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Apple Goes Pear-Shaped

Apple's in a bear market

Image source: Nataliia Starikova, John Gress Media Inc - Shutterstock

What's going on?

Apple’s stock entered a “bear market”, falling more than 20% from recent highs. And this week investment bank Goldman Sachs lowered its opinion of the company’s value for the third time this month, signaling a lack of ladders propping up the once-bountiful orchard.

What does this mean?

The smartphone giant has had a rough month. Sales of the new iPhone XR are apparently much worse than anticipated, forcing Apple to reduce production. The company has been hurt by slowing Chinese demand, with a strong US dollar compounding issues by reducing the value of Apple’s overseas sales.

Apple’s troubles affect a whole fruit bowl of companies. Foxconn, the mega-factory that assembles the iPhone, now expects a difficult 2019 — and is planning almost $3 billion of cuts in response (tweet this). In recent weeks manufacturers ranging from Japan Display to Face ID supplier Lumentum have all issued warnings that their biggest customer isn’t doing as well as hoped.

Why should I care?

For markets: The doctor’s no longer away…

Apple is the most valuable company in the world, worth an astonishing $1 trillion before this recent slide. Its significance to the global economy means that when it slips, the rest of the market often follows: Tuesday saw a sharp selloff in stock markets, and particularly in the technology sector (though stocks bounced back some on Wednesday). Investors will be watching Apple closely to see if things improve over the coming months – but with the company no longer reporting individual product sales, defining that could be tricky.

The bigger picture: Diversification is key.

This downturn isn’t affecting everyone equally. Companies with a broad range of revenue streams are better at weathering storms, as evidenced by the $1.2 billion investment made by lithium producer Albemarle on Wednesday. Lithium demand is expected to triple in the next ten years: it’s used in all sorts of batteries, from phones to electric cars. As all good farmers know, you have to sow your seeds widely to succeed…

Originally posted as part of the Finimize daily email.

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