Apple is not a canary in coal mine, the markets are well aware of the global growth slowdown in China. The timing of the news from Apple is somewhat disturbing. The signs were there regarding smartphone buying trends in China, softer Chinese economic data and the strength of the US dollar. Many analysts see the revenue cut, which was the first cut in 15 years, implying a 12 million unit miss and that should have been clearly telegraphed earlier.
Apple is down $15.60, lower by 9.9%, which is the biggest fall since 2013. The Apple warning drove US stocks lower by over 2%, the 10-year Treasury fell 4.6bps to 2.576% which was an 11-month low.
Whether or not this recent decline with Apple will deter long-term investors is still debatable. iPhone growth is decelerating, but other parts of the business is performing well. Apple’s services have been a positive spot of the past few years, averaging 26% annual growth since 2014. The company is still generating $65 billion in free cash flow with a strong yield of 10%. The other key area of focus is the company buyback program. Apple will still have a good earnings per share next quarter because the company continues to exercise its share repurchases. Apple has returned $239 billion to stockholders, they average buying back $20 billion shares a year and have reduced the shares of outstanding shares close to 30%.
Some are comparing Apple to Nokia and are calling to oust CEO Tim Cook. The start of the year is a bad one for Apple and their suppliers, but if we see growth stabilize in China and the dollar weaken, we could see Apple stabilize this year.
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