Source: BT Finance
Author: Meng Xiao
Apple, which has a market capitalization of trillion dollars, is also facing a shorting crisis.
Recently, according to the “Daily Economic News” report, the founder of the Wall Street hedge fund Satori Fund publicly sang a song$Apple (AAPL.US)$The company also said it would short Apple shares before and after Apple's iPhone 15 fall product launch. However, before Apple's biggest new product launch of the year, Apple's stock price fell by 5.95% this week, and its market value evaporated 176.4 billion US dollars (about 1.30 trillion yuan).
All of this is because that company came back. Since the launch of the Mate60 Pro, it has been at the top of the hot search list for a long time. The number of orders has reached more than 20 million units. Of these, none has been hurt more deeply than Apple. This can be seen from the stock price. Since Apple's stock price reached a high of 197.99 US dollars on July 31, it has continued to fall continuously. The total decline has exceeded 10%, and its market value has grown to 309.6 billion US dollars.
Apple's stock price has fallen. This also has a lot to do with Apple's less impressive three-quarter report, which has raised concerns among investors. J.P. Morgan Chase lowered Apple's target stock price from $235 to $230 on the grounds that the iPhone 15 was not absolutely competitive. Even Apple faced the shorting crisis mentioned above. Although Big Mac Apple, which has a total market capitalization of up to 2.8 trillion US dollars, is not afraid to go short, the combination of factors has also cast a shadow over Apple.
Revenue declined for three consecutive quarters
Financial reports show that Apple's total net revenue for the third fiscal quarter was US$81.8 billion, down 1.4% from US$82.96 billion in the same period last year; net profit was US$19.881 billion, up 2.3% from US$19.44 billion in the same period last year.
It is worth mentioning that Apple achieved negative revenue growth for three consecutive quarters. In the previous two quarters, revenue fell by 5.48% and 2.51%, respectively. For the first time since 2016, Apple experienced three consecutive quarters of negative revenue growth.
In the fourth quarter of 2021, Apple achieved high revenue growth. The revenue growth in the fourth quarter was 21.37%, 53.63%, 36.44%, and 28.84%, respectively. However, revenue growth slowed markedly in the fourth quarter of 2022, with increases of 11.22%, 8.59%, 1.87%, and 8.14%, respectively. Since then, there has been negative growth in the three fiscal quarters of 2023.
In terms of net profit, Apple has reversed the trend of continuous decline. With net profit of return falling 13.38% and 3.40% respectively in the first two quarters, Q3 achieved a 2.26% increase. The small increase in net profit from the return is directly related to its declining net interest rate. In the first three fiscal quarters, Apple's net sales interest rate was 25.61%, 25.48%, and 24.31%, respectively. Net sales interest rate in Q3 fell 1.3 percentage points compared to Q1.
Analysis of financial data shows that when Apple's revenue falls and net interest rate also falls, net profit can increase slightly at the cost of cost control and reduced R&D expenses.
Operating costs in Q3 were US$45.38 billion compared to US$47.07 billion in the same period last year, a decrease of 3.6%. Apple's R&D expenses during the reporting period were 7.442 billion US dollars, compared to 6.797 billion US dollars in the same period last year, up 9.49% from the previous year. The R&D growth in the previous three quarters was 17.13%, 22.25%, and 16.75%, respectively. The increase in R&D expenses in this quarter fell by almost half.
Overall, revenue and profit have exceeded market expectations, but the decline in revenue for three consecutive quarters has caused outsiders to gradually question Apple. The main reason for the question comes from the decline in revenue from Apple's main business, the iPhone. Compared to the performance of its old rival “Far Ahead Company” in the first half of the year, Apple's performance was really “impressive.”
“Yaoyao Leading Company” achieved sales revenue of RMB 310.9 billion in the first half of 2023, an increase of 3.1% over the same period last year. The net profit margin was 15.0%, an increase of 10 percentage points over the previous year.
Compared with Apple's interim report, Apple's total revenue was 211.90 billion US dollars, down 4.17% year on year; net profit was 54.148 billion US dollars, down 9.19% year on year. In terms of revenue growth, Apple is far lower than the “far leading company,” while in terms of net interest rate, Apple fell 1.3 percentage points, and the “far leading company” increased by 10 percentage points. In terms of revenue growth, it is difficult to say that Apple has an advantage in competing with “far leading companies.”
Investor Shi Baogang believes that the slight increase in Apple's net profit was driven by an increase in service and other sales revenue. “Apple's revenue declined for three consecutive quarters. Corresponding to the decline in iPhone revenue for three consecutive quarters, and the iPhone's share of total revenue continued to shrink. It only accounted for 48.5% in the third fiscal quarter. In the future, Apple may no longer mainly sell iPhones. The service business has increased 8.2% year over year, and the service business may become Apple's main source of revenue.”
Strong return of rivals
As we all know, the “far leading company” Qianlong is in its infancy, and its market share in the high-end mobile phone sector has been taken away quite a bit by Apple. According to a report published by Counterpoint Research in 2022, Apple's global market share of high-end phones is as high as 75%, and “far leading companies” account for only 3%. You know, previously, the global market share of “far leading companies” once exceeded 30%.
The Chinese market is the main battleground for smartphones, and it is also a market that Apple values. Recently, on the occasion of the 30th anniversary of Apple's entry into the Chinese market, Cook posted a post on Weibo to celebrate, and officially announced that mainland shipments surpassed the US market, making it the largest iPhone market in the world.
In the market share survey for the first half of 2023, IDC data showed that Apple's market share in the first two quarters was 14.1% and 15.3%, respectively. In the second quarter, the market share increased by 1.2 percentage points compared to the first quarter. The market shares of “Far Leading Companies” during the same period were 7.3% and 13%, respectively, and increased by 5.7 percentage points in the second quarter.
Looking at the year-on-year growth, Apple fell 17.9%, while the “Far Leading Company” grew 76.1% year over year. With the sale of the Mate60 Pro, this increase was far more than that. As can be seen from the table below, with the exception of Apple and “Far Leading Company”, which had positive year-on-year growth, the top five smartphone brands all experienced varying degrees of decline ($XIAOMI-W (01810.HK)$/$Xiaomi Corp. (XIACF.US)$It has the same market share as the “Far Leading Company” and is tied for fifth place).
It should be noted that among the top five smartphones, only “far leading companies” rely on selling 4G phones. Among many 5G phone brands, it is not easy to occupy the top five positions.
According to public information, “Far Far Leading Company” has invested more than 977.3 billion yuan in R&D expenses in the past ten years. In the first half of this year, R&D expenses were 82.604 billion yuan, accounting for 26.8% of total revenue. Last year, R&D expenses were 161.5 billion yuan, accounting for 25.1% of total revenue. However, Apple's R&D expenses last year were 26.25 billion US dollars, accounting for 6.6% of total revenue of 394.3 billion US dollars. In the first half of the year, Apple's R&D accounted for about 7.2%. In terms of the intensity of R&D investment, Apple was clearly not that willing to spend money.
Well-known analyst Guo Mingyi released a report showing that there is strong demand for Mate60 Pro phones, and the influence of “far leading companies” on the industry is returning. Within 1 year of the launch of the Mate60 Pro, mobile phone shipments are expected to reach 12 million units. This data is clearly conservative. According to information, the number of orders placed on the day the Mate60 Pro was released exceeded 17 million units.
According to some industry insiders, sales volume of the Mate60 Pro is expected to exceed 60 million units in 2024. Relevant agencies predict that the sales volume of Apple phones will be about 51 million units in 2024, and the current number one VIVO phone shipped is 52 million units. “Yao Yao Leading Company” has successfully moved from fifth on the sales list to become the highest-selling mobile phone manufacturer in China, and based on the current Mate60 Pro sales price of 6,999 yuan, it will directly bring 42 billion yuan in revenue to “Yao Yao Leading Company.”
What is certain is that the launch of the Mate60 series will cause a major reshuffle of domestic smartphones. The original king of the industry will begin a strong return, and this will inevitably lead to a decline in Apple's market share and shipments.
The big trouble with the $1 billion claim
It's not only the continued decline in revenue that is causing Apple a headache, but also a series of major problems off the market.
Recently, according to Reuters, Apple has been sued by more than 1,500 app developers in the UK because of the “Apple Tax,” and the claim amount is as high as 785 million pounds (about 1 billion US dollars). This is a class action lawsuit. Because there are many plaintiffs involved, it has attracted great attention from local courts in the UK.
The lead party for the plaintiff was Shawn, a professor at the Center for Competition Policy at the University of East Anglia in the UK and a former OECD economist$Ennis (EBF.US)$He became the representative of 1,566 plaintiffs and filed a lawsuit with the English court, claiming that it was unreasonable for Apple to charge 15% to 30% of payment commissions from app developers. Ennis said, “Apple charges app developers too much simply because of its monopoly on distributing apps on iPhones and iPads. These charges themselves are unfair, harming not only the interests of app developers, but also the interests of consumers.”
The focus of this lawsuit is the “Apple tax.” This is an issue that has existed for a long time, and is not unique to Apple alone, but the amount of claims Apple is facing is sky-high. Once the lawsuit is lost, more app developers may follow suit, and the compensation they face at that time will be even greater.
Actually, the “apple tax” and “Google tax” are Apple and$Alphabet-A (GOOGL.US)$/$Alphabet-C (GOOG.US)$An important source of income for the two Big Macs has also become their strongest moat. Once Apple loses the lawsuit mentioned above, in addition to facing huge compensation, it will also have to revise the relevant “Apple Tax” rules. No matter how it is changed, it will inevitably affect its revenue, and the impact on overall revenue is also unavoidable.
Previously, Google had to choose to compromise and revise some of the relevant content because of the “Google tax,” such as reducing the first 1 million commissions earned by app developers from 30% to 15%. Many countries also used Google as an example and demanded that Apple make changes, yet Cook has publicly stated his tough attitude many times, claiming that Apple will not make any concessions, and that the 30% commission is Apple's bottom line.
As early as the end of last year,$Meta Platforms (META.US)$Founder Zuckerberg also publicly “bombarded” Apple at the end of 2022. He believes that it is extremely unreasonable for Apple to charge a 30% commission when purchasing paid “promotional” posts on apps such as TikTok and Meta's Instagram. At the same time, he stressed that the privacy function of the Apple app will cause Meta to lose 10 billion US dollars in advertising revenue every year.
However, no matter how bombarded the outside world, Cook expressed a tough attitude and will not make changes, because this is one of Apple's most profitable sectors. Taking the 2022 annual report as an example, the gross margin of the service business is as high as 71.7%, which is almost double that of the product business, yet the amount of money that Apple earns in this business exceeds$McDonald's (MCD.US)$with$Nike (NKE.US)$The sum of profits. In the future, Cook and Apple would probably rather be saddled with infamy, and would never make any changes.
Has the good days of the Chinese market come to an end?
As can be seen from Apple's Q2 earnings report, there is a reason for Cook's high-profile promotion of the Chinese market. Because the Chinese market has become one of Apple's few growth highlights.
In addition to China, Apple's sales in many regions of America and Japan have declined to varying degrees. Among them, the American market fell 5.6%, and the Japanese market fell by as much as 8.5%. However, the Chinese market has achieved 7.9% growth. Whether it is sales growth rate or absolute value, the Chinese market is an indispensable cake in the eyes of Apple and Cook. After all, for high-end phones worth 5,999 yuan or more in the Chinese market, Apple accounts for 85% of the market share.
Cook's practice of eating up all the dividends of the Chinese market also has the flavor of “cooking after eating enough.” Cook made a high-profile claim that he wants to earn money in the Chinese market, and he also wants to shift the industrial chain from China to India and Vietnam. Because China's labor costs are too high, it has affected Apple's profits.
But with that company coming back strong, Cook's dream may be shattered. Based on the calculation that the Mate60 currently pre-sells 20 million units, this means that Apple will lose market share of 20 million high-end phones, while Apple's total sales volume in China is only 50 million units. This directly caused Apple's sales volume to drop by about 40%.
According to Martin Yang, an analyst at investment company Oppenheimer, predicts that with the Mate60 series phones alone eating away at the market, Apple's iPhone shipments in 2024 will drop by at least 10 million units.
Whether Apple wants it or not, the “far leading company” 5G phone is back. At that time, Apple's last “mask” will also be torn off. With the support of Kirin chips and the patriotic support of Chinese consumers, domestic phones with better performance will be more competitive.
Behind the launch of the Mate60 is a breakthrough in domestic production of the “far leading company” in the entire industry chain. In the field of operating systems, Hongmeng replaced Google; in the field of database management, GaussDB was kicked out$Oracle (ORCL.US)$; Chips have now also been localized. It is a fully localized product that has gradually reduced Apple's competitiveness in the Chinese market. Once a full version of the domestic 5G phone is released, how much market share will Apple still have will have to be left with a big question mark.
Also, judging from the price that affects sales volume, the price of the Mate60 is 6,999 yuan. Referring to the Apple iPhone 14 standard version, the 512GB price is 8,699 yuan. The price difference between the two is nearly 2,000 yuan. This difference will also attract many uncertain users to choose the Mate60 Pro. This price, which is higher than Apple's pricing, is more tempting for consumers, and it is certainly a kind of pressure for Apple, which has always been priced high.
The hedge fund Satori Fund is unlikely to want to short Apple, but Apple clearly feels the tremendous pressure brought by that company. Once China's market share advantage is not guaranteed, there may be a few more negative increases in Apple's earnings report. Perhaps Cook and Apple, who haven't held a new product launch conference, can't laugh anymore.
editor/tolk