Apple Under Pressure

A vast majority of the world see Apple as the lead tech company, with a very successful product lineup. However, the pressure is on as users are expecting more and more from the Tech Giants. Steve Jobs’s successor as CEO of Apple, Tim Cook, wants investors to “think different” about his company: less as a hyper-growth startup-like company and more as a mature but robust technology corporation with the world’s biggest dividend. If Wall Street follows Apple’s famous advertising slogan of old, it may relieve some of the pressure on Apple’s chief executive, quieten investors’ grumbling about its recent share price slide and buy the company time to do what it says it does best - come up with and market exciting new products; that will sell.

This week Apple said it would return $100bn to shareholders by the end of 2015, in part by raising its dividend by 15% and in part by increasing its share buy-back program sixfold to $60bn. To some extent, the expanded capital return program helped to mask its first big quarterly profit decline in a decade (Apple shares climbed marginally to $406.96 on Wednesday, but the stock has lost 43% since mid-September), although analysts say that the more important issue now is what Apple has in store on the gadget front. There will be a WWDC event starting on the 10th of June (click here to read more), where Apple are expected to release a completely remodeled version of iOS - iOS 7. There is also a lot of anticipation for the new iPhone, but we are most likely to see it in the second half of this year. To read more about the iPhone 5S/6 and iOS 7 please click here. Apple’s earnings growth trajectory has come to earth in the past year. After posting average annual earnings  growth of 62% in the past five years, its profit is now forecast to grow at just 4.5% a year for the next decade. For this year, earnings are expected to fall 4.4%, according to Thomson Reuters StarMine data. But Tim Cook is trying to reset heightened expectations around a company once universally known for its ability to captivate both consumers and Wall Street. In the years following the introduction of the iPhone in 2007 and the iPad in 2010, the company established a pattern of consistently blowing past even the highest Wall Street earnings expectations, much to everyone’s delight. This week Cook made the rare admission to analysts in a conference call that Apple’s growth had slowed and margins had decreased.

Investors have watched as Apple shed more than $280bn in market value in the past few months as investors adjusted to a new, slower-growth reality. If Apple release something BIG soon, such as a futuristic iPhone or a new product lineup, their earnings are sure to top the roof. This week, Tim Cook tried to drum up enthusiasm about the product pipeline by teasing that “some really great stuff”,  potentially in new product categories, was coming in the autumn and in 2014. Exciting, eh?

“They need something that breaks into new verticals, whether it’s TV or something that’s wearable, that opens up a new revenue stream,” Forrester analyst Sarah Rotman Epps said.

Since Cook took over in 2011 from the late co-founder Jobs, some investors have questioned whether Apple can continue to upend technology markets with revolutionary products that appeal to consumers in the absence of the tech icon. Tim Cook has in the past year presided over three straight quarters of missed revenue expectations before the January to March period. The key product introduced during his tenure was the iPad mini, a response to tablets such as Amazon’s Kindle.

The public speculate that a new iPhone and new iPad will come this year, along with refreshed Mac computers and iPod music players. But the speculation is that Apple is also working on a watch, a TV and a radio service, among other products in the pipeline. Looks like we will have a very interesting couple of years ahead.