Apple Poised to Emerge a Winner This Holiday Season

Tech giant sold 1.1 million units of the Apple Watch during Q3 FY16

Technology major Apple Inc.’s (NASDAQ: AAPL) sales of the Apple Watch to consumers has set a record during the first week of the holiday shopping season, and the current quarter is expected to garner record sales for the product, as reported by Reuters on December 06th, 2016. Apple’s CEO Tim Cook said the gadget’s sell-through, a measure of how many units are sold to consumers, rather than the number of units in stock with retailers, reached an all-time high. The Apple Watch was the first major product to be launched in 2014 after Tim Cook took over as CEO of the company.

a1Cook’s comments followed a report on December 05th, 2016, from technology research firm IDC estimating that the tech giant sold 1.1 million units of the Apple Watch during Q3 FY16, down 71% from the year-ago quarter. Typically, Apple’s sales are the strongest during the holiday quarter. So far, Apple has disclosed few details about the performance of the Apple Watch, which has not been able to garner much aspirational value like the iPhone or the iPod. Moreover, the company does not break down sales of the gadget in its earnings report, instead clubbing it with the other products category, which includes the iPod and Apple TV.

Efforts to break reliance on iPhone

Apple has been facing flak from investors after sales dropped in early 2016 following a decade of continuous growth. To add to its woes, Alphabet Inc. (NASDAQ: GOOG) has dethroned Apple as the world’s most valuable company following a magical four-year run. Driven by sales of its most popular products, the iPod, iPad and, above all, the iPhone, Apple’s revenue skyrocketed to $233 billion in the fiscal year ended September 30th, 2015, from $14 billion a decade earlier. The biggest source of concern for Apple is its major dependency on its blockbuster product iPhone, which accounted for 66% of its FY15 revenue. However, tapering demand for the iPhone has emphasized the importance of new sources of revenue.

Source: Apple
Source: Apple

For Q3 FY16, Apple posted revenue of $42.4 billion and net profit of $7.8 billion, or $1.42 per diluted share, compared to revenue of $49.6 billion and net profit of $10.7 billion, or $1.85 per diluted share, in the year-ago same quarter. The results represent the second consecutive Y-o-Y decline in quarterly revenue and iPhone sales.

Apple reduces price of Apple Watch to spur sales

Electronic retailers believe that Apple remains one of the best positioned tech companies to benefit from spending trends this holiday season with a well-received iPhone 7/7 Plus, a new Apple Watch (Series 2, ceramic Apple Watch Edition) and a new MacBook Pro with Touch Bar. Apple’s wireless earbuds, called AirPods, were expected to launch in late October 2016, but were delayed for some last-minute improvements.

The Apple Watch is expected to garner strong sales during the holiday quarter as the gadget is a more natural gift than some of the company’s other products such as the iPhone or Mac computer. Apple has also lowered the price of the Apple Watch this year, potentially helping the holiday sales comparison. However, market watchers remain skeptical that the Apple Watch can indeed fill the void of the iconic iPhone, citing uncertain demand among consumers for smart watches.

To further push sales during the peak holiday season, Apple announced on October 24th, 2016, that it has teamed up with Nike Inc. (NYSE: NKE) to launch Apple Watch Nike+, which combines all of the unique features of Apple Watch Series 2 with the new Nike+ Run Club app for health-conscious runners. Apple Watch Nike+ also features exclusive Nike Sport Bands and unique watch faces inspired by Nike’s iconic style that can be easily personalized with apps like Activity Rings, Heart Rate, Stopwatch, and Weather.

Apple Watch Nike+ features built-in GPS to track pace, distance, and route and is water resistant for up to 50 meters. It also features training data, including pace, distance and heart rate through the app interface. Priced at $369 for 38 mm and $399 for 42 mm, the product will be available at Apple.com, Nike.com, Apple Stores, select Nike retail stores, select Apple Authorized Resellers, including Best Buy, and select specialty stores and department stores.

Will Apple launch a smart-home device?

a3On September 23rd, 2016, Bloomberg reported that Apple is developing an Echo-like smart-home device based on the Siri voice assistant. Started more than two years ago, the project has completed R&D and is now in prototype testing. Like Amazon.com Inc.’s (NASDAQ: AMZN) Echo, the device is designed to control appliances, locks, lights, and curtains through voice activation. If the product reaches the market, it would be Apple’s most significant product since the launch of the Apple Watch in 2014.

Holiday retail forecasts

The National Retail Federation (NRF) forecasts holiday sales for November and December 2016 to rise 3.6% to $655.8 billion, better than the 3% growth seen in the year-ago same period, and higher than the seven-year average increase of 3.4%. The Consumer Technology Association (CTA) predicts consumer electronics sales will rise by 3.1% this holiday season versus a 1.4% growth in the November-December period last year.

a4The top tech products on gift wish lists include notebook computers (11%), TVs (8%), smartphones (8%), tablets (7%), and video-game consoles (5%), according to a consumer survey by CTA. There is also interest in smart watches (3%), VR headsets (2%), home robotic vacuums (2%) and portable GPS (2%), CTA said.

Overall, U.S. retail sales are predicted to grow at a faster pace than last year, fueled by rising wages and a stronger job market. Sales climbed 3.2% in 2015, and the seven-year average since the recession ended in 2009 is 3.4%, as per NRF. Non-store sales may increase 7% to 10% in 2016, reaching as much as $117 billion. Online sales are forecasted to account for about 90% of non-store sales. NRF predicts that consumers seeing steady job and income gains throughout the year has resulted in continued confidence and greater use of credit, which bodes well for more spending throughout the holiday season.

Stock Performance

a5Apple’s stock ended the day at $111.03, gaining 0.98%, at the close on Wednesday, December 07th, 2016, having vacillated between an intraday high of $111.19 and a low of $109.16 during the session. The stock’s trading volume was at 29,947,817 for the day. The Company’s market cap was at $595.89 billion as of Wednesday’s close.

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