Apple was said to be different to all other technology companies in that it broke the laws of price elasticity. It could get away with increasing prices significantly without fear of crushing consumer demand.
But times are changing.The creator of the smartphone pulled forward lots of demand with the release of the iPhone X, but once that initial demand was satisfied sales have fallen away.
That is not to say that Apple is losing its mojo in China. It has lifted its market share in that country’s smartphone market from 19 per cent in June to 20 per cent in November.
But as with any statistics there are wheels within wheels. Huberty says the increased market share is largely a function of lower iPhone churn and longer replacement cycles as smartphone shipments through the third quarter showed that the iPhone lost unit share to the benefit of Huawei.
Improved data analytics
Huberty’s insights into the Apple business have benefited in the past year from the combination of her own analysis with the work of a division at Morgan Stanley examining big data using software such as Python.
Traditionally, analysts have worked with Excel spread sheets to analyse data and make informed judgements about the future performance of companies. But spread sheets do not have the capacity to analyse much larger data sets.
Huberty now has access to big data analytics which are used to examine the performance of all of the suppliers in the iPhone supply chain. This information is used as a predictive tool for iPhone sales.
But Huberty showed her insight by not being fooled last year when the supply chain numbers suggested iPhone sales would be higher. Using her own channel checks she picked the fact that Apple’s inventory was rising and, therefore, that meant sales would be lower.
Early last month she followed that up by lowering her iPhone shipment numbers by 13 million to 200 million for fiscal 2019.
On Thursday, following Apple’s first negative announcement in 15 years, Huberty said she was lowering her iPhone shipment number by another 20 million to 180 million.
She lowered her share price target from $US236 a share to $US211 a share, which is about 44 per cent below the after-hours price for Apple shares on Thursday of $US146 a share.
Huberty remains bullish about Apple for several reasons but the main one is its platform services business, which accounts for 14 per cent of revenue and 21 per cent of gross profit dollars. She says it will grow to 27 per cent of revenue and 40 per cent of gross profit dollars by 2022.
“As more Apple users buy multiple products and services, loyalty rates increase materially, helping expand the installed base even when shipments decline – a dynamic not fully appreciated by investors,” she said.
Huberty believes Apple will accelerate its innovation on the back of its strong research and development expenditure. It spent $US11 billion on R&D over the past three years, compared to $US1 billion ahead of the release of the iPhone and the iPad.
Disclosure: The author’s super fund owns shares in Apple.