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Apple – the most resilient of the tech giants?

10 May 2023

Its performance this year surprised investors, many of whom expected a harder impact from tight consumer spending.

By Tom Aylott,

Reporter, Trustnet

Shareholders of Apple were pleased with last week’s quarterly results despite a fall in revenue as high inflation continues to take its toll on the tech giant. Net income was also down 3.4% in the first three months of the year compared to the same period last year, falling from £25bn to £24.2bn.

Although earnings took a hit, markets had anticipated a sharper drop considering the tight monetary environment the phone maker is operating in, according to Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Its share price bounced to 1.1% following the results before settling at a 0.5% rise when markets closed.

Share price of Apple in 2023

Source: Google Finance

Consumers have cut back on spending in the cost-of-living crisis, putting Apple in a different position from the one it has been in for the past decade – it thrived in the era of free cash when consumers had more expendable money to spend of lavish products.

However, its distinctive brand seems to be holding strong despite these headwinds, with iPhone sales up 1.5% in the first quarter, accounting for £51.3bn in sales.

These iPhones sales were worth more than half (54.1%) of the deals made in the first three months of the year, yet sales across its other products were down.

Overall, net sales were down 2.5% to £94.8bn over the period, proving its brand wasn’t entirely resilient to tighter consumer spending.

Lund-Yates said: “The group’s impenetrable brand is holding it in good stead, but the overarching theme of these numbers is that consumers are very much starting to pull back on buying bigger-ticket items.

“Apple can take the rough with the smooth, but the chances of share price sensitivity are heightened, because it’s becoming increasingly difficult to read the blueprint of demand.”

In the past, Susannah Streeter, head of money and markets at Hargreaves Lansdown, had explored the idea that China’s reopening could help lift revenues, but that does not seem to be the case.

The lifting of lockdown restrictions in the region could have resulted in a wave of pent-up consumer spending, yet sales in China were down 2.9% to £17.8bn over the first three months of 2023.

Nevertheless, Richard de Lisle, manager of the VT De Lisle America fund, said that Apple was a “very strong and safe” company, calling it the “consumer staple of choice for our times”.

Although he doesn’t hold the company in his IA North America fund, de Lisle said that Apple’s earnings were “high for a staple in this macro environment”.

He pointed out that Apple’s share price has been in the range of $120 to $180 since the market rally of 2020, which is where he expects it to remain for the next few years.

Those buying it at its current price of $165 may want to consider whether it is priced attractively, even after its 26.8% fall in 2022.

“What you should pay for it depends more on your views of interest rates and inflation than the company itself whose growth is lumpy but steady over the longer term,” de Lisle said. “Hold on only if you’re very scared of everything else.”

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