Apple‘s (NASDAQ:AAPL) share price has only just started to recover after a poor start to the year. During mid-April, the tech giant’s stock price had fallen by more than 14%. The lack of demand for consumer technology products after COVID-19 precipitated a glut of them and the subsequent rise of inflation are just a couple of reasons why AAPL has underperformed its $1-trillion-dollar market cap peers.
Since the start of May until the end of last Friday’s trading session, Apple shares have rallied nearly 14%. However, investors, particularly retail investors, should not be fooled by this stock price surge. The iPhone-maker has a number of risks facing its sales and net income growth.
The outlook for consumer tech products is still grim
A few weeks ago, Apple released its second quarter earnings report for fiscal year 2024 and markets reacted positively. The announcement of the largest share buyback program in the iPhone-maker’s history as well as its apparent optimism on long-term growth seemed to have elated analysts, investors, and traders alike. However, if we glean closely at the company’s financial figures, there is little materially to be excited about.
Total quarterly revenue continued to fall – this time by 4% – to $90.8 billion. In particular, Apple’s product revenue, which includes iPhones, iPads, and MacBooks, fell by nearly 10% on a year-over-year basis. While services revenue was able to accelerate by 14% from the same period in 2023, analysts don’t put a lot of weight into that segment, driving the company’s long-term growth.
Inflation remains elevated and so do real interest rates. These macroeconomic factors coupled with the points that the consumer electronics market is full of sophisticated competitors and is facing market glut will lead to a continued diminution of sales figures for the near and medium terms and perhaps even in the long term.
Apple’s “China problem” has only magnified
Undergirding much of Apple’s woes are developments in the world’s second-largest economy, China. The country’s technology champion, Huawei, released the Mate 60 Pro in September, with a system-on-a-chip (SoC) designed and manufactured in China. This sent a strong message to not just Apple but also U.S. policy officials that their consecutive rounds of sanctions had inadvertently created a rising domestic semiconductor ecosystem in China. The recent Huawei Pura 70 is the latest success the company has shown the world in its fight to overcome U.S. sanctions.
What has happened in the meantime is Apple has lost a significant amount of market share to Huawei in China. At the end of the first quarter of 2024, the iPhone-maker lost its spot as the top-selling handset brand in China as both Huawei and Honor, once a Huawei brand, took the top spots. In particular, Honor’s market share sat around 17.1% while Huawei’s climbed to 17%.
These developments in China must not be understated because they will have a significant impact on Apple’s long-term sales and net income growth.
Apple lacks a long-term product strategy
Let’s be clear. Apple generates tens of billions of dollars in profits for shareholders each year. However, despite being an obvious cash cow, the lack of a coherent strategy to deploy that cash to tractable products is leading to the iPhone maker’s lethargic decline. There is a lot of hope from analysts that Apple’s new M4 chip which will eventually go into new MacBooks will increase the tech firm’s lagging sales growth. Of course, that has yet to be seen. A lot of the demand for AI products tends to be on the enterprise side, especially if we look at cloud companies that manage large data centers. An AI-enhanced MacBook might spark a lot of consumer interest, but will consumers start pouring back into Apple products because of it? That I’m not confident about.
There is also a number of failed projects, such as the defunct Apple Car and the failed in-house wireless modem, which should also leave investors skeptical about the company’s ability to successfully drive innovation.
At the end of the day, the iPhone-maker needs a series of innovative products to spur growth in the long run. Whether it can deliver remains up in the air for now.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.