Apple Underwhelms at Earnings Call

Apple CEO Tim Cook attempted to put a positive spin on a disappointing performance for Q2 as the company pledged to focus more on services instead of products in the future. This announcement comes as the new Samsung Galaxy 8 proves to be the first competitor to gain positive reviews that match those of the latest iPhone release. When asked about slowing sales, Cook suggested that the upcoming 10th anniversary release may be keeping some consumers from purchasing during the current cycle. Investors also considered the possible impact of the dispute brought by Imagination Technologies over whether Apple Chips are dependent upon patented technology.

Apple and Samsung partner on the new iPhone 8 display screen.

Apple Services Poised to Overshadow Products

Some analysts are saying that Apple shares are not receiving an appropriate valuation because the revenue generated by the services segments, such as the App Store, AppleCare, and the associated content and licensing arms, is still being lumped together with the monies generated through the sales of the popular iPhones. This despite Apple services generating more than $7 billion in revenue By 2020, some insiders expect that the services arm will be spun off as an independent branch, and if it maintains its current level of growth, it will be running at the level of a Fortune 100 company.

Apple Ships Less, But Charges More

Apple product shipments have dropped quarter over quarter since last year, due to increased competition. However, the company has made up for the reduced sales by charging more for the average iPhone. However, during the Q&A period of the earnings call, Tim Cook admitted that the company was underrepresented in markets like India, where consumers cannot be expected to pay costs in the neighborhood of $655 per phone. This is one reason that share prices are dropping despite strong sales, as investors are not sure that the company can shift successfully from high end products to more mainstream offerings.

Latest Galaxy Matches up Favorably to iPhone

This is even more of a challenge following the release in April of challenger Samsung’s latest smartphone, the Galaxy S8. The phone has received very good ratings from early adopters, and has several features not yet available on the current iPhone 8. While the iPhone relies on a fingerprint scanner for additional security, the Galaxy 8 allows iris scans, which are less easy to circumvent. The screen is also larger, and there is a wireless charging function. Additionally, the Galaxy 8 comes enable with virtual reality software and digital assistant which can provide information about different items in the environment through the use of a smart camera.

Some of these features are rumored to be available in the iPhone that will be released later this year. There is little doubt that Apple will have something big planned for the fall sales cycle, as it will be the 10th anniversary of the sale of the original iPhone. Releases after the next year are in doubt, though, as Apple will no longer be partnering with chip designer Imagination Technologies. The British company has opened a dispute to address patent issues inherent in Apple attempting to design chips in-house, as it believes that Apple will need to rely heavily on proprietary information to build state of the art systems.

Will Apple Ask Tesla to Help Drive Profits?

Tim Cook apparently doesn’t think Apple has enough on its plate, and while managing its iPhone sales and tech disputes, the company has also taken on autonomous cars. Apple applied for the required California permit to develop and test self-driving cars, and is potentially looking for a carmaker to partner with while focusing on the software needed to operate the vehicle. Tesla CEO Elon Musk was asked during the company’s earnings call whether he would consider partnering with Apple, and pushed off speculation, saying “”I don’t know what they’re doing on the car front. It’s not clear.”

How Does Apple’s Performance Affect Trading?

Apple is currently one of the major drivers of the DOW index’s growth. Continued underperformance could put a ceiling on the amazing returns that have been earned by DOW investors since shortly before President Trump took office. Additionally, as smartphone sales shift to Asian companies, we could see a fall of the dollar in favor of the yen. Additionally, when major brands do not meet market expectations, this often causes investors to return to gold as a safe haven.