Apple (AAPL, Financial) has been facing many problems over the last few months and it doesn’t look like the issues are going to end soon. Apple is scheduled to report earnings today, and I am expecting the company to report weak earnings for several reasons, which are mentioned below.
Apple’s Momentum in China
At the end of 2014, Apple got a robust start in China with the launch of iPhone 6. However, throughout the last year, the company’s thrust started decelerating mainly due to the declining smartphone sales across China, as well as surging competition from domestic players.
As per IDC, the company’s shares of the Chinese smartphone market reached 13%, a drop of 3% in the time between the first quarters of 2015 and 2016. Throughout that same period, Huawei's share escalated to 16% from 11%. On the other hand, the market share of small opponents such as Oppo and Vivo surged more than twice.
However, these companies are all struggling over a drenched market. Moreover, according to a report from CCID, China’s smartphone penetration rate has topped 90% and users are willing to upgrade. On the other hand, in China, the smartphone sales were flat previous years and are not likely to enhance over the upcoming years.
The company’s services such as iTunes Movies and iBooks have also underperformed in China, whereas Android players such as Xiaomi have introduced their own app stores and launched competitive payment services.
Next iPhone Model
Apple achieved huge success by launching the iPhone 6 and 6 Plus, the next models after iPhone 5S, due to the larger screen size. Then, the company launched iPhone 6S and 6S Plus, but they did not perform as well. Throughout its cycle, the company has apparently lost market share to its opponents and observed its first-ever decline in iPhone unit and top-line shipments y-o-y.
On the other hand, Apple’s foremost rival, Samsung, has enjoyed huge success with its latest flagship phones, Galaxy S7 and Galaxy S7 Edge. Galaxy S7 models turned into the world’s best smartphones.
Apple is on its way to launch its new iPhone, but the company has not revealed anything about the phone. However, it is likely the next iPhone will not have major changes. If this is true, Apple may face serious problems going forward.
Conclusion
Apple has been a weak performer and due to the reasons mentioned above, I think the company is going to report weak earnings as well. Thus, I think investors looking to buy the stock should wait for a pullback.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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