Apple Inc. is currently valued by the US stock market at nearly 887 bln. USD. About 20% percent of Apple's revenues come from China. President Trump and America are apparently engaged in a trade war fight with China. Apple was valued not long ago at more than 1 trillion USD. For the first quarter of 2019 smartphone sale declined 2.7% year on year global according to Gartner.
What does this double hit - America's trade war with China and declining smartphone sales speak about Apple's future business prospects? Actually, in my opinion Apple Inc. is fairly valued at the moment. The previous valuation of more than 1 trln. USD reflected too much future growth, which mainly hinged on China. But now that President Trump and the US administration is waging a trade war with China, the expected future growth in China for Apple is not likely to materialize. On the contrary. In the quarter ending December 2018 Apple reported a drop of 5 bln. USD in China sales, which represents a fall of 27% year on year. According to Apple's CEO Tim Cook "things have improved" in January 2019.
But since then the trade skirmish between USA and China has only intensified. So Apple's China sales are not likely to recover to previous levels any time soon. What is more, the smartphone market is now saturated and is even shrinking especially in the high end segment where Apple is active. Apple, of course, is saying that it is trying to become a services company which would increase its multiples. But the problem is that hardware markets are usually much larger than services markets. And even if Apple bites off a large share of the apps sales markets and music streaming market, that kind of revenue will not be very big. Yes, if its smartphone share of the global market stays the same and Apple expands its services market share, the company will definitely be worth more. But the evidence clearly shows that Apple's smartphone revenue is shrinking, although the company does not any longer break down sales of smartphone, PCs and tablet units.
In short, Apple is fairly valued at the moment. If the trade war between China and USA gets resolved in an amicable manner, Apple smartphone sales could recover somewhat. My view on the trade war, however, is that it is going to hurt both USA and China's economies, with China's economy suffering disproportionately more.
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Petar
Vladimirov Posledovich is not liable for any investment losses incurred
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Kind regards,
Petar Posledovich
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