It’s been a rough week for Apple. First the company suffers its first quarterly revenue decline since 2003, and now one of the world’s most well-known and richest investors, Carl Icahn, announced that he’s sold all of his Apple stock holdings because the company is facing backlash from China’s government in a market that is important to Apple.
Icahn revealed his Apple stock sales in an interview with CNBC, telling the network that “China’s attitude toward Apple largely drove him to exit his position,” according to an April 28 report on CNBC.com.
“You worry a little bit — and maybe more than a little — about China’s attitude,” Icahn told the network. China’s government could “come in and make it very difficult for Apple to sell there … you can do pretty much what you want there.”
Icahn’s action comes in part due to the recent actions of government regulators in China who without warning shut down Apple’s online iBooks Store and iTunes Movies service, which had opened about six months ago. Now Apple’s team is working with the communist government to try to restart the services, but no agreement has been announced. The services shuttering came despite permission that Apple was previously granted by the government when the services began last year, according to a recent eWEEK story.
The action by Chinese officials is a challenge for Apple, which has been garnering more and more of its revenue there in the last several years, according to the company’s revenue reports. In January, Apple reported $18.37 billion in revenue from China in its first quarter of 2016, which made up about 24.2 percent of the company’s $75.87 billion in revenue for the quarter. In the fourth quarter of 2015, Apple reported $12.52 billion in revenue from China, out of a total of $51.5 billion, according to earlier eWEEK reports.
China is Apple’s second-largest global market behind the United States. The company began selling iPhones in China in October 2014, after gaining government device security approvals.
Yet despite Icahn’s pullback on Apple stock right now, he did tell CNBC that if China “was basically steadied” in the future, “he would buy back into Apple,” the story reported.
Icahn said his actions came despite his opinion that Apple is a “great company” and that CEO Tim Cook is “doing a great job,” the story reported. Icahn had owned “a little less than a percent” of Apple’s shares.
Several IT analysts told eWEEK that Icahn’s actions on Apple make sense based on recent news surrounding the company.
“Our take is that I think this is a pretty sound reflection of Apple’s performance, in light of this week’s earnings announcement,” said Jeff Orr of ABI Research. “Apple’s business is meeting maturity in all of the markets that it is part of,” from computers to mobile devices, and that’s why the Chinese market is important to the company, said Orr. Icahn is “responding to that kind of information, that Apple is starting to look like every other technology company.”
Charles King, principal analyst at Pund-IT, said that Icahn’s decision “makes sense for Icahn whose huge (roughly 1 percent of all shares) position meant that he was acutely aware of movements in Apple’s stock price. Those shares have lost about 10 percent of their value since Apple’s earnings call … when the company cited problems in China as a reason for its poor results.”
Other issues, including the company’s existing mature product mix with no new major products on the horizon “raise questions about the effectiveness of the company’s management,” said King. “So while blaming China seems plausible enough, it also provides a simple out for both Icahn and Apple.”
Rob Enderle, principal analyst at Enderle Group, said Icahn’s move means “he can’t see a way to improve the situation so he is taking his money out, writing off whatever loss he incurred, and moving it someplace where he can make a difference.”
And that, said Enderle, is “a really bad sign because it means even the artificial things that he could drive to spike the stock are either already being done aggressively or he doesn’t see them making enough difference. This would be like standing on the deck of the Titanic and suddenly seeing the folks tasked with patching the hole grab a lifeboat and head for the horizon.”
Ken Dulaney, an analyst at Gartner, told eWEEK that Apple’s problems today stem from their own actions “simply because growth at their size requires another blockbuster and there is nothing apparent on the horizon. This is when Apple misses Steve [Jobs] the most.”
After Its Q2 Earnings Decline, Apple Now Loses Investor Carl Icahn
On April 26, Apple announced its second-quarter 2016 earnings and saw a quarterly decline in revenue for the first time since 2003. Apple reported revenue of $50.6 billion, which was 13 percent lower than the $58 billion the company posted one year ago. Net income was also down in Q2 to $10.5 billion from $13.6 billion a year ago as sales of the company’s flagship iPhone smartphones leveled off, ending Apple’s enviable 13-year record of uninterrupted sales growth. Apple’s latest iPhone 6 models went on sale last September.
Apple also missed analysts’ revenue estimates as it reported $50.6 billion in sales, below the $51.97 billion average estimate of 34 financial analysts who were surveyed by Thomson Reuters in advance of the earnings report. The company also reported earnings per diluted share of $1.90, which is down from $2.33 per share one year ago. The $1.90 EPS was also below the average estimate of $2.16 EPS reported by analysts.
One year ago, Apple’s global revenue continued its then-usual climb in Q2 2015, reaching $58 billion, a 27 percent jump from $45.6 billion in the same period in 2014, while its net profit rose 33 percent to $13.6 billion from $10.2 billion in Q2 2014. Contributing to that success were the sales of 61.2 million iPhones globally, as well as 12.6 million iPads and 4.6 million Mac computers along with about $5 billion in sales from the iTunes Store, the App Store and other Apple services.
The latest results were a big contrast from January, when the company reported Q1 2016 revenue of $75.9 billion, which was a new Apple record. But a problem appeared that was disconcerting—its sales of 74.7 million iPhones were flat from the 74.5 million that were sold in the same quarter a year earlier. The company’s Q1 net income was $18.4 billion, which set another quarterly record, up from $18 billion in January of 2015. Earnings rose to $3.28 per diluted share, up from $3.06 in the same quarter in January 2015.
In its latest quarter, Apple reported sales of 51.2 million iPhones, which is down 18 percent from the 61.2 million iPhones sold in the same quarter one year ago. The Q2 2016 iPhone sales fell even more precipitously—by 32 percent—from the 74.78 million that were sold in the first quarter of 2016. Revenue from iPhone sales fell to $32.9 billion in Q2, down 18 percent from $40.3 billion one year ago.