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Innovation: a key driver for Apple

Despite the macro softness, Apple is showing resilience with new products launch acting as potential positive drivers for the stock. What are the new releases, and could innovations help drive the stock to new highs? 

As the world’s largest company, Apple stands to be well positioned to navigate the various macro challenges such as the ongoing supply-chain issues, Russia impact, forex headwinds, and soft patch in China due to the Covid-Zero policy. Apple’s revenue growth has come down to just 2% in Q2, 2022 compared to 36% a year ago. To foster growth, Apple’s focus is on “innovating like crazy” (Time Cook, Q2, 2022), but more precisely it is laser-focused on its new products and services release.

iPhone 14 announcement at the September event?

New products release is much anticipated by Apple’s loyal and relatively affluent customer base. Apple presented significant product innovation in Q2, with a completely redesigned MacBook Air, the faster M2 chip, new memory, greater bandwidth, and new products in the wearables categories.

It is expected to hold a virtual event in early September, where it will unveil the next-generation iPhone 14 launch this year in a pre-recorded keynote video with some members of the press in attendance, but not developers. Some speculate Apple will present the four new iPhone 14 models in the work and the Apple Watch Series 8. As well as camera improvements, new color options for the iPhone are expected, perhaps with a purple shade.

iPhone 14Source: Reported by macrumors.com, from an unverified source on Weibo.

The new iPhone may also feature a titanium frame instead of stainless steel and could use a new vapor thermal system to keep the systems cooler to minimize the impact of faster chips and 5g connectivity.
In terms of the Apple Watch, the Series 8 could have new features such as the ability to detect a fever. Apple is also believed to be planning for an October event where it will make announcements for a new iPad and Mac.

More than iPhones

The iPhone category accounted for more than 50% of Apple’s total revenue for the last two quarters, for which Apple continues to be laser-focused on adding innovations. Just recently, in the earnings call Tim Cook pointed to the 98% customer satisfaction rate for the iPhone and when asked about replacement cycles, the CEO said Apple focuses on building new features that will make Apple fans more likely to upgrade to the latest iPhone. He also said a low 5g penetration rate globally is a reason to be optimistic for further iPhone purchases.

Moreover, new product launch in other categories is booming as Apple has entered streaming, health and fitness, and finance in the last few years. Apple fans are engaging with news, music, streaming, games, and fitness content, all supplied by Apple. The Q2 earnings call revealed Apple is focusing on acquiring small IPs, rather than large acquisitions, but continues to monitor the market closely for attractive deals. It is also reported Apple could be working on several new smart home tech devices, in a bid to catch up to Amazon and Google’s ventures in the space. Rumors also have it Apple is working on a futuristic headset with VR/AR features, which would be Apple’s most significant product launch since it unveiled the Apple Watch in 2015.

Clear runway ahead for the stock?

Investors have largely accounted for much slower growth ahead, given the economy is slowing down. Nonetheless, Apple is increasingly viewed as a defensive company slightly sheltered from macro headwinds as it mostly caters to the more influential consumer, which is less impacted by a shrinking wallet due to inflation. Also, Apple has strong pricing power that helps it to pass on cost increases to consumers, somewhat protecting its corporate margins.

AAPL 17.08.2022

The stock is also supported by Apple’s commitment to continue buying back its stock. To do so, it continuously issues tens of billions of dollars annually to increase its massive USD180 billion cash pile. On the first of August, it raised another USD5.5 billion, selling 40-year bonds. Apple is able to raise capital at attractive conditions because it benefits from an Aaa rating by Moody’s, being one of the few corporate to have such high ratings together with Microsoft and Johnson & Johnson.

Conclusion

Apple’s rich portfolio of products and services is likely well positioned to continue to grow and please investors in the coming quarters. While the Apple stock has retraced most of its year-to-date fall, more than the broader market, it is still being supported by die-hard fans which can’t wait to upgrade their iPhones and try Apple’s new products.

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