Apple Inc. vs ARM Holdings plc: Which Is The Better Tech Titan?

Royston Wild considers whether Apple Inc. (NASDAQ: AAPL) or ARM Holdings plc (LON: ARM) is the better pick for sterling returns.

| 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.

There is no doubt that major tech operators like Apple (LSE: AAPL) and ARM Holdings (LSE: ARM) are set to endure a tough time in the years ahead as smartphone sales cool.

The International Data Corporation (IDC) expects device demand growth to cool to just 5.7% in 2016, to 1.5bn phones. This would mark a huge departure from the 10.4% advance punched in 2015, and worryingly IDC expects sales to rise by single-digit percentages through to the end of decade, culminating in 1.9bn unit sales in 2020.

The body notes that sales in the US, China and Western Europe only rose by single digits last year, prompting IDC analyst Ryan Reith to comment that

the mature market slowdown has some grave consequences for Apple … as these were the markets that absorbed the majority of the premium handsets that shipped over the past five years“.

On the pulse

The pressure is clearly increasing on Apple to keep revenues ticking higher.

The business saw iPhone sales grow just 0.4% during October-December, prompting Apple to warn that handset sales will dip for the first time in the current year. And falling iPad shipments provide a further headache — these dropped 25% in the last quarter.

But products like its iPhone 6 Plus ‘phablet’ are providing Apple’s sales outlook with a welcome shot in the arm. Indeed, IDC expects these larger gadgets to account for around a third of all smartphone sales by 2020, up from around 20% at present.

Other sage moves include last year’s rollout of the Apple Watch, a device that is making huge waves in the fast-growing smartwatch segment. Researcher Strategy Analytics announced that global  smartwatch demand rocketed 316% in October-December, to 8.1m units, with Apple’s product accounting for almost two-thirds of all sales.

Diversified dynamo

The fortunes of British chipbuilder ARM Holdings are very much tied to those of Cupertino-based Apple. Indeed, so strong is the relationship between supplier and manufacturer that rumours have long circulated that ARM is a takeover target for the American company.

But while ARM is greatly dependent upon the smartphone and tablet PC markets to deliver top-line expansion, the business is aggressively expanding in other fast-growing segments like networking and servers to deliver long-term growth.

On top of this, ARM is also making a big impression with Chinese phone manufacturers, giving it first-class exposure to surging demand from emerging regions. And the company’s terrific record of developing industry-leading technologies also bodes well for the coming years — indeed, ARM’s ARMv8-A technology continues to grab share across multiple tech markets.

What’s the verdict?

So while it could be argued that ARM Holdings’ increasing diversification puts it in a stronger position than Apple, I believe the US giant also has what it takes to keep generating spectacular bottom-line growth.

Apple certainly has its work cut out to keep sales chugging higher — the tech colossus needs to urgently address galloping demand for ‘budget’ smartphones, for one. Still, I reckon Apple has both the know-how, not to mention top-tier brand appeal, to continue delivering great earnings growth in the years ahead.

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.

Royston Wild 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.

More on Investing Articles

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

If I’d put £10k in BAE Systems shares 10 years ago, here’s what I’d have now

BAE Systems shares have been on fire over the last decade. But just how much would a £10k investment back…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

My favourite S&P 500 stock is still potentially 52% undervalued

The S&P 500 is where many investors look for the next opportunity, but one of my favourites might just be…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

Here’s why I’m watching the Glencore share price

The mining sector has always been volatile, but with some recent strategic moves, I'm watching the Glencore share price even…

Read more »

Young black female footballer training on stadium pitch
Investing Articles

My JD Sports Fashion share price prediction for the second half of 2024

The JD Sports Fashion share price hasn't yet recovered from January’s slump. So will the retailer's stock bounce back in…

Read more »

Investing Articles

Up 47% in a week! Can the Capita share price continue to rocket?

The Capita share price has smashed the market in the last week, and Harvey Jones wonders whether it has the…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

What could the second half of 2024 have in store for the BAE Systems share price?

After a strong first six months of the year, what could be coming next for the BAE Systems share price?…

Read more »

Growth Shares

2 FTSE 100 stocks that are outperforming these MAG7 members

Jon Smith reveals some FTSE 100 stocks that offer him a viable alternative to the Magnificent 7, based on recent…

Read more »

Investing Articles

My Scottish Mortgage shares just paid me £14.88. It’s another step towards making a million

Harvey Jones has just received a measly dividend from his Scottish Mortgage shares, but he's got big, big plans for…

Read more »