In the 2nd quarter of 2019, Apple sank to the 4th position in global smartphone sales, behind Samsung (75.1 million shipments), Huawei (58.7 million) and Oppo (36.2 million). Apple’s sales/shipments were 35.3 million for the quarter (source: IHS Markit). According to Jusy Hong, IHS Markit’s research and analysis director, “Huawei was able to replace falling international shipments with increased sales in China. However, the full effects of the ban likely will be felt by Huawei’s international business in the third quarter of this year.”
Actually, Huawei’s sales are strong in both China and Europe – costing Apple market share in both regions. (The ban is in the U.S., Australia and Japan.) According to Apple’s 2Q 2019 earnings report, net Apple sales in Greater China and Europe fell in the 2nd quarter year over year, by -4% and -2%, respectively. Sales in the Americas were also down 1%, while the rest of Asia Pacific and Japan increased 13% and 5.6%, respectively. Apple is projecting flat revenue growth of $61-$64 billion for the next quarter (its fiscal 4th quarter).
What is perhaps just as relevant as slipping to 4th in smartphone sales is that Apple’s diluted earnings per share actually dropped 7%, despite a massive buyback attack from Apple of $17 billion in share repurchases. Apple has the largest corporate share buyback plan in the U.S. by far, having repurchased $74.2 billion in shares in 2018 and $41 billion already in the first half of this year. The current buyback program authorizes up to $75 billion in share repurchases. The company has $94 billion in cash and marketable securities, and $135 billion in total current assets.
So, is Apple’s new strategy to wage war on Huawei through the White House, while repurchasing its own shares to keep investor interest piqued? Or will there be a new exciting product launch on the horizon? In the 3rd quarter 2019 earnings press release Apple CEO Tim Cook promised, “The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services and several new products.” However, since Steve Jobs transitioned, the business strategy has been built more on political warfare and financial engineering than innovation. Apple’s Chief Design Officer Sir Jonathan Ive, the creative technological mind behind the Mac and the iPhone, left the company to launch his own on June 27, 2019. However, Apple will remain one of the new company’s primary clients, according to both Jony Ives and Tim Cook.
With 17% of Apple’s revenue coming from Greater China and 22% coming from Europe, Apple can’t afford to continue to lose market share in these countries. The tariffs and trade wars exacerbate the problem in these regions, while the Huawei ban should help Apple sales in Japan, the U.S. and Australia. A weaker yuan and stronger dollar mean that Apple’s already pricey products become unaffordable in China and Europe – even more so when compared to the prices of Huawei and Oppo. A general anti-White House sentiment in China doesn’t help. Tariffs and trade wars, and the fallout of this strategy, are problems that the White House can’t blame on the Federal Reserve.
Apple can afford to keep its share price afloat with share repurchases this year. However, declining sales will send a message to Wall Street that could taint investor appetite, particularly if Apple misses its revenue target in the fiscal 4th quarter of this year. That report won’t be released until the first week of November…
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