Advance to the $3 trillion club Where is Apple next?

Reporter Tan Lun reported from Beijing

On the first trading day of the new year of 2022, Apple's market capitalization reached a new milestone.

The "China Business Daily" reporter noted that on January 3, 2022, local time in the United States, Apple's stock price exceeded $180 / share in the intraday, and its market value also exceeded the $3 trillion mark, setting a record high, becoming the world's first company to advance to the $3 trillion club.

Since its first market capitalization exceeded $1 trillion in the summer of 2018, it has only taken Apple about 3 and a half years to achieve a three-fold increase in the company's market value. From $1 trillion to $2 trillion, Apple took 2 years, and then $3 trillion, it took only 16 months.

The growth rate of market capitalization of nearly an average annual trillion US dollars also makes the capital market's high expectations for the "Apple myth" continue. According to the Refinit research report, according to the 12-month expected profit, Apple's current price-earnings ratio is about 30 times, although slightly lower than the 32 times in early 2021, but it is still at a high level since 2008.

At the same time, as Apple begins to explore the two new markets of self-driving cars and meta-universes, a number of global investment banks have also given optimistic estimates in research reports, and when Apple releases augmented reality and virtual reality products, its market value will still have room to rise.

However, under the fame, Apple also has a "crisis". Before this round of explosive growth, Apple had experienced a year of sales growth rate of only single digits, and even experienced a decline in sales in fiscal 2019. In September 2021, Apple's stock price also fell by 9% due to rumors of iPhone production cuts caused by insufficient upstream chip production capacity. In addition, the lack of product innovation has been questioned continuously, which has also made Apple's bearish view have always been quite marketable.

Like many commercial companies that have stood on the historical peak, on the one hand is praise and good, on the other hand is the shadow and challenge, in the mixed waves, the record-setting Apple has once again sailed to the next station, and this time is to continue the growth miracle, or usher in the inflection point of prosperity and decline, but also become a new point of view of the market.

The road to 3 trillion

There are many reasons to be optimistic about Apple, and for the capital market that prefers data, the market value growth rate created by Apple in more than 3 years is undoubtedly the most convincing. But what makes the outside world even more curious is how Apple did it.

The earnings report reveals the secret of Apple's strength. When the clock is turned back to Apple's market value for the first time in 2018, the iPhone accounted for as much as 60% of Apple's revenue that year, and in fiscal 2021, although the demand growth momentum of iPad and Macbook during the epidemic period overshadowed the iPhone to a certain extent, the latter's contribution to Apple's revenue that year remained at about 52%.

The sales of the iPhone are more supportive of Apple's growth trajectory. Although the global shipment of iPhones reached 225 million units in 2018, this figure fell to about 193 million units in 2019 under the squeeze of competitors such as Samsung, Huawei, and Xiaomi, but thanks to the price increase strategy of the iPhone X series launched in 2018, Apple's revenue still increased by 20% year-on-year.

After entering 2021, on the one hand, thanks to the growth of office market demand during the epidemic, Apple has made great progress in the tablet market. According to the full-year financial report, Apple's iPad revenue was $31.862 billion, an increase of 34.3% year-on-year; Mac revenue was $35.19 billion, up 23% year-on-year. On the other hand, due to the decline in market share of its main rival Huawei, Apple has almost eaten the market share of high-end mobile phones spit out by the former.

IDC report shows that in the third quarter of 2021, global smartphone shipments fell by 6.7% year-on-year, Apple against the trend of growth of 20.8%, becoming the world's top five mobile phone manufacturers in the same period of the highest growth rate of manufacturers, Canalys data shows that in the first three quarters of the year, the total iPhone shipments also returned to the world's second.

Hardware sales, including the iPhone, have brought apple high revenue growth. Apple's fourth quarter 2021 financial report shows that Apple achieved revenue of $83.4 billion, an increase of 29% year-on-year; net profit of $20.6 billion, an increase of 62% year-on-year. Among them, iPhone revenue reached $38.8 billion, an increase of 47% year-on-year, accounting for 46.62% of total revenue.

Tianfeng International Securities analyst Guo Mingxi expects iPhone sales to continue to grow in the next two years, from 195 million units in 2021 to 230 million to 240 million units and 250 million to 260 million units. At the same time, according to public reports a few days ago, Apple has planned to increase the order volume of the iPhone 13 by 20% to achieve the production target of 90 million units by the end of 2021.

In addition, Apple CEO Tim Cook's operations have also promoted Apple's move towards the $3 trillion club. In fiscal 2021, Apple invested $85.5 billion in stock buybacks, which could reduce the number of shares in circulation in the market, thereby increasing the stock price, while increasing investor confidence that Apple has sufficient cash flow, thereby feeding back the stock price.

It is precisely by relying on the strong sales of hardware products, beautiful financial reports and capital operations that Apple's stock price has risen steadily in three years. Driven by this positive, a number of market analysts told reporters that if iPhone 13 sales continue to be strong, Apple is expected to break through the $4 trillion mark in 2022 and create history again.

The worry behind the aura

Shrouded in a $3 trillion aura, the scenery of Apple is not without flaws.

Although the strong sales of mobile phones have brought about a rapid increase in Apple's market value, it has also become Apple's weakness. The reporter noted that because the latest financial report released on October 19, 2021 showed that Apple's main business income is still dominated by hardware revenue such as mobile phones, the overall financial report performance is lower than expected. After the earnings report, Apple's stock price fell by 4% at one point.

"Apple's surge over the years is more based on shoucheng, but in terms of innovation, it is actually lackluster." A UI designer of a domestic mobile phone manufacturer told reporters that after Jobs left, Apple has been in a state of eating the old money in mobile phone product design, "The bangs design of the iPhone X full screen is left for five years, which is unimaginable in the era when Jobs was in charge of Apple." The person said.

The industry generally believes that this can also be seen in the pricing strategy of the iPhone 13, because there are not too many innovative function points as a publicity, the price of the iPhone 13 has become the biggest selling point. "This may increase iPhone sales in the short term, but in the long run, it will increase the capital market's doubts about Apple's lack of innovation." A venture capitalist told reporters.

Ding Shaojiang, an analyst in the electronics industry, believes that this is not a problem for Apple, but that the overall technological innovation of the current smart phone industry has entered a bottleneck period, and whether it can break through in the future depends on the technological progress of the entire industrial chain. But for Apple, because the pattern of the entire market has stabilized, the innovation dilemma will greatly limit the future growth space, which is very unfavorable to Apple, which is still seeking market value growth.

With the lack of innovation questioning, whether the well-known "apple tax" can continue has also buried the uncertainty of Apple's income generation. The reporter noted that this model of taking a profit from the purchase of the App Store is becoming the target of anti-monopoly targets in the United States, Europe and other countries and regions.

Analysts estimate that the App Store collects about $20 billion a year in revenue from developers, with a profit margin of more than 75 percent. This high-profit business also makes the market very sensitive to the whereabouts of apple taxes, and in September 2021, after Apple was ruled by a local court in California that developers could not be forced to use in-app payments, Apple's stock price crashed during the intraday, and the market value directly evaporated by $540 billion.

In addition, the lack of cores that has continued since the epidemic has also made apples begin to suffer. According to the above-mentioned supply chain sources, from September to October 2021, Apple's revenue loss was heavy due to the 20% reduction in iPhone 13 series production than the expected target.

Cook has said that due to the impact of the epidemic, chip manufacturers are undersupplied, and the company's annual loss will exceed $10 billion.

According to the reporter's understanding from the supply chain person, this round of chip shortage may be more serious and last longer than imagined. In this regard, Luo Guozhao, director of the Chinese laboratory of CHIP Global Test center, believes that because Apple implements an advance payment system for chip suppliers, the lack of core will not cause too much impact on Apple in the short term, but in the long run, the lack of core will cause irreversible damage to Apple's supply chain, which will be reflected in Apple.

Find new gold mines

Perhaps aware of the many crises that exist, Apple is also looking for new gold mines to tell a new wealth story to the capital markets.

Metacosm is a hit in Apple's public plans right now, and while Cook has always denied that Apple would have a relationship with the buzzword, apple has been betting on virtual reality (VR) and augmented reality (AR) over the past 10 years, acquiring ten AR/VR companies involving sensors, AR software, AR content ecology and even AR lenses.

Foreign media reports confirmed that Apple is currently researching two devices, one is a VR device, with movie-watching, gaming, and social capabilities, which will be launched as early as 2022; the other is AR glasses, which are still in the underlying technology research stage, and the release time may be in 2023. According to the Tianfeng Securities report, Apple will launch an AR/VR headset in the fourth quarter of 2022.

At the same time, Apple has not spared the popular self-driving car track. Although as early as 2014, Apple launched the car project "Titan Plan" in a high profile, but 8 years later, Apple's car-making team has continued to undergo blood changes, but not a single finished car has been built. It wasn't until 2021, after poaching the former Tesla autopilot director, that the issue of Apple's car building came into attention again. At present, Apple is advancing development progress and focusing on fully autonomous driving capabilities, with electric vehicles launched as soon as 2025.

In addition, in order to face the competition with the x86 architecture, Apple has also extended its business tentacles to self-developed chips, and the first battle of the M1 series chips has also been a great success. According to the fourth quarter of fiscal 2021, the revenue of Apple's Mac segment has mainly come from the MacBook Air equipped with self-developed chips.

According to the plan announced by Apple, its self-developed chip layout has been expanded to power management chips, screen driver chips, T-series security chips, Bluetooth headset main chips, base frequency chips, fingerprint recognition chips, 3D somatosensory chips, etc.

For the prospect of Apple core making, Luo Guozhao believes that the integration ability and market position of Apple's vertical industry chain can fully support the current core making strategy. "Apple needs to export its own design and production strength, while concentrating more profits in the industrial chain in its own hands, and it is better to buy others than to use your own." Luo Guozhao said that with the help of core manufacturing, Apple can also ensure that in the future, when entering the field of greater risk such as automobiles, the risk will be controlled in its own hands.

Major General Ding believes that compared with the mobile phone field, Apple does not have an absolute leading advantage in new tracks such as AR/VR and automobiles, and even taking the car as an example, Apple is lagging behind the current entire competition window. "For a company of Apple's size, if it can't do the head position in the relevant field, it will fail, and the capital market will also cast a vote of no confidence in the stock price." Major General Ding said.

The reporter noted that so far, Apple still has no obvious progress on the new track, although it still has the advantages of hardware, operating system and ecology, but on this road to $4 trillion, Apple obviously has a lot to do.