AAPL Stock: Why Apple Inc Profit Margins Could Come Under Pressure

Apple Inc (NASDAQ:AAPL) has received several critical reviews about its recently launched products which could keep Apple stock under pressure.

AAPL Stock Why Apple Inc Could See Its Profit Magins Fall In Future
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The reviews of the recently launched Apple Inc (NASDAQ:AAPL) products have not been as flattering as they used to be, to say the least. Apple has built its brand based on the quality of its product. Apple is one of the most trusted brands and commands huge loyalty, both due to innovative products and the quality of the products. This allows the company to follow premium pricing approach, leading to higher profit margins. Because of the higher profit margins, strong revenue growth, and multiple growth drivers, Apple stock is part of our top stock picks from the tech sector which have outperformed the market. However, the latest spate of news around the quality of Apple products could strike at the heart of the Apple brand and reduce its pricing power.

Apple profit margin Q3 2017

Apple Watch has connectivity issues.

The latest Apple Watch was supposed to be the next big thing. With the cellular connection, it was supposed to reduce the dependence on iPhone and give you the ability to make a call from anywhere without carrying your phone around. Well, the reviews of the watch, to put it mildly, they are not that great. Many tech reviewers, including Wall Street Journal and The Verge, have given a mixed review due to multiple issues with the cellular version of Apple Watch, including connectivity issues and battery problems. The cellular connection signals dropped, calls were often choppy and even Siri sometimes failed to connect. Battery barely lasted for longer than half a day—especially if you’re making calls. And the watch becomes noticeably warm during longer calls. Also, only a limited number of third-party apps work without the phone close by.

Apple had acknowledged the existence of the connectivity problem and had issued the following statement,  "We have discovered that when Apple Watch Series 3 joins unauthenticated Wi-Fi networks without connectivity, it may at times prevent the watch from using cellular. We are investigating a fix for a future software release."  Apple recently released a fix to the connectivity issue. The company didn't say whether it has fixed all the connectivity issue. Considering that the cellular version of Apple Watch costs $70 more than the normal versions, connectivity issues could be a real sour point for consumers. On the positive side for Apple though, not many customers have complained about connectivity issues since the watch went on sale Sept. 22.

A "Note 7 moment" for Apple Inc?

It's not just the watch, there are issues with the recently released iPhone 8. There are reports of iPhone 8 splitting open while charging. A Taiwanese iPhone 8 Plus owner claimed that her device split open while being charged with the supplied cable and plug adapter. She posted photos which show damage consistent with a swollen battery. There are also reports of iPhone 8 and iPhone 8 Plus units arriving with separated sides and presumably bloated batteries, in the last couple of weeks. A Japanese owner has posted similar photos of his device, which he says arrived in this state. Another such incident was reported in the Chinese state media, for a device delivered to mainland China.

While these battery incidents are not comparable with Samsung's Note 7 disaster, it will none the less raise questions about both, the latest battery technology and the quality of Apple products. Apple has confirmed it is investigating reports the iPhone 8 Plus is suffering from a severe battery failure which literally causes the sides of the smartphone to burst open.

Apple Brand could take a hit.

All this was preceded by a chaotic iOS11 upgrade. According to a report from mobile security firm Wandera, battery life for iOS 11 upgraders is decaying over twice as fast as those running iOS 10. Wandera report says that iPhones running on iOS 10 can be used for 240 minutes on average before the battery dies. On the other hand, iPhones running on iOS 11 last just 96 minutes on average - a massive 60% decline.

Apple iOS 11 battery issue

 

While all these problems, on their own may not pose a big threat to Apple's brand but combined, they could damage Apple's brand image to some extent, reducing its pricing power and thereby impacting its margins. I am not saying that these issues will take an immediate and heavy toll on Apple's brand, but they will definitely raise several eyebrows.

Apple stock is gaining momentum.

Apple stock is still recovering from its recent decline. Apple stock was down by 8% since the beginning of September before the current rally started. The stock had declined going into the iPhone launch event and had continued to trend lower after the mixed reviews and reports of supply issues with iPhone X. However, Apple stock had found support from the 100-day moving average. The 100-day moving average line has acted as a strong support for Apple stock over the last three months. In another positive news for Apple stock, MACD has made a bullish crossover above the signal line, indicating the AAPL stock is gaining momentum. For Apple a lot will depend on the success of iPhone X. Apple stock remains a long term buy.
AAPL Technical chart

Looking for fundamentally strong tech stocks? Check out Amigobulls' top stock picks from the tech sector, which have beaten the NASDAQ by nearly 155%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by a whopping 285%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.


Kumar Abhishek Kumar Abhishek   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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