Lookahead

Apple’s growth prospects are dimming

The Globe and Mail

A man talks on his cellphone as customers walk through an Apple store in Grand Central Terminal in New York. (LUCAS JACKSON/REUTERS)

The tech industry’s once-unstoppable behemoth is suddenly facing an unfamiliar sentiment: pessimism.

Apple Inc. is expected to announce its second fiscal quarter earnings on Tuesday. Analysts expect an 8 per cent increase in quarterly revenue, to more than $42-billion (U.S.), and a 17 per cent decrease in profit, according to Reuters.

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The company has suffered a rough winter. Last September, the company’s shares hit a high of $700. But since that time, the company’s share price has been in a tailspin, as investors began losing faith in Apple’s growth prospects. Last week, its shares ended trading at about $390, the first time shares have dropped below the $400 mark since December, 2011.

Apple has also uncharacteristically spent much of the year watching as rivals dominated the marketing spotlight in the mobile industry. The company will make its quarterly earnings announcement just as consumers anticipate the launch of Samsung Electronics’ Galaxy S4 – the highest-end smartphone running on Google’s Android operating system – and Research In Motion’s Q10, which will likely become the best-selling physical-keyboard phone on the market. In addition, Facebook is now stepping into the industry, teaming up with Apple rivals such as HTC to build Android-based phones.

Apple’s expected product lineup, on the other hand, doesn’t differ much from previous years. Some analysts expect an updated version of the iOS operating system in the next few months, as well as an iPhone 5 model aimed at more price-conscious consumers. Updates to the company’s flagship phone and tablet units may also be on the way before the end of the year.

In addition, Apple may have a few surprises ready for 2013, including an updated iTV product and a brand new “smartwatch.”

RBC Capital Markets analyst Amit Daryanani told clients recently he believes these announcements, in addition to a possible expansion of carrier partnerships in China, could give Apple a boost in the second half of 2013. Still, like several other analysts, he doesn’t expect a blockbuster earnings announcement from Apple this week. Mr. Daryanani recently lowered his price target for Apple to $550 from $600.

On Tuesday, investors will be looking especially closely at profit margins, which will give clues as to how much Apple is suffering from increased competition in the market. The most significant source of competition so far is coming from Samsung, which has quickly become the single most profitable Android handset maker in the world, and recently announced an upgrade to its best-selling phone.

Investors will also look for some sign of coming product innovation – although Apple normally has very little to say about coming products during its earnings calls – as observers start to worry that the consumer marketplace, once enamoured of Apple’s product lineup, is getting bored.

Companies & investments Mentioned In This Article (2)

Company Price Change Volume
Royal Bank of Canada
RY-T
72.13 -0.455 % 1,366,321
Apple
AAPL-Q
524.75 -1.307 % 37,352