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 freeze investment in some of its departments, according to Bloomberg.
Showdown for the deceleration
We don’t know which parts of Apple’s business will be affected. Bloomberg simply says the company will no longer increase the workforce in some departments next year. Amazon, Google, Microsoft and other tech companies are also slowing recruitment in response to the unyielding economic headwind.
Of course, that’s not the same as job cuts, and, at least in the case of Apple, the freeze doesn’t affect the entire company and only affects a few parts of the massive business. Tesla, meanwhile, has laid off hundreds of employees and closed at least one research facility.
Which parts of the company could be affected?
It’s reasonable to think that in the context of a recession, Apple may slow the pace at which it opens new stores. That said, it’s worth remembering that Apple opened its first two stores in May 2001, just a year after the Internet bubble burst in early 2000. In other words, Apple has managed in the past with more long-term betting against the 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 following reports its financial results.
We know that sales are expected to slow as consumer demand declines. During its latest fiscal call, Apple warned of a bumpy quarter with a staggering $8 billion in revenue decline, quarter-over-quarter.
Under the hype
Despite these potential pain points, there have been some positive insights over the past 13 weeks. Macs gaining its market share in the declining PC market. iPhones stay popular in China — Apple’s market share keeps increasing. Some supply chain issues seems to be improving. But what isn’t improving is consumer confidence as we face the real four riders of uncertainty: disease, rising food and energy pricespestilence of the environmentally friendlyand war.
Apple’s reported actions simply confirm that when the riders ride out, things get tough. Credit Suisse chairman Axel Lehmann said: CNBC that while some tech companies may not make it to 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 lowered current targets for Apple stock in response to the headwinds, the company appears well-prepared for further growth on top of those new emerging business models.
Where does the puck go?
Not only has the move to Apple Silicon boosted the company’s Mac sales in the enterprise markets, but also its focus on creating technology that is both personalized and private (such as the health products) continues to make a strong case for the company as its products become essential components of the connected future that Lehmann envisions.
This digital transformation is driving — and likely to 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 recessive market, Apple still has strong growth potential. The Bloomberg report makes clear that Apple wants to pursue that growth. In fact, it specifically notes that the company has no plans to slow down its product announcement cycle, and we expect it to launch an all-new AR eyewear family in 2023. Apple has worked its way through the dotcom bust and will be around the same strategy over time.
Meanwhile, Apple’s installed base is generating additional service revenue opportunities. Apple’s services business is now a bigger company than IBMshowing how smart Apple management was to diversify its business mix to make it less dependent on pure hardware sales than before.
Evercore analysts recently predicted that Apple’s services would generate $100 billion in revenue by 2024.
“While the nervous market creates an anxious environment for technology 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.
Copyright © 2022 IDG Communications, Inc.