Have We Reached Peak Apple Inc?

Profits at Apple Inc (NASDAQ: AAPL) may soon begin to fall.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Ok, I call this the iPhone challenge. Take an iPhone 6s. Then take a leading rival phone, say a Samsung Galaxy S6. Cover the logos. Then ask people to compare the two phones.

Have you tried the iPhone challenge?

Let’s start with screen size. The 6s is 4.7 inches. This is well beaten by the S6, which is 5.1 inches. Then resolution. The 6s is 750 x 1334 pixels. This is knocked into a cocked hat by the S6, which is 1440 x 2560 pixels – four times the detail.

How about storage? Well the base Apple (NASDAQ: AAPL) model has 16 Gb of storage, and 2 Gb of RAM, compared with 32 Gb of storage and 3 Gb of RAM for the Samsung. How about the camera? Well Apple’s 12 MP is well beaten by Samsung’s 16 MP primary camera.

The price then seals the deal. On Amazon currently the iPhone 6s sells for £539. The Galaxy S6 sells for £369.99. And what’s more, I think Android OS has far better features than Apple’s iOS. How about design? Well, in my eyes, both phones look good in their sleek metal cases.

In short, the Samsung thrashes the Apple on specification yet is far, far cheaper. On paper, there’s just no contest. Yet the iPhone outsells the Galaxy by a long way, and Apple is, by some distance, the most profitable company in the world.

Apple is pulling off the Indian rope trick

Basically, Apple has been pulling off an Indian rope trick for the best part of a decade, selling tens of millions of iPhones not because they’re the best, but because they’re the coolest.

Yet until recently, the momentum, booming sales in China, and the cult of personality around Steve Jobs, drove sales ever higher. However, in the latest set of results, we noticed something unusual. For the first time in years, Apple’s iPhone sales are slowing and even starting to fall, and the share price is tumbling. People from San Francisco to Shanghai are twigging that other phones are better, and the Apple logo is finally gleaming a little less brightly.

I think we’ve reached peak Apple, and that’s a worrying sign. Some would argue that Apple now looks cheap, trading as it is on just 10 times earnings. Yet profits on hardware are fragile. Apple only has to go out of fashion, and profitability will crash. 

Apple insiders will realise that this is the Cupertino company’s golden age, and I suspect it will be decades before any other firm in the world is as profitable again. Apple shareholders should enjoy it while it lasts.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

 

*This article originally included commentary on ARM Holdings in the same breath as Apple, including the statement "Most rival phones have chips from other companies." This incorrect fact has since been removed, along with all references to ARM within the article, and both the author and TMF apologises for any confusion.

 

More on Investing Articles

Young Asian woman with head in hands at her desk
Investing For Beginners

53% of British adults could be making a huge ISA mistake

A lot of Britons today are missing out on the opportunity to build tax–free wealth because they don’t have an…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

With growth in earnings and a yield near 5%, is this FTSE 250 stock a brilliant bargain?

Despite cyclical risks, earnings are improving, and this FTSE 250 company’s strategy looks set to drive further progress.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

With a 10%+ dividend yield, is this overlooked gem the best FTSE 100 stock to buy now?

Many a FTSE 100 stock offers a good yield now, although that could change as the index rises. This one…

Read more »

Investing Articles

£10k in an ISA? I’d use it to aim for an annual £1k second income

Want a second income without having to take on a second job? With a bit of money up front, and…

Read more »

Investing Articles

Up over 100% in price in 10 years! Big Yellow also offers passive income from dividends

Oliver loves the look of Big Yellow to generate a healthy passive income from its generous dividends. He thinks storage…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

If I put £750 into a SIPP every month, could I retire a millionaire?

Ben McPoland considers a high-quality FTSE 100 stock that could contribute towards building him a large SIPP portfolio in future.

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Is Avon Protection the best stock to buy in the FTSE All-Share index right now?

Here’s a stock I’m holding for recovery and growth from the FTSE All-Share index. Can it be crowned as the…

Read more »

Investing Articles

Down 8.5% this month, is the Aviva share price too attractive to ignore?

It’s time to look into Aviva and the insurance sector while the share price is pulling back from year-to-date highs.

Read more »