Apple seems to have confirmed what we already knew: times are tough, and while the company will continue to invest in product development, it will be freezing investment in some of its departments, according to Bloomberg.
Showdown for the slow down
We don’t know which parts of Apple’s business will be affected. Bloomberg simply says the company will no longer increase headcount in some departments next year. Amazon, Google, Microsoft, and other tech firms are also slowing recruitment in response to unyielding economic headwinds.
That’s not the same as eliminating jobs, of course, and, at least in Apple’s case, the freeze is not company-wide, affecting only some parts of the vast business. Tesla, meanwhile, has laid off hundreds of workers and closed at least one research facility.
What parts of the company may be hit?
It’s reasonable to think that in the context of recession Apple may decelerate the rate at which it opens new stores. Having said that, it’s worth remembering that Apple opened its first two retail stores in May 2001, just one year after the dot-com bubble burst in early 2000. In other words, Apple has in the past succeeded with more long-term bets laid against prevailing market headwinds.
We’ll find out what impact those headwinds have had on Apple’s business in the current quarter on July 28, which is when the company next reports its financial results.
We do know that there’s been an expectation sales will slow as consumer demand softens. During its last fiscal call, Apple did warn of a bumpy quarter with sales down by as much as $8 billion, quarter-on-quarter.
Beneath the hype
Despite these potential points of pain, there have been some positive insights in the last 13 weeks. Macs are gaining market share in the declining PC market. iPhones remain popular in China — Apple’s share of the market continues to increase. Some supply chain problems seem to be improving. But what isn’t improving is consumer confidence as we face the veritable four horsemen of insecurity: disease, increasing food and energy prices, pestilence of the environmental kind, and war.
Apple’s reported actions simply confirm that when the horsemen ride out, the going gets tough. Credit Suisse chairman Axel Lehmann told CNBC that while some tech companies may not make it through the next chapter, “the fundamental trends will remain, that technology and digitization will be important, new business models.”
[Also read: Apple (almost) says, ‘If you want to collaborate, stay apart’]
While analysts have cut current targets on Apple stock in response to the headwinds, the company seems well-poised for further growth atop those new emerging business models.
Where the puck is going
Not only has its move to Apple Silicon given the company’s Mac sales a big impetus in enterprise markets, but its focus on making technology that is both personalized and private (such as its health products) continues to give the company a strong argument as its products become essential components of the connected future Lehmann envisions.
This digital transformation is driving — and will likely continue to drive — strong growth for Apple in the enterprise and for companies providing services to support such use.
In other words, even in a potentially recessionary market, Apple still has strong opportunities for growth. The Bloomberg report makes it clear that Apple intends to chase that growth. It even specifically notes the company has no plans to slow its product announcement cycle, and we anticipate it will launch a completely new AR Glasses family in 2023. Apple innovated its way through the dot-com bust and will continue to use the same strategy this time around.
Meanwhile, Apple’s installed base is generating additional opportunities for services income. Apple’s services business has now become a bigger business than IBM, which shows how shrewd Apple management was to diversify its business mix to make it less reliant on pure hardware sales than before.
Analysts at Evercore recently predicted Apple’s services would generate $100 billion in revenue by 2024.
“While the nervous market backdrop is creating a fearful environment for tech stocks, we believe Apple’s growth story remains well intact despite the shaky macro. Apple remains our favorite tech name,” wrote Wedbush analyst Daniel Ives.
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