Almost Daily Grant's discusses similarities between Apple and heyday-era IBM ...............................
Thursday, September 7, 2023
China’s government is taking a bite out of Apple, The Wall Street Journal reported yesterday, instructing employees at state-affiliated firms not to use iPhones or bring them to work. Both national security and commercial considerations factor into the decision, former China-focused White House official Paul Haenle told the WSJ, as local carrier Huawei’s recent rollout of its own 5-G capable smartphone colors that news.
Beijing’s crackdown may be set to widen, Bloomberg relays, as a “plethora” of state-owned and government-affiliated entities (no small constituency within China’s command economy) will soon be subject to restrictions on iPhone use. The Middle Kingdom, which likewise houses large swaths of Apple’s global supply chain, accounts for just under 20% of the company’s total revenues.
Those developments shine a renewed light on a December 2021 revelation from The Information. The tech publication detailed a clandestine 2016 agreement in which Chinese authorities worked to shield Apple from fallout related to the Sino-American trade dispute and maintain access to its vast smartphone market in return for a variety of investment commitments within China’s economy, an outlay that reportedly topped $275 billion over the subsequent half-decade, along with a promise to “strictly abide by Chinese laws and regulations.” The deal covered five years, plus an automatic one-year extension in the absence of objection from either side.
That was then, as Apple reportedly began laying the groundwork to shift some production capacity outside the Middle Kingdom late last year, with yesterday’s thunderbolt suggesting a new state of geopolitical play.
More broadly, might this week’s drama mark a turning point for one of the darlings of the post-2008 bull run? The subject of a bearish analysis in the July 22, 2022, edition of Grant’s Interest Rate Observer (shares are since up 16%, slightly outpacing gains from the S&P 500), Apple has, of course, logged an enviable financial track record featuring a 4,700% total return since the iPhone debuted in June 2007. That indomitable momentum has stalled of late, however, as year-over-year revenue growth has slumped into negative territory for the past three fiscal quarters. Total worldwide smartphone unit shipments will slip below 1.2 billion units this year according to estimates from the International Data Corp. It would represent the weakest such tally since 2013.
To that end, Bernstein analysts led by Toni Sacconaghi penned a provocative analysis Tuesday, drawing comparisons between Steve Jobs’ brainchild and IBM, which dominated the business and financial landscape for decades before stagnating.
Among the similarities between Apple and heyday-era Big Blue: each represented Berkshire Hathaway’s largest holding, commanded large weightings within their benchmark market capitalization indices and were beneficiaries of the notion that owning them “couldn’t get you fired,” owing to near unanimous admiration from investors.
“IBM’s strength in mainframes and associated account control once seemed unassailable, but the world moved to standard industry servers and the cloud,” Sacconaghi et al. relay. “Apple’s key risks are that the iPhone is replaced by a new computing/internet access platform, or that a super app emerges that obviates Apple’s strong customer lock-in.”
Xi Jinping might be said to constitute another risk factor.
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