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

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.

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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.