Roy Davidson, 18 July 2019



Apple (AAPL) is a world leader in the design and manufacture of mobile devices and personal computers. The company’s well-known products include its Mac computers, iPods, iPhones, iPads and the Apple Watch.

Transitioning from a mobile device manufacturer to a leading technology platform

Since Steve Jobs founded AAPL in 1976, one of the company’s strengths has been its ability to build very strong brand loyalty. AAPL has one of the most widely recognised brands in the world and we would argue that it also has one of the most valuable consumer platforms. This is not only difficult to achieve but also very difficult for other companies to compete with. We believe AAPL still has significant room to grow revenue through the monetisation of its vast ecosystem of products and services. With over 1.3 billion active devices, AAPL has built up an enormous captive audience and has been effectively utilising this customer base by introducing a wide range of new products and services.

Putting AAPL's first quarter guidance downgrade into perspective

AAPL’s guidance downgrade in early January took investors by surprise. In our view, there were two important takeaways from AAPL’s downgrade and the company’s first quarter result. Firstly, the downgrade looks to have been caused largely by a stall in iPhone purchases in emerging markets, particularly China. This was due to tough economic conditions and also to iPhone users choosing to hold off on upgrading their phones owing to only incremental enhancements in the current line-up. Secondly, the growth in AAPL’s global active installed base of iPhones continues to grow which indicates that the company did not lose market share during the quarter and that the strength of its brand and the stickiness of the iOS ecosystem still exists.

A number of reasons we still like AAPL

We believe there are a number of catalysts that could help drive AAPL’s share price higher. First, the company has a pristine balance sheet, which should support ongoing share repurchases. Management remain committed to returning its net cash position of over US$140bn to shareholders through share repurchases. Second, revenue from its wide range of services is approaching 20% of total sales and management are aiming to double the size of this business by 2020. Lastly, AAPL is broadening its total addressable market by targeting less mature emerging markets, which are the perfect target market for the company’s lower priced phones.


AAPL remains a quality tech stock, albeit with a lower growth outlook. The company has strong margins, an unmatched cash hoard, and enormous captive audience. We acknowledge that AAPL faces strong competition from other device manufacturers but the AAPL ecosystem generates very strong brand loyalty; purchasing one AAPL product is likely to lead to purchases of additional devices, accessories and services. We believe the company is only starting to make progress in services that will help to retain, create and monetise its large customer base.


  1. economic downturn
  2. failed product launches
  3. increased competition