Apple is losing ground in one of its most famous offerings: the iPhone.
The consumer tech giant's net profit dropped 13 per cent year-on-year to Dh36.88 billion in the third quarter to June. However, its services business was up 13 per cent.
The mixed results show a new path forward for the Cupertino, California-based company - one more reliant on services such as selling data storage and content streaming on a subscription basis, instead of one-off sales of its famed devices.
Why did Apple report a dip in earnings?
"One of the key reasons behind the decline is the fall in iPhone shipments," Tarun Pathak, an associate director with Hong Kong-headquartered research firm Counterpoint, told The National.
Weaker demand for iPhones, which earlier contributed more than 60 per cent to the company’s revenues, was hinted at by Apple during an earnings call in November last year when it announced it would stop disclosing the number of units sold for the flagship device. In the third quarter of this year, for the first time since 2012, Apple generated less than half of its total quarterly revenue from sales of the iPhone.
Will new launches boost Apple's profit in the next quarter?
With no significant changes in design, Apple is expected to launch three new iPhones in September. There will be two Organic Light Emitting Diode (OLED) models (XS and XS Max successors) and one LED model (XR successor). Beside those, there will be the Apple Watch Series 5, featuring a new ceramic casing design and a micro-LED display
In OLED, each pixel provides its own illumination resulting in higher quality displays.
However, new launches will not influence the results of the next quarter as a huge chunk of earnings from sales will carry over into the first quarter of next year.
Is Apple entering new industries or market segments?
Apple has already started rolling out its on-demand streaming service, a subscription gaming service and its own credit card.
"Apple may also use its music platform to steal an edge in the podcast market, which is regarded as a major untapped source of revenue," Matthew Kendall, chief telecoms analyst at The Economist Intelligence Unit, told The National..
“However, wearables was the fastest area of growth … so we can expect some upgrades to its existing portfolio, as well as building on capabilities in areas such as health.”
Is Apple changing strategy amid the US-China trade war?
Apple is already considering moving as much as a third of its manufacturing out of China, but industry experts say this should not be a decision taken in haste.
“Apple will play a waiting game to see how the trade war develops,” said Mr Kendall
While shifting production to other countries is feasible, Apple has a huge presence in Chinese tech manufacturing, characterised by abundant and skilled labour and strong access to raw materials.
“Moving elsewhere would be both a time-consuming and resource-intensive task,” added Mr Kendall.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
