Sunday, January 14, 2024

Headwinds For Apple?


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Recent news for Apple (AAPL) did not bode well, such as the antitrust suit from the United States Department of Justice, the alleged ban on the use of iPhones in Chinese government departments and state-linked companies, the Barclays analyst downgrade report, etc. These headwinds had, directly and indirectly, caused Apple to lose its highest market capitalization ranking to Microsoft.


While past figures had indicated a slump in total revenues between 2022 and 2023, some indicators are pointing to another possible downtrend come 2024. These can be viewed as worrying for Apple shareholders, but for myself, I do not see it, yet. I will provide four reasons, with the last being unique to our portfolio situation.


Reason #1: The Ecosystem And Brand Power

In 2007 when the iPhone was first launched, there was a myriad of mobile phone operating systems such as Symbian, Blackberry, Palm, etc. Android and Windows Phone were not even out yet. Today, the major mobile phone operating systems remaining are Apple’s iOS and Google’s Android, occupying 29.19% and 70.11% respectively1. In a two-horse race, being second is still a very good deal.


The strength of iOS over Android is the former is part of the overall Apple ecosystem that included other hardware and services. Though being viewed ironically by some as “stifling” or “antitrust”, users who wanted convenience and amalgamation would love the concept of the ecosystem. As of February 2023, Apple had around two billion active devices2, and if going by an assumed average person of having four devices (a Mac computer, an iPad, an iPhone and an Apple Watch), we could see at least 500 million Apple users around.


Also, Apple often occupied the top few spots in surveys for the world’s most valuable brands, and this clearly demonstrated the power of a 2-D bitten fruit image. Therefore, with the captive ecosystem and brand power, current users would likely stick to Apple devices and new users would be easily pulled into.

Reason #2: Nothing Is Static


Senior management and C-suite executives are in a company for a reason: to steer it as a ship in the risky seas of business. Apple’s head honcho, Tim Cook, and his team should be aware of the not-so-good news and the actual situation within the company. If everything is OK, well fine, life goes on. If the news has some truth to it, instead of sitting there and waiting for it to become a self-fulfilled prophecy, they will do something about it. 


Nothing is static; an analyst’s report on a particular company may be the result of some data gathered from the past and with analysis, inferred on its prospects. Things may change, whether from within the company or other external factors, that could add on the headwinds or provide a counter tailwind, thus the actual result may be different than what was being forecasted.


Reason #3: Further Inputs Needed


Earnings season is here for the period between October and December 2023, and traditionally this quarter (Q1 2024) is the best for Apple based on historical data. This is due to the Thanksgiving and Christmas shopping periods, when Apple products were usually bought as gifts for others and oneself.


But to determine whether the headwinds news holds some bearing, the next period which I would seriously start to look at is from Q2 2024 onwards, and it would not be just a quarter thing; I tend to look at over two to three years. Yes, that may be a bit too long, but financials do not deteriorate overnight (unless it is an Enron scenario) and I needed to make a more informed decision.


Reason #4: Price Margin Of Safety


As stated earlier, this is a personal reason and may not be applicable to all. Our average Apple share price is around USD 128.15, and from the closing price of USD 185.92 (12 Jan 2024), this represented a price margin of safety of 45.08%, so in the worst case I could set an exit price should things really go south even before two to three years are up.


However, if the fall is perceived to be technical rather than fundamental (e.g., S&P500 going down, dragging everything with it), I would average down and add more instead, which means the growth story of Apple might continue.




The Bedokian is vested in AAPL.



Errata (16 Jan 2024): With regards to Reason #4, our average price of Apple is USD 96.35 instead, and this represented a price margin of safety of around 92.96%. The error was due to not converting the figures from SGD to USD. Apologies for the error.

1 – Global market share held by mobile operating systems from 2009 to 2023, by quarter. Statista. 8 Jan 2024. (accessed 13 Jan 2024)


2 – Shakir, Umar. Apple surpasses 2 billion active devices. The Verge. 3 Feb 2023. (accessed 13 Jan 2024)

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