Michael Robinson: It’s been about a month since Apple Inc. (NASDAQ:AAPL) shares started their recent slip. They’re now down about 12% in that time, and a few talking heads are still trying to scare investors into selling…
As usual, they’re wrong.
The stock market has pulled back overall, and Apple isn’t immune from those downturns.
Really, no stock is.
But I love Apple as a foundational tech holding, and I remain just as optimistic as ever about it. In fact, with this recent dip, I’m even more so.
It’s not just because the company is booking record sales and leading the charge to develop “must-have” technology – although that’s true.
It’s the long-term trends in China – and Apple’s disruptive, dominating position there and around the globe – that will bring incredible profits over the months and years to come.
Let me explain, and then I’ll show you just how to play Apple in this situation…
Understanding Apple’s Relationship with China Is Critical
Part of the rationale for Apple’s recent decline has been the devaluing of the yuan. The thinking goes that a weaker yuan translates to less revenue when it’s ultimately converted back into U.S. dollars.
While macroeconomics will certainly come into play, what’s actually happening at the company has a more immediate impact. Apple revenue hit a third-quarter fiscal year record of $49.6 billion. That’s up roughly a third over its previous third-quarter mark. Earnings per share were up 45%.
We’re clearly not talking about a tech startup, but we may as well be – any startup would have to be thrilled with growth like that. Indeed, Apple’s Greater China segment, which includes mainland China, Taiwan, and Hong Kong, was up 112% compared to fiscal Q3 last year.
There’s also been much made of Chinese competitors such as Huawei Technology Co. Ltd. cutting into Apple’s iPhone sales in China.
It’s true, the yuan’s devaluation is designed in part to help local firms, but keep in mind that the iPhone is a premium brand that is tearing up the market even though it’s priced at over double the average smartphone cost there.
The iPhone has become a status symbol in the world’s most populous nation. Consider that, by 2022, there will be 630 million people in China’s middle class, consuming goods and services worth $3.4 trillion, and you get some idea of the sheer depth of Apple’s market there.
So, frankly, concerns over unit sales have more to do with doubters finding a storyline via a perceived weakness in Apple’s armor than any viable, long-term threat.
Apple, on the other hand, poses a very real threat to many of its competitors – especially those who don’t truly realize they’re competing with Apple yet.