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When Apple (NASDAQ: AAPL) speaks, the world listens. Anytime Apple unveils new products, it is huge news.
It’s no surprise then, that Apple’s March 21 event was highly scrutinized by fans, shareholders and financial analysts alike. Indeed, Apple had a lot to say, and packed a great deal of information into the event.
Apple Takes an Unprecedented Step
Apple showed off a new 4-inch iPhone, called the iPhone SE, which will be priced at just $399—the lowest price of any of Apple’s new phones.
The move is a clear attempt to grab share back from lower-cost devices that run on the Android operating system. For years, while Apple has by far been the most profitable device maker, Android has commanded the majority of market share.
Apple seems to be making a major shift in its previous strategy, which was to focus less on selling the most phones, and instead focus on selling the best phones. This could backfire, if Apple’s market share grab results in margin contraction.
That being said, it could be a good long-term move. This could also be viewed as a stealth play to gain further exposure to the emerging markets, which have much higher growth potential than more developed economies. These geographies are ripe for Apple, but the persistent threat of low-cost competition from the likes of Xiaomi and others, has prevented Apple from taking greater market share.
Importantly, customers who buy the Apple iPhone SE won’t have to sacrifice a great deal in terms of functionality. The iPhone SE will have most of the same hardware and features as the iPhone 6S, minus 3D Touch.
In addition to the low-cost iPhone, Apple took the lid off of a smaller iPad, called the iPad Pro, which has a 9.7-inch display. The iPad Pro will start at $599 for the 32GB version.
Lastly, Apple unveiled some new color bands for its Apple Watch, and also cut the price of the 38-millimeter model by $50.
IPhone Worries Overshadow New Models
This event was particularly important for Apple, because the company is highly reliant on the iPhone, which itself represents 68% of Apple’s total revenue. There are reasons to be concerned about its flagship device. Apple sold 74.8 million iPhones last quarter, which is an incredible number. But the iPhone isn’t growing.
Total iPhone device sales were up fractionally year over year. Revenue from the iPhone increased just 1% year over year. Last quarter, Apple recorded the lowest growth in iPhone sales since it was first introduced in 2007.
Apple earned $3.28 per share last quarter on $75.87 billion of revenue. Earnings per share rose 7% year over year, and revenue increased 2%. The results would have been even better if not for the strengthening U.S. dollar; constant currency revenue increased 8%. Apple is generating solid growth from new products and services.
Leading Apple’s growth are its new products and services, such as its services business, which includes iTunes, the App Store, Apple Pay and Apple Music. That segment grew revenue by 26%. Separately, revenue from Apple’s “other” category, which includes the Apple Watch, iPod, Beats and the Apple TV, was up 62%.
Buy Apple Stock Regardless
Whether Apple’s major event lived up to the hype is questionable. The company did unveil some new products, but these were more evolutionary than revolutionary.
It’s not likely that the Apple event alone means you should buy Apple stock, but it’s a stock that should be owned regardless. That’s because Apple remains one of the most valuable brands on the planet and it generates massive amounts of money.
And the stock is simply too cheap to sell. Shares trade for a price-earnings ratio of just 11 – about half the average valuation of the S&P 500, and Apple stock offers a 2% dividend. Nothing about this suggests investors should sell the stock; instead, investors should view the current period of malaise as an opportunity to buy Apple stock.
The Ghost of Steve Jobs
Before he died, Steve Jobs gave an interview to the New York Times where he revealed his desire for Apple to create something unlike anything the world had ever seen. Though Jobs is no longer around, his dream for this technology is alive and kicking. According to global consulting firm KPMG, this technology “could provide solutions to some of our most intractable social problems.” And Morgan Stanley believes it could save the American economy $1.3 trillion each year.