Apple Remains on Growth Trajectory: Are You Considering? - Analyst Blog
On Mar 4, we issued an updated research report on Apple Inc. AAPL. The company reported better-than-expected first-quarter 2015 results, surpassing the Zacks Consensus Estimate for both earnings and revenues. Results were driven by a surge in iPhone and Macintosh sales. The company benefited from strong demand across key regions, like Greater China.
Apple has grown into a cult technology company in the recent times and gained over 40% in 2014, superseding market returns generated by any of the indices in the year. As a result, the iPhone maker’s market capitalization reached a record $700 billion mark in Nov 2014, representing a major milestone. Currently, the company boasts a solid financial position with $19.4 billion in cash and investments. It generated $33.7 billion in cash flow from operations in the first quarter of fiscal 2015. We believe that the robust cash flow generation will help the company to maintain its aggressive share buyback policy and strong dividend yield.
We believe that strong sales of the new iPhones (6 and 6 plus) remains Apple’s key growth catalyst in fiscal 2015 and beyond. Since their release in September, these iPhones have gained from the pent-up demand. iPhone 6 and 6 plus not only brought the company on par with major phablet makers like Samsung, HTC and LG, but also set a record of sales of 74 million units in fiscal first-quarter 2015.
The launch of the new iPhones broadened Apple’s base in the Far East as well. The company currently boasts more than 50% share of the smartphone market in Japan. It has also successfully expanded its market share in South Korea which was dominated by local player Samsung so far. Apple also did extremely well in China, which has a number of strong local players. This helped the company boost its market share to 12% in the region. Apple believes that China, which is already the second largest iPhone market, is set to become a major contributor to its total revenue, going forward.
Apple faces significant competition in most of its operating markets. In the desktop and portable computer segment, Apple faces intense competition from the market leader Hewlett-Packard HPQ in addition to Lenovo, Dell, Acer and Asus.
On the software side, Apple’s iOS competes with Google’s GOOGL Android-based mobile operating system. Competition has also heated up for iPad with Amazon AMZN, HTC, Microsoft, Hewlett-Packard and others flooding the tablet market. The company is heavily dependent on iPhone and iPad sales and heightened competition will continue to hurt its top line and profitability.
iPad growth has slowed down considerably due to growing competition from other makers. We believe that the larger iPhone is also cannibalizing some iPad sales, thereby raising doubts on its utility in the ecosystem.
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