Apple Inc “is a one product company”

30th April 2015

This quarter, once again, the iPhone stood out for its revenue and volume growth, spurred by China and emerging markets where Apple is winning over Android by a significant margin writes GAM investment director Mark Hawtin.

This is thanks to the introduction of a large screen format which is particularly favoured in emerging markets.

Apple is a one product company. Nothing else really moves the needle and the growth of iPad and Mac sales is not even close. It seems clear that the iPhone 6+ is cannibalising iPad sales – iPad revenues were down 29% year-on-year in Q1, most likely hurt by the better iPhone volumes as well as an elongation in the replacement cycle.

Looking at the Apple Watch, initial indications suggest it might be less successful in volume and profitability than expected. Currently, the information available on the Watch is very qualitative and there is a lack of clarity. Apple announced that it is not making enough watches to meet demand, but we do not know what the demand is or how many watches are being produced.

Apple is definitely benefitting from the phenomenal success of the iPhone 6 at the moment, but we remain concerned that margins will eventually start to give way. In consumer electronics margins always eventually close and although Apple might be different, there are currently many higher growth businesses with more compelling, sustainable business models.

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