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Apple (NASDAQ: AAPL) is a fast-paced company that has allowed investors to make huge gains over the long term. Over the past 10 years, Apple's shares have grown by more than 1450%, which means that every $ 1,000 invested has reached more than $ 15,000 by the time this article was written, not to mention payment of dividends.
Nevertheless, if Apple is a great company that has proven to be a great investment, no share of the company is risk free. Here I would like to discuss two key risks that current and potential Apple investors should be aware of.
Source of the image: Apple.
Global trends in the smartphone market
Apple's business is essentially driven by sales of its iPhone product line. During the 2017 fiscal year, the iPhone sales business figure accounted for 61.6% of the company's net business figure. In the first three quarters of fiscal 2018, the iPhone accounted for 63.8% of Apple's sales.
In this spirit, the first risk that investors must take into account is the general slowdown in the smartphone market. According to a report released in May by IDC, smartphone volumes across the industry are expected to decrease by 0.2% in 2018. Researchers also predict that smartphone shipments will grow at a compound annual rate of 2.5 % between 2017 and 2022.
IDC numbers are only predictions – they may turn out to be too low, too high, or just about right – but the fact is that the smartphone market is simply not growing as before.
In the first three quarters of the 2018 fiscal year of Apple, iPhone shipments were virtually unchanged from the previous year. (On the other hand, if sales were up 0.44% over this period), the company experienced substantial growth in average iPhone sales prices, fueling Apple's revenue growth in this sector. during the last year. It remains to be seen how long he will be able to continue to successfully grow the average selling prices of the iPhone.
Apple specific risk
Although Apple is, of course, subject to the trends of the markets in which it is active, the company's performance – and in particular its iPhone business – also depend on Apple's specific execution.
IPhones introduced in the fall are the company's flagship products for about a full year. This means that they must remain attractive to consumers as the competitive landscape gets tougher over the years like iPhone. (Android smartphone vendors tend to launch new flagship products in the months following the launch of an iPhone.)
It is hard to exaggerate how much Apple has every new iPhone introduction. Moreover, year after year, the company must not only develop attractive products (a difficult feat in itself that requires Apple to spend billions of dollars a year on research and development), but it must also ensure that they can be manufactured in extremely high volumes at acceptable cost structures. This means that Apple needs to work closely with its vast network of supply chain partners to ensure the smoothest possible production ramps for new products.
Of course, Apple did a good job in this area – it would not yield the same kind of profit and would not be as valuable if its execution was not always solid – but investors should not assume that the risk of something goes wrong is nonexistent.
Ashraf Eassa does not hold any of the shares mentioned. 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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