Apple Watch: Analysts As Upbeat As Ever On Apple; Investors Not So Much!

Sure, it can do many useful, even delightful things, such as showing incoming texts and email, tracking heart rates during exercise or sending digital doodles to friends. SAN FRANCISCO: Apple shares took a bruising following a disappointing quarterly report, while an analyst report showed the US tech giant’s freshly launched smartwatch rules the growing market.

Forget that iPhone unit sales were not as strong as many had expected; that the revenue forecast fell short of the average estimate, and that there was no clarity on Apple Watch sales.The Apple Watch seized 75 per cent of the fast-growing global market for smartwatches in the second quarter of 2015, according to research firm Strategy Analytics.Technology giant Apple could see its iPhone sales under pressure in mainland China amid lingering uncertainty in the world’s second-largest economy, according to analysts.

US tech giant Apple was poised to see as much as $50bn (€46bn) wiped off its market capitalisation yesterday amid concerns about the long-term prospects of its much-vaunted smartwatch and iPhone sales that were lower than expectations. Analysts, for the most part, remain as upbeat as ever on Apple Inc after investors knocked more than US$65bil (RM247.44bil) off the company’s market value in initial reaction to the company’s quarterly results on July 21.

Global smartwatch shipments in the three months to June jumped 457 per cent to a record 5.3 million units, up from 1 million a year ago, driven by the estimated 4 million Apple Watches shipped worldwide during that period. The prediction followed Apple’s announcement this week of record iPhone unit shipments and sales in its fiscal third quarter ending June 27, powered by high demand in its “greater China” market – comprising the mainland, Hong Kong and Taiwan. AAPL -4.23 % on Wednesday cut its capital-spending projection for this fiscal year by 8%, reducing what it plans to spend on purchasing manufacturing equipment, building data centers and retail stores.

Early Apple Watch owners seem generally happy with it, but Apple’s bigger worry should be those on the sidelines – even hardcore Apple fans, not to mention everybody else – who are waiting to take the plunge. Apple does not release sales information on the Apple Watch, but that has not stopped various analysts from making their own estimates based on supply chain figures and other data. In a quarterly earnings report released late July 21, Apple folded smartwatch revenues into an “other” category that included money made from sales of accessories such as Beats headphones.

Of the rest, 15 kept their “buy” or equivalent rating and four a “hold”. “We believe Apple’s future prospects have never been brighter,” Cantor Fitzgerald analyst Brian White said in a research note, maintaining his “buy” rating. Apple chief executive Tim Cook said during an earnings call that it would not be unreasonable to attribute most of the increase in “other” revenue to the smartwatch, which would mean sales accounted for a meaningful chunk of the US$1.3bil (RM4.94bil) increase.

Apple shares, which have risen almost 19% this year, closed down 4.3% at US$125.14 (RM476.40) on July 22, the stock’s biggest intra-day percentage fall since December 2014. “As Apple has become the ‘gold standard’ of technology, it is held to a higher standard,” said FBR analyst Daniel Ives, who described the iPhone maker’s quarter as “good but not great.” “With a new iPhone around the corner, the seasonally stronger quarters ahead and a possible Apple TV update, coupled with valuation, we would be buyers on weakness,” said analysts at Robert W. Cook, however, offered some insight based on Apple’s data for its fiscal quarter ended June 27: “The Apple Watch sell-through was higher than the comparable launch periods of the original iPhone or the original iPad. Analysts, however, remain convinced that mainland China’s stock market crisis and weakness in overall smartphone demand signal a continued slowdown that could impact domestic iPhone sales in the near term. A company spokeswoman said Apple lowered the forecast because it was able to spend more efficiently for tooling equipment and facilities. “There are no changes in our product plans,” she said. Apple shares, however, sagged on Wednesday under the weight of heavy expectations by investors accustomed to the California-based company delivering dizzying earnings results.

Apple’s latest quarterly profit leapt as consumers around the world snapped up big-screen iPhones but its shares slipped as analysts had expected even more stunning sales along with clear signs Apple Watch would be a big money maker. It nagged the physically active New Yorker to stand up during a six-hour flight. “Apple is famous for telling us what we need before we need them,” Clayton said. “I thought this would be the case with the watch.

The tech giant reported that its profit jumped 38% to US$10.7bil (RM40.73bil) on surging iPhone sales, compared to US$7.7bil (RM29.31bil) in the same period last year. “We had an amazing quarter,” Cook insisted, noting that iPhone revenue in the quarter that ended on June 27 was up 59% from the same period a year earlier. When Apple announced its initial spending plans in October, the company said it planned to allocate $12.4 billion for manufacturing equipment, data centers, corporate facilities and infrastructure. Growth in emerging markets such as China and India, where many believe Apple is likely to take market share from Android, is key a reason for optimism, analysts said. “We believe the company is positioned to exploit the rise of the middle class in these geographies over the next several years,” William Blair analyst Anile Doral, who has an “outperform” rating on Apple, wrote in a client note.

In a survey of 800 Apple Watch users last week, Wristly found 66 per cent are “very satisfied/ delighted” by the device and 31 per cent as “somewhat” satisfied. The remaining $600 million, Apple said, was earmarked for retail store facilities including the opening of 25 stores and remodeling of five existing stores. Cook brushed aside any worry about iPhone sales growth, expressing confidence it has “lots of legs” that it will be running with for many years to come given market factors such customer satisfaction rates and the booming overall global smartphone market. Expectations are so high that it’s easy to forget, as Apple said, that the watch actually sold better in its first 9 weeks than the iPhone and the iPad did when those came out.

Cantor Fitzgerald experts believe Apple Watch will be a “go-to gift” during the year-end holiday season and become the best selling new product in Apple’s history. Cook said Apple has kept its focus on first-time iPhone buyers, including those who make the switch from using Android smartphones. “We’re still seeing very, very large numbers in the countries that you would want to see those in, like China, Russia and Brazil,” he said. Apple Watch was the first new product line introduced by the culture-changing company behind iPhone, iPad, iPod, and Macintosh computers since 2010. – AFP It said its results included the impact of a $7.5bn non-cash impairment charge related to assets associated with the acquisition of the Nokia handset business, as well as a $780m restructuring charge. Apple chief financial officer Luca Maestri pointed out during the company’s conference call with analysts on Tuesday that the company spent $4 billion during the quarter on stock buybacks and another $3.1 billion on dividends.

The company has spent significantly more money in recent years, building out a large footprint of data centers across the world to power its services such as the App Store and iTunes. After all, early adopters of new technologies tend to understand that what they’re getting isn’t perfect. “I’d recommend it to people with an open mind,” said Dennis Falkenstein of Danville, California. Microsoft, headed by chief executive Satya Nadella, said the decline was because computer makers were tightly managing PC inventory ahead of the launch of Windows 10 next week. Apple has run television commercials showing the watch in everyday life, and it has devoted tables at its retail stores for people to try one on and learn more.

Apple probably doesn’t have to worry about an antitrust battle like the one Microsoft faced with the U.S. government in the late 1990s and early 2000s. While Apple has been more apt to do deals under Tim Cook’s watch than when Steve Jobs was CEO, its biggest purchase so far was Beats Electronics last year.

David Lubarsky, a Fairfield, Connecticut, photographer, loves that he can get “basic information, quick” and avoid staring at Facebook on the phone all day. The watch version of one transit app offers bus schedules for your saved locations – even if they are far away – rather than the stops closest to you at the moment, as the phone app does. Apps will get better when Apple updates the watch’s software this fall to permit more “native” apps – those that aren’t just extensions of phone apps.

At some point though, Apple may face even more pressure to do something productive with its $200 billion war chest instead of letting it collect dust in Ireland and other tax havens.

 

 

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