Saturday 31 January 2015

Apple faces questions over future performance

Richard Blackden

Published 23/01/2013 | 16:31

Apple Expected To Announce The Latest iPad...Tim Cook, chief executive officer of Apple Inc., speaks during an event in San Jose, California, U.S., on Tuesday, Oct. 23, 2012. Apple Inc. is taking the wraps off a smaller iPad today, betting that a less expensive version of its tablet computer will help the company fend off competitors including Microsoft Corp., Inc. and Google Inc. Photographer: Noah Berger/Bloomberg...A

APPLE chief executive Tim Cook faces mounting pressure to show investors the company can surpass what is expected to have been a record quarter for iPhone sales.

Even though iPhone sales could break the 50m mark for the first time in a single quarter, Mr Cook will face a blitz of questions over how Apple can sustain its growth when the company reports results later this evening. Apple's profits are expected to have fallen for the first time in a decade.

“The negative sentiment around the stock has reached epic levels,” said Brian White, an analyst at Topeka Capital in New York.

Apple shares have tumbled almost 30pc since reaching a record high in September on fears that the company which reinvented the smartphone with the iPhone in 2007, starts this year facing a fundamentally tougher market. It is a thesis that rests on two central arguments.

Firstly, the increasingly aggressive push by Amazon and Google to launch cheaper rival phones onto the market. The second, longer-term worry is that given the sophistication of the current iPhone 5, whether incremental improvements to future phones will be enough to dazzle western consumers in the way early versions of the device did.

“Does it look like the innovation is slowing?” said Colin Gillis, an analyst at BGC Partners in New York. “It certainly looks like that to me.”

Anxiety over the pace of Apple’s growth this year will overshadow the company’s latest results, which are expected to be the second strongest in its history. Wall Street forecasts that demand for the iPhone 5, which was released in the middle of September, catapulted profits to $12.4bn (7.8bn pounds) in the final three months of last year.

That is up from $8.2bn in the third quarter and trails only the record $13.6bn Apple made in the final three months of 2011. iPhone sales, though, are expected to have reached about 50m for the quarter as customers snapped up the iPhone 5.

Both the bulls and the growing, though still small camp of bears, will want to hear how Mr Cook intends to cope with the increasing effort of Google, Amazon and Microsoft to compete in the smartphone and tablet market. Despite the renewed push from rivals who see the PC market shrinking further, Mr Gillis says it would be a mistake for Apple to compete on price.

“Apple clearly won the battle when the first billion smartphones were sold,” argues Mr Gillis. “But if they were to chase down rabbit holes on price, they may lose their margins and their brand cache.”

Even so, there is increasing speculation that Apple will introduce a cheaper iPhone later this year aimed at the rapidly growing economies outside the West such as China. Those who argue that Apple will still become the first company to reach a $1trillion valuation believe that China will be central to it.

An expected deal with China Mobile, the country’s largest phone company with more than 700m customers, could prove a “major catalyst” for Apple, said Mr White of Topeka Capital.

Shares in Apple closed up 1pc at $504.77 on Wall Street.

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