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Can Apple ride the economic downturn?

This year looks set to be tough for businesses and individuals alike. Is Apple oblivious to it?

Apple
image courtesy of author

It never happens to Apple

Whether it was under the leadership of Steve Jobs, or the watchful eye of Tim Cook, Apple has built a reputation for success.

Even over the recent pandemic years, Apple was always robust in growth. Oddly, where others suffered during the various lockdowns, Apple prospered. Year-on-year is a tough comparison, as many metrics were so skewed during the past twenty-four months. But, it would seem that there was a clamour to equip home office set-ups, stretching all the way through to the third quarter of 2021. Sales for both Mac and iPad were very healthy through that period.

But, everything comes to an end, and that, seemingly, is even true with Apple’s unstinting growth. Tomorrow, the Cupertino company will announce their financial Q3 report for 2022, and it is not expected to be a particularly easy read. Is Apple, for once, actually vulnerable to global events?

A lot is going on

Apple has had an awful lot to combat and fight over recent months, and, the events affecting them the most, have been outside their control. The ongoing chip shortage & lockdowns in China has had a considerable impact on Apple’s ability to get product to market, and in turn, sales. And, when war broke out in Russia, Apple did the only responsible thing, and halted sales in the country. Politically, and ethically, it is the right thing to have had done, but economically, not so good.

Add to those woes, rising inflation, increasing interest rates, the surging US dollar and the threat of a recession, it is no wonder Apple’s results are expected to be flat.

Apple is not alone in feeling the pinch, as consumers fear of how hard things are about to get in the months ahead.

How are others coping?

Netflix has had a torrid time. In their Q3 report from earlier this week, they confirmed they have haemorrhaged nearly 1 million subscribers! They put this down to a “clear sign of consumers cutting back on discretionary spending as consumer confidence plummets in a highly inflationary environment”.

Google boss Sundar Pichai is gloomy about the future as well, issuing a warning to employees “to be more entrepreneurial and work with a greater urgency, sharper focus, and more hunger than we’ve shown on sunnier days”.I’m just sure they’ll be loving those words on the shop floor at Google!

Microsoft has pledged to ‘realign’ its business model, and Facebook parent company, Meta Platforms, is seeking to cut expenses by $3 billion this year through a hiring reduction program.

Even the wealth and might of Tesla & Elon Musk are feeling the pinch. Musk apparently has a “super-bad feeling” about the US economy. His company is expected to not only pause worldwide hiring, but also trim the car production work-staff by around 10%.

And fitness giant Peloton, who again saw massive growth during the stay-at-home lockdowns, have laid off 300 employees as it seeks to re-engineer its business as subscriptions get cancelled.

As for Apple?

In the same period last year, Apple posted a record return of $81.4 billion, which was a jump of 36% on the previous year. Wind that on twelve months, and the growth is expected to be a miserly 2%, which if proven true, will be the slowest paced increase since 2020.

Tomorrow, the posting will likely show a revenue of about $82.7 billion, with iPhone sales accounting for just under half that figure, and Apple services generating a respectable $20 billion for them on the balance sheet.

The China lockdowns I mentioned earlier has led to Apple stating that by itself, it will knock between $4-$8 billion off the last quarter alone! Ooof!

Banks and financial institutions have not been blind to what is going on either. Morgan Stanley, Wells Fargo and other banks have cut their stock price targets for Apple by about $10 a share. Kim Forrest, chief investment officer at Bokeh Capital Partners, told Reuters. “It signifies that inflation is an issue for these companies.”

What’s the answer?

Whilst in no way doubting that Apple will not only ride these stormy seas, but end up stronger, right now is the time to hunker down.

The first thing Apple intends to do is to slow spending and hiring across some teams over the next few months. Hand-in-glove with that announcement will also see Apple not re-hiring when some employees leave and will keep the headcount flat for certain departments. What longer-term effects that may have on product research & development, which is crucial to Apple, is not yet clear. The ripple effect, may not see us feeling that pinch for a few years to come yet.

Having the financial clout that Apple have, certainly makes this period somewhat easier to weather. Effectively, they can fight fire with fire, and just swamp us with new products that were already developed, before this tough downturn.

Although the long-awaited multi-platform headset and the on/off car project have seen massive cash injections from Apple, this fall, we are about to witness a bumper ride of new goodies.

Although news is slow right now, in a few months time, Apple will flood us with bright, brash new tech, that we doubtless won’t be able to resist.

What is on the horizon

At the two, or more likely three, Apple events this fall we are confident that we’ll be seeing this tidy lot:

  • iPhone 14 – four new models
  • AirPod Pro 2
  • A new Apple TV
  • Apple Watch – three new models
  • A new HomePod
  • M2 MacBook Pro’s – 14-inch & 16-inch
  • M2 Mac mini (possibly even a Mac mini Pro)
  • M2 iPad Pro
  • and the long anticipated Mac Pro

The iPhone, as we already know, is a giant part of Apple’s turnover. This year, for the first time, there will be a ‘regular, non-pro’ large 6.7-inch phone available at an attractive, sub $1000 price-point. This will be a hugely important product for Apple, and, as it transpires, very well-timed too.

Also going in their favour, is the spread of cost on the items scheduled for release. Ranging from $200 to $300 in the case of AirPod Pro and HomePod, all the way through to upwards of $6000 for the new Mac Pro, it means there will be something for everyone.

It’ll all be ok in the end

Like all tech giants, and indeed all companies, the next little while is not going to be a walk-in-the-park, but Apple will tough it out. At the helm is Tim Cook, who, at his core, is a numbers man. Whilst retirement may be his long-term objective, right now, his only aim will be to see Apple come through this storm in good shape.

If you wanted anyone as CEO of Apple right now, there’s a good chance, Tim would be ya man!

The results will be announced at 1.30pm Pacific time Thursday 28th July, and you watch live here.

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