April 30, 2020 / 9:33 PM / a month ago

Breakingviews - Apple may bruise but it should still bounce back

The Apple logo is displayed at an event at their headquarters in Cupertino, California, U.S. September 10, 2019. REUTERS/Stephen Lam

NEW YORK (Reuters Breakingviews) - A must-have gadget has become a can-probably-wait. Apple’s sales of iPhones fell 7% in the quarter ending March 28, and the fall in the following three months should be worse. That is both predictable, and self-limiting. Apple should bounce back.

It’s no shocker that a product made in China, shipped around the world and purchased in currently-closed retail stores hasn’t sold well during the coronavirus pandemic. The decline from iPhones was the main driver why Apple’s revenue only grew 1%, year-on-year. But the mass boredom caused by widespread lockdowns benefits Tim Cook’s firm in a different way. Service revenue jumped 17%, as customers spent more on apps, and Apple’s gaming and music services. It accounted for 23% of all revenue in the quarter. It was about 20% of revenue during the same quarter last year.

Apple can’t count on additional iPhone sales in the current quarter. This month’s rollout of a $399 low-end iPhone might help, but as long as stores are shut and the smartphone market already saturated, demand may not rebound for several months – or quarters.

Compared with some tech rivals like Facebook and Alphabet-owned Google, Apple has a disadvantage: its reliance on revenue from China and on selling physical goods through retail outlets. Yet in another sense, Cook’s firm is better off. After all, unplaced internet ads on Facebook are gone forever, whereas phone purchase are simply delayed. The release of 5G phones later this year will make users long to replace the iPhones they have.

That might explain why all three stocks have performed similarly, with only a slight fall in the year to date. True, that’s still a comedown for a company that has delivered a total shareholder return triple that of the S&P 500 Index over the past five years. But even a bruised Apple should be able to bounce back.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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