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9 Worrying Reasons To Sell Apple Inc. And ARM Holdings plc?

Needless to say, fears over slowing smartphone demand in critical Western markets continues to cast doubt on the earnings prospects of phone builders and component designers across the globe.

But while I reckon the future looks bright for tech superstar Apple (NASDAQ: AAPL.US), in my opinion latest smartphone sales figures make for worrying reading over at ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US).

British sales on the slide

Tech researcher eMarketer announced in its latest industry report that UK smartphone sales are likely to grow just 9% in 2015, to 38.3 million units.

Declining off-take in British marketplaces mirrors the difficult retail conditions seen across Europe and North America as mobile phone sales near saturation point — projected UK expansion for this year marks a huge departure from the 13.8% rise punched in 2014 and 20.7% increase seen in 2013.

And things are expected to get much worse in the coming years, with a relentless sales erosion up until the end of the decade resulting in a miserly 2.5% demand rise in 2019.

iPhone sales surge forwards

For Apple, however, this news may not be as terrifying as it still commands terrific popularity in the smartphone market. Indeed, the success of its iPhone 6 launch back in the autumn confirmed that the Cupertino-based firm is less immune to the slowdown in premium device demand than its competitors.

While Samsung continues to see sales of its Galaxy range fall through the floor, Apple’s latest product launch was the best on record. And according to research house Gartner, the US firm shifted an astonishing 74.8 million phones during September-December versus 50.2 million in the corresponding 2013 quarter, driving its market share to 20.4% from 17.8%.

News that Samsung saw sales tumble by more than 10 million units during the period, to 83 million, should come as a worry to ARM Holdings, however, the business being a major supplier to the Korean business as well as Apple.

Apples and oranges

I believe that Apple not only has the tech knowhow to keep earnings ticking higher, but the company’s peerless marketing approach — not to mention growing success in China — makes it a great bet to keep the bottom line ticking higher. And with the US company trading on P/E multiples of 15.1 times and 14.2 times prospective earnings for 2015 and 2016 correspondingly — any reading around or below 15 times is considered brilliant value — I believe Apple is an absolute bargain at the current time.

But for ARM Holdings, I believe that a murky outlook for the smartphone industry as a whole — combined with the firm’s huge reliance on this one segment for group revenues — leaves it in somewhat of a precarious position. And with the Cambridge company changing hands on elevated earnings multiples of 37.8 times, and 31.7 times for this year and next, I believe that ARM Holdings is in danger of another sharp price correction should earnings forecasts come under fresh pressure.

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