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Appleof (NASDAQ: AAPL) IPhone cases have recently a bad reputation. On Jan. 2, CEO Tim Cook said the company would miss $ 7 billion. Its turnover is therefore a key factor for the activities of the technology giant. because of the weakness of iPhone sales. Since then, analysts speculate that iPhone sales continued to struggle in China.
But in the process of focusing on what's wrong with Apple's iPhone sector, investors fail to fully appreciate the huge and profitable value of the segment, even if iPhone sales do not grow in the years to come? After all, the conservative valuation of Apple stocks requires very little growth in the underlying business to justify their price tag.
Source of the image: Apple.
Apple's iPhone business: a revenue stream similar to an annuity?
On Thursday, Cowen analyst Krish Sankar expressed his optimism (via CNBC) for Apple's iPhone segment – a rare take today. The technology company's iPhone client base, which according to Sankar has "900 million people", encompasses a base of users that Apple "can offer a growing ecosystem of devices such as wearable devices, new content subscriptions and service offers ".
In addition, Sankar said that on the active base of 900 million Apple iPhone users, some customers own devices that are approaching the age of five. Sankar therefore believes that "iPhone shipments are close to replacement demand".
If Apple can continue to generate similar annual sales and profits in its iPhone segment over the next few years, the other growth drivers of the technology giant, including services and other products, could help the technology giant to continue the growth of its turnover and its consolidated profits in the long term. Although these two segments combined only account for 22% of Apple's last 12 months business turnover, they are growing rapidly. 12-month revenue from services increased 27% over other products and 34% over the same period.
Are China's concerns exaggerated?
China was at the heart of the problem of Apple's iPhone demand during its first fiscal quarter. "IPhone revenues are below expectations, mainly in Greater China," Cook says in a letter to shareholders on Jan. 2, "partly explains our shortfall and much more than the decline in our revenues." 39, one exercise at the other. "
But the media seems to have overshadowed Cook's confidence in his belief that China will remain a key driver of Apple's business in the long run – and that its confidence is not based on fluff, but rather on trends. concrete.
"Despite these challenges, we believe our business in China has a bright future," Cook said in a letter dated Jan. 2.
He continued:
The iOS developer community in China is one of the most innovative, most creative and dynamic in the world. Our products are highly appreciated by customers, with a very high level of commitment and satisfaction. Our results in China include a new service turnover record, and our installed device fleet has increased over the last year.
In the end, another street analyst expressed optimism for Apple's iPhone business on Thursday: Morgan Stanley's prominent analyst, Katy Huberty. She thinks that Apple's price cuts on its iPhone XR have helped the company gain market share in China in January and February from one year to the next. In addition, she thinks that the company's recent price cuts on its iPhone XS and XS Max headlights could help the company see a further increase in demand this month.
Of course, investors should not bet on iPhone earnings to regain their growth from one year to the next. After all, the turnover of the iPhone has declined sharply during the first quarter of the business, from $ 61.1 billion in the same period last year to $ 52 billion. But investors should not consider the segment as an important asset for Apple in the years to come.
Daniel Sparks has no position in the mentioned actions. The Motley Fool owns shares and recommends Apple. The Motley Fool offers the following options: Long Calls from $ 150 to January 2020 for Apple and short calls from $ 155 to January 2020 on Apple. Motley Fool has a disclosure policy.
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