Why Apple Inc. (AAPL) Stock Is Strong Before the iPhone 8 Announcement
A smartphone manufacturer does not need to have the biggest market share to play out as the best investment. If Digitimes’ prediction plays out, Huawei will surpass Apple Inc. (NASDAQ:AAPL) in smartphone shipments in the third quarter. Apple fans need not worry: iPhones are still the most profitable devices, especially when compared to Android devices. And an iPhone 8 announcement later this year will only reinvigorate demand.
Source: Yuanbin Du Via Flickr
Digitimes thinks that Huawei will ship more phones than Apple in the third quarter, building on its achievement made in the second quarter. In Q2, Huawei shipped 38.5 million units, just shy of the 41 million units (or 12% market share) Apple shipped.
Huawei has an advantage over AAPL: demand from China for Apple devices is falling. The Chinese bought 7.6% fewer iPhones in Q2.
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But AAPL stock investors shouldn’t worry about iPhone unit sales slowing just yet. Fans could be holding back on an upgrade, preferring instead to wait until the company announces the iPhone 8. Once released, it will lower the prices of current iPhone 7 and 6S models. The iPhone 8 itself should have new features that would encourage users to pick that instead. It is rumored to have 3D scanning and a better display. An Edge-to-edge display, virtual home button and a screen with OLED are only a few of the rumors circulating on the internet. The Inquirer reports that the device may have a virtual, resizable home button. It will support wireless charging, run on iOS 11 with better Siri functionality and support for P2P payments. The screen will be 5.8 inches.
The higher retail price of the tenth-anniversary edition is unlikely to hurt demand. Apple fans are generally not sensitive to high prices.
Rumors of the specifications for the iPhone 8 are also picking up ahead of the official release date. September 2017 is the likely month the company will unveil the device. It marks the tenth year since Apple first launched a smartphone.
Lower iPhone sales in China are a challenge for AAPL stock, but even though consumers there are sensitive to prices, the company may still profit from selling phones there. Despite five straight quarters of revenue declines in China, the company still profits from selling apps. Services revenue grew in the double digits in the January to March period. This trend likely continued in the last quarter, as Apple continues to invest in China.
Furthermore, it is building a new data center in Guizhou province, which will help the company meet its compliance with China’s VPN laws, encourage local developers to make apps on the Apple platform and keep the Chinese government content with the company in general.
Balance Sheet Considerations for AAPL Stock
Apple’s cash on hand stands out on its balance sheet. In the third quarter, the company ended up with $261.5 billion. Net of debt, cash fell slightly from $158.3 billion to $152.1 billion. Most importantly, Apple improved shareholder value by using its positive cash flow to buy back shares and pay dividends. It returned $11.7 billion to investors in Q3.
Looking ahead, Apple’s iPhone is not the only generator of revenue growth. Software developments, particularly in AR will strengthen the company’s moat it has with its customers. CEO Tim Cook said:
“We believe augmented reality (AR) has broad mainstream applicability across education, entertainment, interactive gaming, enterprise, and categories we probably haven’t even thought of. With hundreds of millions of people actively using iPhone and iPad today, iOS will become the world’s biggest augmented reality platform as soon as iOS 11 ships.”
ARKit, which AAPL is including in iOS 11, will add AR support on iPhones and iPads. Notably, Nintendo Co., Ltd (ADR)’s (OTCMKTS:NTDOY) Pokemon Go validated the use case for AR in devices.
So, with all of this in mind, what’s the bottom line on AAPL stock? Apple is an attractive long-term investment and investors should continue holding the stock with the expectation that AAPL stock will keep going up.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
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