Smartphone penetration in a country can never be higher than the internet penetration in the region. China’s internet penetration has just crossed over 65%, and smartphone usage has already reached 58%. India is at an abysmal 22% internet penetration, with a 17% smartphone penetration level.
As a premium luxury segment product, iPhone’s potential market size in these countries is already small, with not much room for explosive growth. (See also: Microsoft Corporation: Is MSFT Stock A Better Buy Than AAPL Stock Now?).
The best bet for Apple now is to hold its sales numbers in developed markets, expand a little in developing markets by adding a few more phones at the bottom end of the price range and keep product refresh cycles as tight as possible to show stable iPhone sales growth over the next several years. The days of double-digit growth are over and Apple may have to play defense in the smartphone market during the next decade.
Mac And iPad Sales
Barring a miracle during the fourth quarter, 2016 will be the fifth consecutive year of PC sales decline.
Apple Inc. (NASDAQ:AAPL) sold 18.48 million Macs in 2016, resulting in $22.83 billion in sales. As a premium segment player, Apple should be able to hold its market much better than other players and new product launches will be key to future worldwide sales.
The story isn’t much different for the tablet market.
Worldwide tablet shipments are expected to decline for the second straight year in 2016, dropping 9.6% compared to 2015 volumes, according to a new International Data Corporation (IDC (1)) Worldwide Quarterly Tablet Tracker (2) forecast. The tablet market in totality has seen its peak and will face down years in 2016 and 2017, followed by a slight rebound in 2018 and beyond driven by detachable tablet growth. Right now the detachable category only accounts for 16% of the market and IDC expects it to reach 31% in 2020.
Though the segment may not show strong growth, Apple’s premium positioning of its product should help the company eat market share and keep sales moving during the next decade.
The Nearly Invisible Upside
As you can clearly see Apple is facing an extremely tight market in all three of its device segments. This has immensely affected the market sentiment, leading to a gross undervaluation of the company.
Despite the tightening market, Apple still remains the most profitable smartphone maker in the world accounting for more than 90% of the industry’s profits. This is not the same for other manufacturers, who are facing sustained losses as they compete for market share, and that’s already showing up as consolidation and shutdowns in China this year.
Due to its high profitability advantage, Apple is the only company with a high degree of stay-ability in such a brutal market.
Apple Inc. (NASDAQ:AAPL) is grossly undervalued by the market because the company is merely moving from a strong growth phase to a mature growth phase. But the market is discounting the stay-ability factor of the company.
As more companies find the going difficult in such market conditions and start dropping out of race, Apple will keep expanding its reach either through its devices or through its services portfolio.
Our recommendation is to buy AAPL stock while it’s cheap because the market will realize its folly sooner than later. Looking to invest in technology companies? Here are our latest Top Stock Picks (3) which have outperformed the NASDAQ by over 110%.
The article The Upside In Apple Inc. (AAPL) Stock Price Mr. Market May Be Missing originally appeared on amigobulls.com. Watch our analysis video on AAPL
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Additional Links:
(1) http://www.idc.com/getdoc.jsp?containerId=prUS41447216&ref=il
(2) http://www.idc.com/tracker/showproductinfo.jsp?prod_id=81&ref=il
(3) http://amigobulls.com/stocks-to-buy/top-tech-stocks/?ref=il&ref=im
