skill sets as a compelling reason for this reliance on Chinese manufacturing.

In the fiscal year 2022, revenues generated from China reached $74 billion, accounting for roughly 19% of AAPL's total earnings. Greater China segment sales accounted for 20% of AAPL’s third quarter sales in 2023, and its Greater China sales rose 7.9% year-over-year to $15.76 billion.

However, the growing geo-political tension between the United States and China represents potential challenges for AAPL. The Chinese government recently banned using iPhones in workspaces, citing security issues, marking a new chapter in the ongoing trade and technology conflict between the world's two biggest economies.

Nikkei reported that some state-owned entities have prohibited employees from bringing any AAPL devices into their work premises, particularly those with access to trade secrets. Consequently, this move, seen as minimizing security risks tied to AAPL's gadgets, caused AAPL's market capitalization to shrink by over $200 billion within the last week.

In terms of iPhone shipments, China surpassed the U.S. as the largest single market in the second quarter of 2023. This trend persisted in the third quarter with a noteworthy surge in iPhone net sales in Greater China.

Some predict that the government restrictions may not significantly impede AAPL's sales but could signify forthcoming issues for the company in China, which ranks as the world's second-largest economy. The uncertainties surrounding AAPL’s future manufacturing and sales in China have sent its stocks spiraling downwards.

The recent launch of the iPhone 15 series has garnered mixed reviews among Chinese consumers. Some critics have highlighted the lack of groundbreaking new features and unfavorably juxtaposed the latest iPhones with Huawei’s 5G Mate 60 Pro and Mate 60 Pro+ models, which feature advanced Chinese-manufactured processors.

Despite the perceived lack of hardware upgrades, AAPL continues to deliver an unmatched user experience that makes transitioning to Android devices less appealing for users. Experts remain confident regarding AAPL’s dominance in the over-$800 smartphone segment. Although Huawei's re-entry into the 5G phone market may imply some level of competition, the company's ongoing supply chain problems could limit its overall sales appeal.

M&A Activity Could Escalate AAPL’s Innovations

Rising interest rates yield gains for cash-loaded enterprises such as AAPL. However, they pose significant challenges for burgeoning technology firms that hinge on financing for their growth and prosperity.

One critique leveled at AAPL is the waning innovation. Excluding advancements in camera technology, AAPL's lineup has been lacking groundbreaking technological leaps in recent years.

The current monetary policy landscape could induce a spike in mergers and acquisitions within the tech arena. AAPL's substantial cash reserves render it a probable suitor for tech firms, potentially fueling its growth and innovation via successful, value-adding acquisitions.

Lack of Strategy for Generative AI

Data in today’s world has emerged as a vital asset, and Generative AI is leveraging it to drive unprecedented innovations. The rise of Gen AI could mark a seismic shift in the industry, potentially transforming market dynamics by allowing for novel product creation and cost reductions. AAPL could face formidable challenges as the tide turns toward this new technology.

AAPL's vulnerable position can be attributed to its need for a robust strategy centered around GenAI and Large Language Models (LLMs). LLMs drive services like ChatGPT; without incorporating them, AAPL's leadership in the tech space may be threatened.

As AI continues to burgeon, AAPL risks being surpassed by three powerhouse players—Microsoft Corporation, Alphabet Inc., and Amazon.com Inc.—all of which boast more established footholds in the rapidly expanding AI sphere.

The delay in AAPL's development of a computing platform implementing cloud-based LLMs has resulted in the company trailing slightly behind its competitors. The challenge of catching up is compounded by customers' hesitancy to change providers due to the necessity of reprogramming their existing models.

Meanwhile, relentless competitiveness marks the landscape as companies like Amazon and Microsoft persist in unveiling new AI solutions. These advancements are anticipated to strengthen their AI division’s revenue, reinforcing their position and assertiveness within AI development.

Mixed Outlook

As the company looks toward the fourth quarter, it anticipates a deceleration in total revenue, with both Mac and iPad projections showing double-digit declines.

For the fiscal year ending September 2023, Analysts expect AAPL’s revenue and EPS to decline 2.8% and 0.8% year-over-year to $383.33 billion and $6.06, respectively.

However, for the first quarter ending December 2023, its revenue and EPS are expected to increase 5.3% and 11.6% year-over-year to $123.31 billion and $2.10, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.

Wall Street analysts expect the stock to reach $207.39 in the upcoming 12 months, indicating a potential upside of 18%. The price target ranges from a low of $167 to a high of $240.

Bottom Line

Despite AAPL stock dipping 2.1% over the past month, its year-to-date gain holds steady at an impressive 35.3%, closing its last session at $175.74.

The tech behemoth securely holds its footing within China's high-end smartphone market. However, it is anticipated to experience growing competition from domestic brands such as Huawei, which continues to enhance offerings with progressive upgrades. Additionally, lackluster initial iPhone 15 sales could present a challenge for the company.

AAPL remains profitable, although the emerging GenAI might cast a shadow over the tech deity. Fresh industry players could leverage LLMs, thereby revolutionizing the entire sector.

Moreover, given the strained relations between the United States and China, vital to AAPL’s manufacturing and market strategies, and AAPL’s potentially stretched valuation, investors should wait for a better entry point.