Apple's "opening door" in 2024 is unfavorable.
On January 2nd local time, the first trading day of the New Year, US technology stocks suffered a heavy setback. Among large tech stocks, Apple opened lower with a short fall. As of the close of the day, Apple fell 3.58% to $185.64, marking the largest daily decline since August 4, 2023 and a new closing low since November 9, 2023. The latest total market value is $2.9 trillion, with a daily evaporation of $107.484 billion, equivalent to approximately RMB 767.9 billion.
On the news front, Apple was bearish by investment banks, and Barclays analysts downgraded its stock rating to "underweight" in their latest report. Furthermore, looking into the future, Apple product sales may face significant challenges. Recently, due to patent disputes, Apple's latest version of the watch product has encountered a lockdown crisis. Currently, this patent dispute is not over. However, over the past year, the demand in the mobile phone market has remained sluggish, and the sales performance of the iPhone 15 series has been "sluggish". Under multiple factors such as strong competitors and overall market pressure, the sales of iPhone 16 are not optimistic in the market.
Apple is viewed negatively by investment banks
It is widely believed that the sharp drop in Apple's stock price is related to the downgrade of ratings by institutions and the bearish view of analysts. On the news front, Barclays analysts led by Tim Long have downgraded Apple's stock rating from "neutral" to "underweight" in their latest report, marking the first time the bank has downgraded Apple to this rating since 2019. Meanwhile, these analysts also slightly lowered Apple's target price from $161 to $160, about 17% lower than the closing price of the previous trading day (last Friday).
According to foreign media reports, Tim Long wrote in a statement to customers on Tuesday that the current sales of iPhone 15 are "lackluster", especially in China, and it is expected that the sales of iPhone 16 will also be weak.
In fact, in October last year, analysts and investors had already noticed the weak sales of iPhones in the Chinese market. In a recent report on the global smartphone market, Counterpoint Research stated, "We expect Apple, which usually leads the market with its new phone series in the fourth quarter, to record a 3% year-on-year sales decline in the fourth quarter of 2023, mainly due to Huawei's massive expansion in the Chinese market and the extended replacement cycle of Japanese smartphones."
In addition, Tim Long predicts that Apple's lucrative service business will also experience a slowdown in growth, partly due to regulatory scrutiny. At present, the gross profit margin of Apple's service business is approximately twice that of all Apple hardware products. Apple CEO Cook emphasized in an earlier investor conference call that the growth of the service business unit was "better than expected.".
This regulatory risk is related to the close cooperation between Google and Apple in search, and regulatory authorities have been carefully examining the default search agreement terms of both companies.
Previously, the disclosure in the US Department of Justice's antitrust review of Google's parent company Alphabet showed that Google, as the world's largest search engine company, heavily relies on Apple's user base to drive its advertising revenue. When Apple users search through the Safari browser, Google pays 36% of its advertising revenue to Apple.
Tim Long wrote, "By 2024, there should be a preliminary decision regarding Google's TAC (Traffic Acquisition Cost), and investigations into some app stores may be strengthened. Based on this, Barclays believes that as regulatory risks increase, the growth rate of Apple's services business will slow down, lower than previous growth expectations.".
The risk of watch sales ban in the United States has not been completely lifted
In addition to the "black door" of the New Year's stock market, Apple is also facing the issue of two smartwatches that may be banned in the US market recently.
Since October last year, there has been ongoing controversy surrounding patent infringement and sales bans on Apple watches in the United States. On October 26, 2023, the United States International Trade Commission (ITC) ruled that Apple had violated Section 337 of the Act, and that the blood oxygen sensing technology of the Apple Watch Series 9 and Apple Watch Ultra 2 had infringed on two patents of American medical device manufacturer Masimo, and prohibited the sale or import of Apple's two watches in the United States. Before the ruling takes effect, the US federal government has the right to overturn it within 60 days. But ultimately, the Office of the United States Trade Representative decided not to overturn the ITC's ruling, which came into effect on December 26, 2023.
On December 26, 2023, ITC officially rejected Apple's request to suspend the ban, and the ban on the import or sale of the two latest Apple Watches in the United States came into effect. On the same day, Apple filed an urgent request to the United States Court of Appeals for the Federal Circuit.
Just one day after the US sales ban officially came into effect, on December 27th, the US Federal Circuit Court of Appeals agreed to suspend the sales ban on Apple's latest smartwatch and notified ITC to respond to Apple's request to continue suspending the ban throughout the entire appeal period by January 10, 2024. This also means that despite the current suspension of the ban, the sales crisis of Apple's two watches in the United States has not been lifted.
From a timeline perspective, this patent litigation war has a long history, and the "grudge" between Apple and Masimo can be traced back as early as ten years ago.
According to foreign media reports, as early as 2013, Apple had actively approached Masimo for technical cooperation, and even had an intention to acquire Masimo, but ultimately did not continue to negotiate cooperation. Apart from the failure of the cooperation, more than 20 technical backbones, including Masimo's Chief Medical Officer, have successively switched jobs at Apple. In 2019, the core engineer who switched from Masimo to Apple applied for a blood oxygen detection patent at Apple. Masimo believes that the sensor design used in this patent is very similar to Masimo's. In 2020, Apple began integrating blood oxygen detection into its smartwatches and applied it for the first time in the Apple Watch Series 6. In 2021, Masimo filed a complaint with ITC alleging that Apple's pulse oximetry technology used to monitor blood oxygen levels in two watch products has infringed on their company patents since 2020.
Currently, Apple has sought approval from the U.S. Customs and Border Protection (CBP) for the redesigned software version. Apple is requesting the court to temporarily lift the sales ban on these two watches until CBP determines whether the redesigned Apple watch has infringed Masimo's patent. An Apple spokesperson stated that CBP will make a decision before January 12, 2024.
Apple faces significant challenges in 2024
From a business perspective, Apple's performance for most quarters in the past fiscal year did not meet expectations.
In early November last year, Apple released its results for the fourth quarter of the 2023 fiscal year. Although the revenue decline narrowed, it continued to decline for four consecutive quarters, setting a record for the longest quarterly revenue decline since 2001. From the entire fiscal year 2023, Apple's operating revenue was $383.285 billion, a year-on-year decrease of 2.8%, and the net profit attributable to ordinary shareholders was $96.995 billion, a year-on-year decrease of 2.81%.
In 2023, Cook visited China twice, but Apple's sales in the Chinese market showed a downward trend. Counterpoint Research stated in its report that in 2024, Apple will maintain a pace of overall market growth, but it will face pressure in traditional markets. The high interest rates in the United States have hit consumer spending, while the competition in the high-end smartphone market in China is becoming increasingly fierce (mainly from Huawei), which will be obstacles to Apple's growth throughout 2024.
Liz Lee, Deputy Director of Research at the institution, said, "India's high-end trend is strong and will become Apple's new growth focus. It is expected that Apple's shipment volume in India will increase by 23% in 2024. However, due to losing to Huawei in China's competition, Apple's global market share will inevitably experience a slight year-on-year decline in the fourth quarter of 2023 and throughout 2024."
In addition to predicting continued weakness in the iPhone 16 series and regulatory risks in the service business, Barclays analysts also believe that Mac, iPad, and wearable devices lack signs of rebound.
If you ask what surprises Apple will bring in 2024, the answer may only be known after the release of Apple Vision Pro, which is undoubtedly the most important product for Apple in 2024. According to the latest news, Apple has recently been granted multiple design patents for head display devices. In addition, according to foreign media reports, supply chain news shows that Vision Pro is expected to be launched in the United States in the last few days of this month.
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