Apple Inc. AAPL was having a splendid 2017 until it was revealed that software updates were slowing iPhones with older batteries. The stock lost 2.2% in the last five sessions and is currently facing at least eight lawsuits in various federal courts regarding the issue.
The iPhone-maker recently issued a letter at its website, apologizing for the lack of transparency relating to the handling of iPhone performance with older batteries. However, the company denied that it has ever done anything to intentionally shorten the life of a product.
Moreover, the company announced certain steps to pacify aggrieved customers.
The company will lower the price of an out-of-warranty battery replacement by $50 for anyone with an iPhone 6 or later. The offer will be available from late January through December 2018. It will also issue an iOS software update with new features that give users more visibility into the health of their iPhone’s battery.
Apple Devices Activated Most in the Holidays
Apple’s apologetic stance is understandable considering the value of older models in the market.
According to TechCrunch, which quoted data from Flurry Analytics, Apple devices accounted for 44% of smartphone and tablet activations during the holidays. Interestingly, older devices — iPhone 7 and iPhone 6 — took the top spots in terms of activations.
The data reflects Apple’s diversifying business model. It’s no longer dependent on a single device for generating top-line growth. We note that iPhone 7 and older models have significant demand in cost sensitive markets of Asia-Pacific, India and China.
Apple’s flagship product iPhone X at $999 is pricey for these markets. Taiwan’s Economic Daily recently suggested that Apple may cut unit volume by 20 million from its original expectation in the fiscal first quarter.
What to Expect from Apple in 2018
Despite the “transparency” debacle, we believe that Apple has significant prospects in 2018, backed by expanding product portfolio.
Apart from the iPhone, the aggressively growing Services business is a key catalyst. Services, which include revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, licensing and other services, surged 34% year over year to nearly $8.5 billion in the last quarter.
Apple is on track to double Services revenues of $24 billion in fiscal 2016 by 2020. To boost subscriber base, the company is now venturing into original programming. Apple is reportedly willing to invest $1 billion and has appointed ex-Sony executives Jamie Erlicht and Zack Van Amburg, to initiate expansion into original television programming.
Apple recently acquired popular music discovery app Shazam for an estimated $400 million. The company is expected to integrate the software into Apple Music (or Siri) or in HomePod, its high-end smart speaker with a superior sound quality, which will be launched in 2018.
Moreover, we believe that foray into fast-growing technologies like autonomous vehicle, artificial intelligence (AI) & AR/VR are other long-term catalysts.
Zacks Rank & Key Picks
Currently, Apple sports a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader technology sector are NetApp, Inc NTAP, NVIDIA Corporation NVDA and Broadcom Limited AVGO, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NetApp, NVIDIA and Broadcom have a long-term expected earnings growth rate of 11.34%, 10.25% and 13.75%, respectively.
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