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Why to Own Apple

Technology stocks slipped again in New York last night, largely because shares of Apple fell sharply, closing down by 3.96% at $185.86 per share.

The reason for the weakness in Apple shares is the recent news that a number of their suppliers have been asked to cut production of components for all three of the iPhone models it unveiled in September. This has taken its toll on companies like Qorvo, Lumentum and Japan Display. Apple's main assembler, Foxconn, has cut overtime shifts for workers at its plants in mainland China.

Apple remains a great company, and it's always a good time to buy their shares. I have argued before that this sort of short-term news should not affect our positive outlook.. Let me explain why. Firstly, we are dealing with very big numbers, and some over and undershooting in ordering is inevitable. Apple sells about 220 million iPhones every year. It's not clear early on which models will sell best, when new ones are introduced. According to the Wall Street Journal, Apple has cut orders for the new lower-price iPhone XR by one third, of the 70 million units it ordered suppliers to assemble between September 2018 and February 2019.

Secondly, this has happened a good few times in the past. The iPhone 6 sold like hotcakes in 2014 and suppliers scrambled to meet demand, but the following year, demand for the iPhone 6s fell short causing chaos. Last year, production forecasts for the first iPhone X models were slashed by some 20 million units in early 2018. Lower priced models often sell well once the holiday season is done, as was seen with the iPhone 5C in 2014.

Finally, remember that Apple's strategy now is to sell a steady number of iPhones, but at higher unit prices, and then supplement that with fatter profits from software and services. It's not like they are battling. Apple reported its best-ever annual revenue and profit for the fiscal year ended in September 2018. For the current holiday quarter, it projects revenue of $89 billion to $93 billion. The stock is cheap, trading at only 15.6 times historic earnings.

Here is the very useful Wall Street Journal article referred to above, which requires a subscription to access, I'm afraid.


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