1034 Friday 4 January 2019

In the past few days the market has reacted strongly to the fall in tech stock, especially the recent woes of Apple, who yesterday suffered their biggest intraday fall in six years closing the day nearly 10% down. The tech firm announced their first revenue warning in twelve years citing poor sales in China following the US/China trade wars and a court ruling blocking the sales of certain iPhone. This court action has also been enforced in Germany this week, opening the possibility that other countries may follow suit. However, there could be a different reason for profit warning that makes the bearish view on the tech sector.

In recent years, mobile phones have reached such an incredible level of technological overachievement, by both phone and chip makers that many users are deciding not to upgrade year on year that they would normally do. And it could well be this level of overachievement that is hurting Apple as the vast majority of their sales comes from iPhones. In recent iPhone models, and Samsung for that matter, the level of innovation, unless you can tell the difference for each megapixel or feel the nanosecond of speed difference, it really hasn’t altered that much. Personally, I used to HAVE to have the latest phone on the day it came out, not matter what and now I’m amazed to say that I haven’t upgraded for the last two Samsung models and this is a global trend in phone users as many are now not upgrading and may continue to not update for another year or two.

Apple also fell to third place in terms of global sales this year falling behind Samsung and Huawei, and as aforementioned, when you consider that most of the profit Apple makes comes from handset sales, and conjoining the drop in updated Mac products plus other innovation that has fallen behind, this to be a stark warning for Apple as well as other phone makers and chipmakers such as Qualcomm.

For these reasons, and this is an opinion not investment advice, the bearish view on tech stocks particularly the FAANGs excluding perhaps Facebook, is overrated. Facebook has some legal and political issues ahead of them in 2019 and I’m declining an opinion, but the other is the group Amazon, Netflix and Google do not have such issues facing them. The last three months for the FAANGs has been rough, with the best performing company, Google, finishing the quarter down 13%. This suggests to me that the Apple and Facebook issues are holding the group down and when Amazon, Netflix and to some extent Google release there sales figures for the Christmas period, we could be looking at a very different picture.

BTW don’t get too worried for Apple’s immediate future, they currently sit on over $250bn of free cash plus other short term investments.

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