Is the world reaching peak smartphone saturation?
Apple’s market capitalization rose above $1 trillion in August, making it Wall Street’s most valuable company. But the iPhone maker’s sudden warning in early January about weak sales in China sent shock waves through global markets and dropped Apple’s valuation to $680 billion, below that of Google parent Alphabet.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” said Apple CEO Tim Cook.
China’s Huawei, which offers a cheaper smartphone, passed Apple last year to become the world’s second-biggest mobile-phone maker after Samsung Electronics. South Korea–based Samsung also shocked financial markets on January 8 by warning that revenue and profits for the final three months of 2018, the holiday quarter, would be sharply lower, with operating profit expected to decline 29% from the same period a year earlier. LG Electronics, also based in South Korea, said it expected its fourth quarter 2018 operating profit to drop 80% year-over-year.
Samsung cited “intensifying competition in the smartphone business” as one reason for its downward guidance, also blaming “mounting macro uncertainties” and lackluster demand for memory chips. Samsung has faced stiff competition in China from Huawei and Xiaomi, among others.
Major technology stocks have lost hundreds of billions of dollars in market value in recent months. Berkshire Hathaway, headed by Warren Buffett, one of the most successful investors ever, was sitting on a $21.6 billion paper loss in early January on its holding of more than 250 million Apple shares.
Analysts sensed trouble was brewing in November when Apple announced it would no longer report iPhone, Mac and iPad unit sales. Some blame sticker shock for Apple’s stumble, after the price of the new iPhone X hit $1,000. People are holding on to their old phones longer. Now, Apple is offering more generous trade-in offers to entice customers to upgrade to new models.
Apple gave CEO Cook a 22% pay increase for its fiscal year ended last September. His total compensation rose to $15.7 million, including a $12 million cash bonus for meeting financial targets set by the board.
