Is Apple vouching for an old design revival - Strategy 2020

Technology Sector makes up a large part of economy with high employment rate. The enhanced quality of life and growth in opportunities is enabled with the help of technology. This improves fundamental tasks and interactions using AI, blockchain and quantum computing that present significant opportunities for people, businesses and the broader economy.

Apple Inc. (NASDAQ:AAPL) is oneof the big four in Tech Company’s including Amazon, Facebook and Google an American multinational company which designs, develops and sells electronic, software and online services.

Founded in 1975, the consumer electronic giant entered the smartphone market in 2007 and has released its latest mobile, iPhone 11 pro on 10^TH September 2019. The launch was a success and Consumers are already looking forward for 2020 designs. According to the reckons, Mac Pro desktop looked like as it had in 2013 and is selling at its full price. The company is coming up with extremely limited upgradability in an evolving world. Looking at the new wave, the company is expanding into wearables including Apple watch and AirPods. Apple is famously secretive and there is gossip around company’s every move. Like all of the Apple’s product, each new launch is a progress over the previous one.

MacOS Catalina is available

MacOS Catalina is advanced desktop operating system which is available as the free software update enabling users to enjoy Apple Arcade and also features new versions of Apple music, podcasts and Apple TV apps. There are some additional features in macOS Catalina with updated start page using Siri suggestions, ability to block specific emails and many more.

Final cut X Pro update introduces new metal engine

Apple update Final X Pro with a new metal engine which would help improve playback and graphic tasks. The Company is slated to release updates to motion and compressor with same model metal engine and performance optimisation. It is available for free to its current users but would cost around $299.99 for the new users.

FY19 Financial Performance (as at 29 June 2019)

• For the third quarter ended 29 June 2019, Net sales of the company was marginally higher than the previous year. This was led by the higher sales by services from $10,170 million to $11,455 million followed by the growth in wearables sales from $3,733 million to $5,525 million. There was rise in net sales of iPad and Mac while sales from iPhone went down from $29,470 million to $25,986 million.

Financial Performance (Snapshot Source: Company’s Financial Report)

• The gross margin of the Company went down from $20,421 million to $20,227 million. This was mainly because of the higher cost of sales.
• During the year, operating Income and basic earnings per share went down from $12,612 million and $2.36 to $11,544 million and $2.20 respectively. This was a result of higher cost of sales and higher operating expenses, which included expenses from research and development, selling, general and administrative expenses.
• Apple showed a good balance sheet position where the current assets during the year went up from $131,339 million to $134,973 million and current liabilities decreased from $115,929 million to $89,704 million.

Outlook

Apple’s next launch may mark the new era as Company might shift beyond the smartphones. It is said to be working on the new AR headset and unveiled its new technology and significant changes in other products.

iPhone 2020: These might come up with significant design with metal frame similar to that of iPhone 4.

• Like all of the Apple’s product, iPhone 2020 comes with the rumour of elimination of home button, giving a high-end phone in the next few years.
• Going portless is expected to be a major change and by 2020 it would become a normal way to charge iPhones. This would also help in quicker transfer of data through same cable. It is also expected that iPhone 2020 supports a glass body making overall shape taller and narrower.
• For the rest of design, iPhone might follow current market trends with fingerprint sensors underneath screen with OLED display to help the eye dazzling screen.
• The Buttons of the phone won’t disappear entirely. Also, it is possible that Apple doesn’t move away from its custom chipset. Averaging the performance gains, it can be presumed that the iPhone 2020 will be very fast but have the same average speed gains between each model.
• The camera may resemble the previous phones and may favour quality.
• Apple’ 2020 iPhone is also expected to come with a new update: 5G support.

AirPods 3: The Company may also launch AirPods 3 with improved water resistance and possible noise cancellation. These may come in early FY20. In March this year, Apple launched the earbuds allowing the control of volume, which could be switched between the Apple products. These were completely wire free and offer around 5 hours of battery life.

2020 iPad Pro: The 3D camera feature might show up in iPad Pro models first. No major changes are planned for 2019, it is expected that the company might launch this product in FY20.

AR smart glasses: Apple is working on reality smart glasses and might come up with it in 2020. It is expected to come up with a dedicated display, reality operating system, voice activation, touch panels, hand gestures which is said to support applications from mapping to texting.

Cannibalisation with Apple Arcade!

The Company may cannibalise itself with Apple Arcade, the mobile gaming subscription service. It came with a free trial for a month and could be shared with the family at a cost of $5. Apple earns about 30% cut of all subscriptions, contributing to the growth in its important services. Apple Arcade has the potential to upend the high gaming market, reshaping the industry with higher revenues and increased subscriptions of up to 420 million with the goal of 500 million paid subscriptions in 2020.

Paid Subscriptions ( Snapshot Source: Nasdaq)

Stock Performance

The stock traded at $235.87 (EDT- 4:00 pm) on 14 October 2019 with the intraday high of $238.13 earning a dividend yield of 1.3%. In terms of valuation, the stock is trading at a P/E multiple of 19.32x.

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