The designer of processors for Apple’s iPhone, United Kingdom-based ARM
Holdings, reported earnings Tuesday in a mostly positive call, but there
was one comment with regard to a drop in future high-end smartphone
sales that may give potential buyers of Apple pause.
The reason I pay a lot of attention to the details of ARM Holdings'
business is because such details provide one of the most reliable
independent data sets about smartphones, especially about Apple
. About 95% of the world's smartphones have an ARM processor.
After adjusting for extraordinary items, earnings for ARM Holding came
at GBP0.05 compared to consensus of GBP0.06; revenues came at GBP189.1
million vs. consensus of GBP183.72 million. The company guided mostly in
line with consensus. In spite of good earnings, the stock got crushed
before recovering later in the day.
The most interesting quote from the conference call
was, "And while it will be a glorious thing if everybody on the planet
spends $700 on smartphone, it just isn't going to happen." This is a
reference to iPhones. This common-sense statement points to a flaw in
many analyses of Apple.
The company estimated that in 2013, 1.1 billion smartphones were sold in
the world, bringing the total to about 2 billion. The company stated
that the growth is in entry- and mid-level phones, and that
high-end-phone sales are slowing. Herein lies the problem for Apple.
When Apple stock was in full bloom approaching $700, I wrote that the
high-end smartphone market in developed countries was near saturation,
and that would cause trouble for Apple. I was an early bull on Apple
buying aggressively with an average price of $131 but many independent
indicators of the kind illustrated in this column made me turn bearish. I
wrote on MarketWatch hours before Apple's peak at $705 that the “smart money” was selling the stock.
Apple has no product at the entry level where most of the growth lies.
There is still a significant amount of growth in emerging markets in
mid-range phones, but Apple's entry iPhone 5C has been a failure because
not only it was not priced right, it was simply an old phone
repackaged; consumers saw through this and did not go for iPhone 5C
because they had mid-range phones available from competitors with
exciting new features and lower price points.
ARM expects 15%-20% growth in smartphones in 2014 and a long-term growth
rate of about 10%. In contrast to the total market, ARM sees only about
4% growth in high-end phones.
Certainly Apple has Macs, iPads and iPods; but about three quarters of Apple's profits come from iPhone.
Disclosure: Subscribers to The Arora Report have long positions in Apple.
No comments:
Post a Comment