Are Apple’s (NASDAQ:AAPL) best days behind it? That question is hotly debated by analysts, investors, and media commentators after the consumer electronics giant posted a fourth consecutive quarter of declining sales for its devices, including the iPhone and MacBook computer. Things are looking dicey for APPL stock.
However, reports of Apple’s demise are overblown. Look a little closer at the numbers, and there are still lots of reasons to be bullish on AAPL stock.
Reading Between The Lines
Apple’s recent third-quarter print wasn’t nearly as bad as the flash headlines made it seem. The worst thing about the Q3 earnings report was sales of the company’s MacBook computer segment, which missed analysts’ forecasts and were 34% lower than a year ago. iPad sales were also soft. However, sales of the company’s primary device, the iPhone, matched Wall Street expectations at $43.81 billion and were 2% higher than a year earlier. Plus, the Q3 iPhone sales were a record and included only one week of sales of the new iPhone 15.
While the hardware side of Apple’s business may have been soft in Q3, the company’s services segment more than made up for any shortfall. Apple TV, app sales, and the company’s finance business posted stronger-than-expected revenue of $22.31 billion compared to Q3 forecasts of $21.35 billion.
In all, Apple’s revenue from services increased 16% from a year earlier. And the company’s gross margin for the quarter came in at 45.2% versus 44.5% anticipated, showing that Apple remains exceptionally profitable.
Addressing Its Problems
Apple CEO Tim Cook is well aware of the slow sales of the company’s electronic devices. If anything, he has been aggressively developing the service offerings in anticipation of a slowdown on the hardware side of the business. However, even on the electronics side, Apple isn’t being complacent. Just before the Q3 earnings were announced, Apple unveiled new microchips for its personal computers (PCs) and introduced a cheaper MacBook Pro laptop.
The new computers, which include MacBook Pro and iMac models, are already on sale and have been upgraded with new microchips that provide faster speeds, longer battery life, and the power to develop artificial intelligence applications. Apple cut the price of its entry-level 14-inch MacBook Pro to $1,599 from $1,999. The company also unveiled an updated 24-inch iMac desktop computer with a starting price of $1,299. The previous model used an M1 chip, and the new version is upgraded to the latest M3 chip.
While the new line-up and pricing should reinvigorate sales, it’s also important to remember that Apple isn’t alone in seeing a slump in PC sales. After surging 25% in 2021 during the COVID-19 pandemic, worldwide PC sales have retrenched, declining for eight consecutive quarters, according to data from market research firm Gartner. Worldwide PC sales peaked in 2011, though there’s hope that AI will help to reinvigorate the industry.
The China Question
Beyond its products and sales, AAPL stock faces questions about its exposure to the Chinese market. The company’s main manufacturing plant for its iPhones is in Zhengzhou, and Asia remains Apple’s second-largest sales market after North America.
The company is heavily exposed to China and entrenched in the nation of 1.4 billion people. It, therefore, makes it difficult for Apple when China’s economy weakens as it has this year.
As one of America’s most successful companies and recognizable brands, Apple can get caught up in geopolitical tensions between the U.S. and China, as earlier this year when officials in Beijing threatened to ban civil servants from using iPhones at work. While China remains unpredictable, here, too, Apple has been working to improve the situation. Tim Cook has been traveling to China more often lately, even as Apple moves more of its iPhone production to other low-cost centers such as Vietnam and India.
Still A Stock To Buy And Hold
There’s no question that Apple is sailing through some choppy waters. But long-term, it’s essential for investors to remember that Apple remains one of the very best technology companies in the world. It’s also one of the most widely held stocks, with its market capitalization hitting $3 trillion this spring. Consider, too, that Apple is flush with cash, having $162 billion of cash on hand as of Sept. 30 this year.
The company also pays a quarterly dividend (one of the few mega-cap tech companies to do so) of 24 cents a share per quarter, and it bought back $25 billion of its stock during Q3. Apple buys back more of its stock than any other publicly traded company. While Apple’s business is in transition and may ultimately change, the company still makes for an excellent long-term investment. AAPL stock is a buy.
On the date of publication, Joel Baglole held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.