Although economists disagree on whether a global recession is imminent, it is definitely a possibility. But Apple executives don’t seem too worried — market analysts generally remain bullish on the company.
Here are comments from a range of experts sure to warm the heart of Apple CEO Tim Cook.
Even Apple doesn’t sail through a recession easily, but…
Central banks around the world, including the United States, are trying to curb inflation by curbing the overheated economies that are driving prices up. It is possible that their efforts will go too far and push us into recession.
If it happens, it won’t be good for any company, including Apple. But the iPhone maker seems poised to weather a downturn better than most.
The iPhone is essential
The iPhone is undoubtedly Apple’s most important product. Mobile phone sales accounted for 49% of Apple’s total revenue last quarter. If a recession reduces cellphone sales, it would hurt Apple’s bottom line. But Loop Funds analyst Gene Munster thinks that’s unlikely.
“I think the strength of the iPhone is that it has evolved from a luxury product to a must-have,” Munster wrote in a recent blog post. “The vast majority of iPhone buyers are feeling inflationary pressures. They make decisions to save money, skip upcoming purchases when necessary, or cut back altogether. And faced with these tough choices, they choose iPhone.”
He based this in part on a comment Cook made during a phone call with investors in July, noting that the company didn’t see a drop in iPhone sales in the second quarter of 2022, despite concerns about a potential recession. Instead, revenue from the iPhone increased year after year.
Also, the iPhone 14 lineup is just around the corner and is said to offer the first 5.6-inch iOS model for more cost-conscious buyers.
Apple makes great Macs
Mac remains a very important product for Apple. Not only are MacBooks, iMacs, etc. sold in the millions each year, macOS notebooks and desktops are key to Apple’s growth in the important enterprise market.
With economic worries, PC sales are slowing. But for Mac, the situation is better. “The MacBook line could be the only bright spot for PC sales in the second half of the year,” he reported Digitimes on Monday.
A strong driver of these expected sales is likely to be the new MacBook Air, which launched in July with a slimmer design and a faster M2 processor. The Air series has been the most popular macOS notebook for many years, and the sleek redesign of the 2022 model seems poised to continue that trend.
While Mac shipments fell year on year in the second quarter of 2022, you can blame the COVID-19 lockdowns in China for slowing production, not lack of demand. Plus, signs keep popping up that this problem is mostly over. Apple is having less trouble keeping up with demand for Macs now than it was in the spring.
Recession could boost iPad sales
If a recession causes Mac demand to fall, it doesn’t mean consumers will get a cheap Windows PC. According to analysts, they are more likely to opt for a cheap iPad.
“There are several factors in favor of tablets. One is the continued demand for tablets as a cheaper alternative to PCs,” said Anuroopa Nataraj, analyst at IDC.
Apple critics complain about the relatively high cost of iPhones and MacBooks, but it’s difficult to make the same argument about Apple tablets. The base iPad is a great value at $329, and education buyers can pick it up for $299. Many parents who would have bought a MacBook for their children’s school in better economic times opt for an iPad. The same trend led to a huge boom in iPad sales during the pandemic.
The base iPadOS model is so popular that Apple hasn’t been able to keep up with demand since early 2022. That makes the global chip shortage a bigger problem for tablet sales than a slowing global economy.
There are many opportunities for service growth
A significant percentage of the money Apple makes doesn’t come directly from hardware sales. About 19% of total revenue comes from services like the App Store, Apple Music, iCloud, AppleCare+, etc. And there’s good reason to think this will remain a strong source of revenue.
“Apple’s business model is shifting from one that maximizes growth in hardware shipments to one that maximizes monetization of the installed base,” Morgan Stanley analyst Erik Woodring recently wrote.
Over the years, revenue in this category has grown as the total number of active iPhone, Mac, and iPad users has increased. And the total number of Apple device users continues to grow.
Cook told investors in a recent conference call that during the June 2022 quarter, “we experienced tremendous excitement for our products and services, resulting in an all-time record for our installed base of active devices.”
Apple devices aren’t just going to past customers, either. In the second quarter, “almost half of the customers who bought a Mac were new to the product,” Luca Maestri, Apple’s chief financial officer, said on the same conference call. And he said more than half of iPad buyers would buy their first.
People need to own an Apple device to shop on the App Store, subscribe to iCloud, etc. So revenue from services is loosely tied to hardware sales. As the installed base of active devices increases, so does the potential revenue from services. Even in economically difficult times.
Recession or not, Apple will be fine
Some of you probably know all this yourself. If your current iPhone is showing its age, seriously consider the iPhone 14. Or maybe you’ve got your eye on an upcoming MacBook Pro with an M2 Pro or M2 Max processor. No matter what the economists say about the future, you buy a new device.
So be aware, it’s not just you. Analysts predict that millions of people around the world will buy Apple products in the coming months, regardless of whether the global economy turns for better or for worse. And that’s why Apple is (almost) recession-proof.