November 29, 2020

Apple: the giant suffers from altitude sickness and tests its limits | Economy

Apple: the giant suffers from altitude sickness and tests its limits | Economy



A strong wind shakes the branches of the apple tree, a dark shadow projects towards the earth. No one is immune to the arbitrariness of economic time. Not even Apple. At the beginning of October the company had achieved a record value of one trillion dollars – 878,900 million euros – and lived on top of the world. The financial planet seemed spellbound by the figure. Only 42 years after being founded had a capitalization higher than the wealth of Turkey and Switzerland. And he had achieved it just after present your most expensive and fastest iPhone. Nothing seemed to stop her. Even Daniel Ives, a renowned analyst at the brokerage house Wedbush Securities, ventured a value of 1.5 billion. The capital markets adore the mythical figures like the Mayans to their gods. And those of the firm of Cupertino (California) told a story that was a financial fairy tale. It closed its fiscal year of September with a net profit of 59,531 million dollars (52,500 million euros) and sales soared to 265,595 million dollars (224,300 million euros). I had never gotten so much money. More funds, even, than he was able to spend.

The smartphone market shows signs of entering a phase of maturity

The sun came out on the company with the joy of a song by the Beach Boys on a summer morning. However, two months later this blinding light loses brightness in the largest firm on the planet. Its quotation falls 20% from those days in which Apple lived in the garden of the Great Gatsby. Basically because the markets only conceive a verbal time: the future, and this announces that the sector of smartphones or smartphones is in recession. Its sales accumulate four quarters of consecutive declines. Something that affects the heart of the apple because 60% of your income comes from the iPhone. A device that has sold more than 1,200 million units of its 18 versions. "However, the demand for smartphones has fallen this year due to the maturity of the market, the lower aids to the change of terminals by the operators, a lack of innovation in the hardware and the economic winds against", summarizes Neil Mawston , executive director of the wireless area of ​​the Strategy Analytics consultancy.

But, perhaps, what has worried the analysts the most is that for the first time in 20 years the company will leave, as of this quarter, to publish the number of phones, laptops and tablets that it sells. This has been understood in two ways. Christmas sales – a basic period in the company- They will disappoint Wall Street expectations. And also come the end of the years when iPhones orders increased. "No investor likes to lose visibility on a variable as interesting as the number of devices marketed, especially when in previous years we had a high level of detail," says Javier Urones, an analyst at XTB.

Distrust

The market is distrustful. "It's not a good image for Apple. Generally companies stop communicating their metrics when they are about to turn around, "says Walter Piecyk, telecommunications analyst at BTIG Research. This different graph was anticipated by the profit warning (cuts in its revenue forecasts) in the same week from four essential suppliers of the company (AMS, Japan Display, Lumentum and Qorvo). The message that transcends the lines is that fewer people are buying their devices. And the great players get up from the game. Goldman Sachs expects sales of 71 million units for the quarter ending in December and revenues of 89,000 million dollars. The lowest band of a fork that the bank places between 89,000 and 93,000 million. The giant of Silicon Valley has arrived, exhausted, to its limit? "We've lived with Microsoft or Cisco; the more a company grows, the less it can do in the future ", predicts Rui Mota Guedes, expert of International Financial Analysts (AFI). In addition, it can not deny its nature either. "It is a cyclical firm and will suffer in times of economic slowdown," says Beatriz Catalán, of Ibercaja Gestión.

In spite of so many shadows, the light spills like honey on a company that still is worth 859,000 million dollars and that during years it obtained that their products were money to the carrier. It sold more units and at a higher average price than its competitors. But this inertia stopped in 2016 with the launch of the iPhone 6s and since then sales have not recovered. Fewer people are buying the device for the first time and less are switching from Android to iPhone. And users are taking longer to replace them. But nevertheless, the company that runs Tim Cook prices continue to increase to maintain -remember Enrique Dans, professor of innovation at IE Business School- that sense of "exclusivity". Like a showcase for Prada. "The danger is that it leaves some customers out and that it takes a lot of effort to get new users," warns Thomas Husson, an analyst at British consultancy Forrester Research.

The Cupertino firm will stop giving information about the units it sells

But Cook likes to dialogue with risks. Launched the Apple Watch (only last year sold 18 million units) or the AirPod, a wireless headset, when many doubted the success of these products. It is tightening the rope, testing its resistance; and that of his faithful. "I believe that Apple's most active and loyal customers are willing to pay a price considerably higher than what an iPhone costs today," says Per Roman, managing partner of GP Bullhound, an investment bank specializing in the technology sector. Cook also thinks so. If I can not sell more units, I can sell the same but more expensive ones. "A strategy forced by fierce competition in prices of Samsung or Xiaomi," says Daniel Galván, director of GBS Finanzas. In Spain, the Xs and Xs Max models (the most expensive ever launched by the brand) start with 1,159 and 1,259 euros. For comparison, the iPhone X came out at 999 euros.

However, the future fragility of smartphones is offset by a surprise in steel and curved glass. Some years ago, when Steve Jobs himself commissioned the architect Norman Foster to design his new headquarters (Apple Park) in Cupertino, an avant-garde circular building that was to house 12,000 workers, the services division was the playground of Apple . But now it sounds just as tuned as a grass harp. In the last quarter (Apple Music, Apple Store, Apple Pay and iCloud, among others) generated for the first time more than 10,000 million dollars. That's why it will launch its own streaming service to compete with Amazon Prime and HBO Go.

He has seen the future and goes through producing and distributing entertainment. In solitary? Or will it surprise the market by buying, for example, Disney or Netflix? The question revolves around the company's headquarters, like the Higgs boson in CERN's particle accelerator. "Hypothetically speaking, I do not think buying Disney is a good option for Apple. It would give a great boost in content, but also involves incorporating activities (parks, toys) that are not close to its core activity, "reflects Mark Diethelm, analyst at the Swiss private bank Julius Baer. "On the other hand, Netflix would make more sense. However, its capitalization of 126,000 million dollars [111.200 millones de euros] It would make the agreement expensive. "

Shopping with moderation

Nor has the company's policy been to sign blank checks. The biggest operation was the acquisition in 2014 of the headset manufacturer Beats for 3,000 million. Critical music filters through them. "Acquiring companies of these dimensions could cause the firm to deviate from its economic objectives. One of Steve Jobs' many talents was discovering emerging technologies and consolidating the business around him, "said Mati Greenspan, senior analyst at broker eToro.

But we went through a storm. An atmospheric phenomenon charged with abundant technological apparatus is changing how we interact with the digital world. "The future will bring less screens and keyboards and more voice and augmented reality," predicts Greg Brooks, global marketing director of Mindshare Worldwide consultancy. "And here Apple has a tremendous opportunity to design solutions." The company leaves clues. Last August, I bought Akonia Holographics, a start-up that makes glasses for augmented reality glasses.

The company knows how to reinvent itself. The last test? The Airpods or the Apple Watch

Resources are not missing an apple with a skin bathed in gold. It has a cash position of 25,913 million dollars and, if we add the investments in listed assets, the astonishing amount of 237,100 million (209,200 million euros). Apple has in liquidity the equivalent of 18% of the wealth of Spain. "He is generating more money than he can spend, so he has room to increase the dividend and buy back securities," says Mark Diethelm. Between the last quarter of 2012 and September 29, 2018 (closing of its fiscal year), it spent 239,000 million dollars (211,000 million euros) to recover its own shares, calculates Sylvie Sejournet, manager of the Pictet Digital fund.

This movement has been reinforced by the tax reform of Donald Trump, which facilitates the repatriation of profits obtained abroad. A strategy that supports the price of securities encourages the payment of bonuses to managers and places the objective of maximizing shareholder value at the center. The dotted line drawn by financial capitalism. "Does Apple use its money to buy back titles because it is failing to create spectacular new products like the iPhone or the iPod or, on the contrary, is this lack of innovation a direct consequence of using cash largely for that paper repurchase? ", Asks Marshall Auerback, of the Independent Media Institute.

However, this reflection reaches the markets as quiet as an echo without return. Few hear it. "The repurchase policy, given the huge generation of cash flow, is a very intelligent strategic move by Cook and his team and has been applauded by investors especially in the absence of M & A operations. [fusiones y adquisiciones]"Says Daniel Ives, equity analyst at Wedbush Securities. In that endless autobiography of the money that the company writes, there are transactions that justify the euphoria. Carl Icahn, who is considered the most aggressive investor on Wall Street, bought 3,600 million dollars (3,200 million euros) in Apple titles between July 2013 and January 2014. Two years later he would sell them with profits of 2,000 million ( 1,800 million euros).

The enormous liquidity that accumulates would allow him to buy any company he wanted

This is the garden of good and evil where Apple mixes archangels and demons. In 2017, the European Commission agreed that it had to return 14,300 million in taxes not paid to Ireland. The financial structure he had raised there to pay a tiny tax was illegal. Almost two years later that money is frozen in a pending account of the appeal filed by the Irish Government, which does not want to stop being a green fiscal meadow. Part of the money can help the country fulfill its commitment to allocate 0.7% of GDP to foreign aid "and another part could be used to help the poor Irish", proposes Jeffrey Sachs, special advisor to the Secretary General of the United Nations. "Take the money. They are taxes that come from one of the most successful companies in history. They are overflowing with benefits. Take it and use it, "insisted The Irish Times. But nothing changes. The calendar leaves are discounted and the feeling of living survives, always, on the same day, even if it is a different country. "A recent report by Taxwatch estimates that Apple pays an effective rate on its" real "benefits in the United Kingdom of less than 2%," criticizes Alex Cobham, director of the Tax Justice Network, a group of activists who denounce the abuses of the international tax system. .

The shadows of success

But he has not only had problems with numbers, but also with words. The motto of the reverse side of their devices – "Designed by Apple in California. Assembled in China "- it has been a geopolitical and labor boomerang. In 2011, she was accused of exploiting Chinese workers. Foxcoon, a provider of the company located in the south of the country, experienced a wave of suicides. The employees criticized the excessive hours and the terrible working conditions. And last October I opened an investigation to find out if a Taiwanese company provider was illegally using students to assemble Apple Watches in the Chinese city of Chongqing.

Of course, the Asian giant (where the company gets 18% of its income and where its products fold to the government's censorship) demonstrates the fragility and strength of the apple. Until now, Cook has been able to avoid the tariffs imposed by Trump on the country, criticize the US president's policy and at the same time benefit from his tax exemptions. The CEO of the company seems Moses separating the waters of the Red Sea. When Mark Zuckerberg, head of Facebook, had to testify in front of the US Congress about the Cambridge Analytica scandal, Cook saw the sessions from his office in Cupertino. Their business is different. He sells hardware. Others transform data into advertising. "We could earn tons of money if we monetize our customers. If they were our product. But we have decided not to do that, "he told the MSNBC news channel. However, because of the prayers answered, tears are also shed. Goldman Sachs estimates that Google will pay next year to Apple about 10,500 million euros to continue to be the default search engine of iPhone, iPad and Mac. And if the search engine gives a quantity like this is because it is very profitable to send advertising to fans of Manzana.

Oblivious to these passing clouds, the great virtue of the Cupertino company is its ability to hold on to life. It has overcome the death of Steve Jobs, bankruptcy, the success of Android, the saturation of the mobile market and the rise of artificial intelligence. All while his reputation has remained as white and silent as the walking of the oxen on the snow. Because your business is the devices and not the information. Hence his image of defender of the privacy of its users or firewalls against the bonfire of the fake news. Despite the temptations, the apple has never been expelled from paradise.

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