Apple (AAPL)'s dismal performance in the stock market is set to end. The experts are predicting that the December quarter would be the highest reported revenue quarter for the company since its inception. This will take the earnings per share to an all new level. The company has targeted to sell around 80 million iPhones and iPads combined. This, if undertaken, will set a new record for the unit sales of the company's two most popular product lines. In this context, I would like to analyze the company's performance over the past one year.
Of late, Apple's revenue growth has been very dawdling. The fiscal year that ended in September 2013, showed a growth of 9.20% in the revenue. The revenue growth has taken a serious blow. If we look at the growth rates for the years 2012 and 2011, we find impressive figures of 65.96% and 44.48%, respectively. On comparing these with that of the recent growth at 9.20% we can easily make an estimate of the weak performing stocks of Apple Inc. This is not all. The tech-giant has even reported negative earnings per share growth in the fiscal 2013. This was preceded by a brilliant 59.60% rise in EPS in fiscal year 2012 and an unbelievable 82.64% growth in EPS in fiscal year 2011.
This decline in revenue growth began sometime around the third fiscal quarter of 2012. The company, though, continues to deliver astonishing revenue each fiscal year and has been able to escape a year-by-year decline in the quarterly revenue but this cannot suppress the fact that there has been a dramatic drop in the revenue growth rates for the last six fiscal quarters. This is the biggest reason behind Apple's negative EPS.
Decline in Gross Margins
The ones sitting at Apple's helm have been making consistent wrong decisions. A bizarre sales mix on offer and the policy of competitive pricing has done the company in for the most part. This led to a decline in the gross margins of the company. From a high of 47.37% in the second fiscal quarter of 2012 the company! has hit a low of 36.9% in the third fiscal quarter of 2013. The company's decreasing gross margins is a result of a combination of reasons. I would like to draw your attention to each of those:
· Apple launching low-margin iPad mini in the fall of 2012.
· Negative Mac unit sales growth over the last four fiscal quarters.
· Aggressive sales policy for the iPhones.
Other Errors
Apple's obsession with innovation has hampered the company's profits in ways more than one. The company's decision to provide free-of-cost OS upgrade and free distribution of a few productivity and lifestyle based apps also added to Apple's miseries. It seems Apple has turned its own enemy. This policy was initially adopted by the company to increase the value proposition of Apple's various hardware products. This did more harm to the company than doing well.
To Conclude
The revenues earned by the sales of iPhones and iPads represent around 70% of the revenue earned by the company. The growth rate of over 20% in both the product lines is now nowhere to be found. This apart, the drop in the sales of high-end versions of these product lines has penalized the company's finances. Added to that, the products like iPad mini has further dropped the company's revenues.
Apple's move to increase the value proposition of its hardware products by providing no cost OS upgrades and free distribution of a few company-developed apps seems to be a vague strategy.
Further, Apple's return to being a high-performer it once used to be will be completely determined by the new strategies it adopts in future, how good a sales mix it offers and the number of new launches it has in store for its customers. For the record, Apple's estimated revenue for the current fiscal year is $184.03 billion. We can only wait for Apple to wake up and show its worth to the world.
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Mla - 14 hours ago I can't agree with most of your analysis. Has their making OS upgrades free even hit the P&L yet? That was just announced this quarter, wasn't it? IMO, they're focusing on long-term strategy rather than short-term. By making the OS and certain apps free, they're improving the attractiveness of the platform. What is historical net revenue for OS and apps? It might be a drop in the bucket relative to iphone/mac sales, no? And with the ipad mini, it's generally been seen as a hugely popular product, right? I mean, yeah, sometimes hugely popular products have lower margins. But if they hadn't released the mini, we'd be faulting them for losing market share due to not having a small form-factor alternative. These all seem like very short-term issues to me. I am long AAPL. Nitish - 2 hours ago i guess we are entering a new fiscal quarter in december.. so the effects of their past mistakes are likely to show up. as of their free upgradation policy i dnt think it will be of much help to the company. however, this is my point of view. things might turn out to be different. Please leave your comment: More GuruFocus Links
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