After losing nearly 2 trillion in market value, Apple has reduced its prices.
Declining sales of Apple’s phones in Greater China, facing antitrust lawsuits for its software services in the U.S., inadequate layout in the field of AI, among other factors, have led to some Wall Street analysts changing their rating attitudes towards the company.
Written by Wang Ying from Finance & Economics, researcher Zhang Yun
Edited by Yang Xiuhong
At the beginning of 2024, Apple, which usually doesn’t lower prices on its official website, announced a “price reduction” campaign.
On January 15, Apple’s Chinese official website announced price cuts, starting from January 18 until January 21, covering discounts on almost all Apple products. Discounts on the iPhone series can go up to 500 Chinese Yuan (approximately $70), while the MAC series of laptops can have discounts of up to 800 Chinese Yuan (approximately $112). Other products like iPads, watches, headphones, etc., also have varying degrees of discounts.
Surprisingly, the market was taken aback when the new iPhone 15 series, which was released less than six months ago, began a “price war” on the official website.
Following the price cuts on the official website, authorized e-commerce platforms further reduced prices, offering discounts of over a thousand Yuan on the iPhone 15 series, bringing the price below 5000 Yuan for the first time. Traditionally, Apple’s official prices for the iPhone series usually remain firm until the release of the new model the following year. However, at the beginning of 2024, Apple adjusted the channel prices for the iPhone 15 series, and has since reduced prices multiple times, which is quite rare.
Behind these price reductions lies the predicament of declining sales of Apple products.
Over half of Apple’s annual revenue comes from iPhones. On January 15, Morgan Stanley released a report lowering its first-quarter 2024 iPhone production forecast to 50 million units, a 33% decrease compared to the previous quarter and a 7% decrease year-on-year. They also analyzed that signs of a slowdown in iPhone orders appeared in December 2023, indicating that iPhone sales were below expectations.
Morgan Stanley believes that with the fluctuations in the global economy and decreasing consumer confidence, there may be pressure on iPhone demand.
“While Apple still maintains strong competitiveness, its market share and sales in the Chinese market are decreasing, weakening the advantage of Apple phones. This company no longer possesses an almost monopolistic advantage,” an analyst told Finance & Economics.
The concern has also spread to the capital market, with several institutions recently downgrading Apple’s stock ratings. Apple’s market value has fluctuated downwards since reaching a peak of $3.08 trillion in mid-December 2023, closing at $2.82 trillion on January 17, 2024, resulting in a loss of around $256.6 billion (over 1.8 trillion Yuan) in just one month.
As Apple’s market value shrank, Microsoft’s market value surpassed it, becoming the world’s most valuable stock.
At the close of the U.S. stock market on January 12, 2024, Microsoft’s market value of $2.89 trillion surpassed Apple’s market value of $2.87 trillion, reclaiming the top spot in global market value. By January 17, Microsoft’s market value lead had widened to $70 billion.
As tech giants, the battle between Apple and Microsoft in the global capital market has never stopped.
In 2010, fueled by the tremendous success of the iPhone 4, Apple’s market value surpassed Microsoft’s for the first time. Since then, Apple’s stock price has been steadily rising, becoming the world’s most valuable listed company. Microsoft’s market value exceeded Apple’s twice in 2018 and 2021, but Apple subsequently regained the lead.
This time, how did Microsoft, a traditional tech giant that was once marginalized, manage to rise again?
Industry experts generally believe that the key to Microsoft reclaiming the top spot in market value lies in seizing the opportunities of AI (Artificial Intelligence) and cloud computing.
“Microsoft has made significant progress in AI and presented commercialization strategies for AI, providing a lot of room for imagination in the market. Microsoft has not only made large investments in OpenAI’s ChatGPT project but has also deployed AI products and services, collaborated with IT vendors to create Windows 12, and launched new concept products like AIPC,” said the aforementioned expert.
It is evident that the battle of market value between Microsoft and Apple is not just a competition between two companies but also a reflection of the future development trends in the tech industry.
Decline in Sales in the Asia-Pacific Region
Apple’s financial reports show that in the 2023 fiscal year (U.S. companies use July 1 to June 30 data), Apple’s revenue was $383.3 billion, a decrease of about 2.8% from the $394.3 billion in the 2022 fiscal year.
Regionally, in the 2023 fiscal year, net sales in Greater China decreased by 2% year-on-year, while net sales in Japan decreased by 7%. These two Asia-Pacific regions account for 25% of Apple’s global sales (with Greater China accounting for 19% and Japan for 6%), second only to the EU region, with the domestic U.S. market leading at 42%.
Data from the past five fiscal years shows that unlike Japan, there has been a gradual increase in the net sales contribution from Greater China. In the 2019 fiscal year, Greater China accounted for only 17%, which increased to 19% in the 2023 fiscal year; meanwhile, the percentage from Japan decreased from 8% in the 2019 fiscal year to 6%. Therefore, Apple is highly concerned about the decline in sales from Greater China.
Major domestic and international tech media attribute the decline in Apple’s sales in China to two main factors: firstly, the relatively sluggish consumer demand in China, where Apple, as a high-end electronics consumer product, is naturally affected. Secondly, the various frictions between China and the U.S. in recent years have stimulated patriotic sentiments among consumers. Many consumers have switched their support to Huawei, which has coincidentally launched high-end models that overlap with Apple’s market positioning, thereby squeezing out some of Apple’s market share.
Apart from hardware devices, another business that significantly contributes to Apple’s performance – software services – has faced challenges in the U.S. market. # Apple Faces Legal Setback in Antitrust Lawsuit
On January 17, the US Supreme Court rejected Apple’s appeal in an antitrust lawsuit targeting the lucrative Apple App Store. In the fiscal year 2023, software services accounted for 22% of Apple’s revenue, making it the second-largest source of income for the company.
This lawsuit could potentially allow Apple app developers to bypass Apple’s App Store and directly provide software usage and download links to users without going through Apple’s platform for purchasing and installation. Previously, Apple charged approximately 30% in fees to software developers selling digital goods and services on its App Store.
In the fiscal year 2023, Apple’s software service revenue increased by 9% from $78.1 billion to $85.2 billion, being the only sector within Apple’s business that showed growth.
Apple’s sales in the Greater China region have declined, and the company’s software services are facing challenges such as antitrust lawsuits, leading some Wall Street analysts to reconsider their ratings for Apple.
According to Barron’s, out of 44 analysts tracked by FactSet, 25 analysts rated Apple stock as “buy,” 15 as “hold,” and 4 recommended “sell.” A year ago, out of 42 analysts, 30 had rated Apple as a “buy.”
Market Value Shrinks by Over $250 Billion
Apple’s stock price had a rough start this year.
On the first trading day of 2024, Apple’s stock price began to decline. On January 2, Apple’s stock plummeted over 4% during the trading day, closing down by 3.58%, hitting a seven-week low and evaporating around $107.2 billion in market value. As of January 17, Apple’s market value had shrunk by approximately $256.6 billion since the beginning of 2024.
On that day, Barclays Bank downgraded Apple’s stock rating from “neutral” to “underweight” and lowered the target price from $161 per share to $160 per share. Compared to Apple’s closing price at the end of 2023, this target price suggests a 17% decline in Apple’s stock price over the next year. Barclays stated that “Apple’s performance in most quarters of the past year fell short of expectations, but its stock outperformed other companies. It is expected that this situation will change.”
The analysts at the bank expressed concerns in their report, mentioning that the new iPhone 15’s performance was mediocre, with sales and specifications falling below expectations. They anticipate the same for the iPhone 16, lacking compelling upgrades to stimulate consumer upgrades.
Not only Barclays analysts are pessimistic about Apple. Harsh Kumar, an analyst at the US investment bank Piper Sandler, downgraded Apple’s stock rating from “overweight” to “neutral” and decreased the target price by $15 to $205 per share. Prior to this, Kumar had been bullish on Apple since March 2020.
Kumar believes that the growth rate of iPhone sales has peaked and expresses concerns about the inventory of phones in the first half of 2024.
Analysts at the investment firm Redburn Atlantic also lowered Apple’s stock rating from “overweight” to “neutral,” citing, “With intensified market competition (from Huawei) and geopolitical tensions, the performance of the iPhone in China may drag down Apple’s performance in the coming years.” This marks the third downgrade of Apple’s stock rating since the new year began.
However, some analysts remain optimistic about Apple’s stock. In a report, analysts at Evercore stated that the recent decline represents a buying opportunity, “Although demand in the Chinese market is soft, it is being offset by strong growth in the US and other emerging markets (such as India).”
Several analysts expressed concerns about insufficient demand for iPhones. In the fiercely competitive Chinese market, domestic flagship phone brands have improved their competitiveness in recent years, posing a risk to Apple’s share in the high-end market.
According to the market research institution BCI, in 2023, a total of 270 million smartphones were sold in China, with Apple, vivo, OPPO, Honor, Xiaomi, and Huawei ranking in the top six, with market shares of 17.1%, 16.7%, and 16%, respectively, among the top three.
However, starting from the fourth quarter of 2023, Apple’s smartphone sales in the domestic market have shown signs of weakness, with a 10.6% year-on-year decline, while domestic brands Xiaomi and Huawei have experienced 38.4% and 79.3% year-on-year growth, respectively.
Jefferies, an investment bank, stated in its latest report that due to intense competition from local Chinese brands, particularly the strong comeback in the high-end market by Huawei with the release of the Mate 60 series in August 2023, Apple’s iPhone sales in China dropped by 30% in the first week of 2024.
Despite facing pressure from Huawei and Samsung, in 2023, Apple achieved the unprecedented feat of becoming the world’s largest smartphone shipper for the first time in history. According to IDC data, global smartphone shipments decreased by 3.2% year-on-year to 1.17 billion units in 2023. Apple’s annual shipments were around 235 million units, with a market share of 20.1%, surpassing Samsung and securing the top spot globally for the first time.
However, Apple’s market share in the high-end smartphone market declined slightly in 2023. Data from research firm Counterpoint Research showed that Apple’s share in the global high-end smartphone market (wholesale price above $600) dropped from 75% in 2022 to 71% in 2023, while Samsung’s market share increased from 16% to 17% with its S23 and foldable models, and Huawei’s market share rose from 3% to 5%.
“On one hand, the lack of innovation in the iPhone 15 has raised many doubts in the market. On the other hand, rising competitors, as locally made phones in the Chinese market begin to erode Apple’s share, weaken Apple’s market dominance, and so far, Apple has not taken effective measures to maintain its competitive edge,” an analyst told a financial publication.
Battle for the Top Spot in “Tech Stocks”
In 2023, tech stocks led the US stock market, with Apple’s stock price showing a positive trend throughout the year, rising by 49% and surpassing a market cap of $3 trillion at one point. However, it then took a downturn; since the beginning of 2024, it has fallen by 5.1%. # Microsoft Regains Top Spot in Global Market Value
After a 58% increase in 2023, Microsoft’s stock price has risen by 3.57% since the beginning of 2024. As of January 17, 2024, Apple’s market value stands at $2.82 trillion, while Microsoft’s market value has reached $2.89 trillion. Microsoft has once again climbed to the top of the global market value.
These two companies hold prominent positions in the tech industry and represent distinct business models and technological approaches. Today, with the market embracing AI, a company’s strategic direction becomes particularly crucial.
While Apple undeniably leads in the consumer electronics sector, concerns about future iPhone sales, coupled with Apple’s cautious approach to AI and cloud computing, where they have not yet presented a compelling AI narrative, have resulted in Apple lagging behind Microsoft in the tech race.
Nevertheless, Apple is striving to dispel doubts by taking a different path and betting on the next generation of hardware – smart wearable devices.
On January 19, Apple’s new generation of AR (Augmented Reality) headgear, Vision Pro, began pre-sales in the United States and will be officially released on February 2. The pre-sale price for Vision Pro is $3,499 (approximately ¥25,000).
According to data from the China Industry Research Institute, the global and Chinese AR market is projected to grow at a CAGR of 41.19% and 42.20% from 2023 to 2029, respectively. By 2025, the global and Chinese AR market sizes are estimated to reach $112 billion and ¥142 billion. AR is expected to bring additional value to the consumer electronics market. The institute also forecasts that the second generation of Vision Pro may see a price reduction, with Apple’s second-generation AR product expected to generate annual sales between $39 billion and $65 billion.
However, initial reviews from tech bloggers who tried Vision Pro indicate that the device still suffers from poor user experience during prolonged use. Some testers reported unbearable headaches after 20 minutes, while others experienced mild pain after half an hour.
Whether the release of Vision Pro will boost Apple’s stock price remains uncertain.
“Apple currently lacks a strong new business to support its valuation. Headgear devices are not yet capable of forming a mature market. Apple has been investing in headgear devices for many years, but the uncertainty is high and it is difficult to bring new growth points and valuation support to the company,” said the aforementioned analyst.
On the other hand, Microsoft, as a seasoned player, has taken the lead in the field of AI. They first invested billions in the OpenAI company behind ChatGPT, and have integrated generative AI technology into their own products and services, such as Microsoft 365 Copilot, paving the way for AI monetization.
Furthermore, Microsoft has been entrenched in the field of cloud computing for many years. Azure cloud services, Microsoft’s flagship product, have already established a significant presence in the global cloud computing market.
Microsoft’s dominant position in areas such as artificial intelligence and cloud computing has been a key catalyst for its stock price surge.