Will Apple (AAPL) Collapse?

Something strange is happening at Apple (AAPL). Apple’s revenues and revenue growth are shrinking while its popularity rises.

For example, more Americans are using iPhones than ever. Statista estimates the iPhone’s share of American smartphone users rose from 42.3% in 2014 to 46.9% in 2021. Conversely, Apple’s quarterly revenue growth rate fell from 36.54% on 30 June 2021 to 1.8% on 30 June 2022.

Conversely, Apple’s quarterly revenues grew from $81.294 billion on 30 June 2021 to $82.529 billion on 30 June 2022. In contrast, the quarterly revenues rose to $123.945 billion on 31 December 2021. The quarterly revenues fell to $97.278 billion on 31 March 2022.

How Much Money is Apple Making?

Apple Inc. (NASDAQ: AAPL) is making less money than in 2021. For example, the quarterly operating income fell from $24.126 billion on 30 June 2021 to $23.076 billion on 30 June 2022.

In contrast, the quarterly gross profit grew from $35.416 billion on 30 June 2021 to $35.885 billion on 30 June 2022. The quarterly gross profits peaked at $54.243 billion on 31 December 2021 while the quarterly operating income hit $41.488 billion on 31 December 2021.

Apple still makes enormous amounts of money, but it seems to make less money. Thus, the Apple money machine is still working, but it is not working as well.

How Much Cash is Apple Generating?

Value investors such as Warren Buffett love Apple (AAPL) because it is a cash-rich company. Thus, people will ask if Apple is still a cash-rich company?

Yes, Apple is a cash-rich company, but it has far less cash. Notably, Apple’s cash and short-term investments fell from $61.696 billion on 30 June 2021 to $48.231 billion on 30 June 2022. In contrast, Apple’s cash and short-term investments were $76.826 billion on 31 December 2020.

Conversely, Apple’s quarterly operating cash flow rose from $21.094 billion on 30 June 2021 to $22.892 billion on 30 June 2022. The quarterly operating cash flow did rise to $46.966 billion on 31 December 2022.

In contrast, the quarterly ending cash flow fell from $38.630 billion on 31 December 2021 to -$9.45 billion on 31 March 2022 to -$319 million on 30 June 2022. The quarterly ending cash flow was -$4.73 billion on 30 June 2021.

Yet Apple reported a quarterly investing cash flow of $4.234 billion on 30 June 2022. Thus, Apple can generate cash but it generates less cash.

How Much Debt Does Apple Have?

One reason Apple (AAPL) has less cash is that it pays enormous amounts of debt.

For example, Apple reported a quarterly financing cash flow of -$27.445 billion on 30 June 2022. The quarterly financing cash flow rose from $28.351 billion on 31 March 2022 and $29.396 billion on 30 June 2021.

However, Apple’s debts shrank slightly over the past year. The Total Debt fell from $121.791 billion on 30 June 2021 to $119.691 billion on 30 June 2022. Thus, Apple has enormous amounts of debt, but it pays enormous amounts of debt.

Consequently, I think Apple is vulnerable to rising interest rates because of all that debt. Notably, the US Fed Funds rate rose from under 0.5% in October 2021 to 3.5% in September 2022. The Federal Reserve has been raising interest rates in an effort to control inflation.

Bankrate speculates the Fed could raise interest rates to 4.5% to 4.75% over the next year to stop inflation. Thus Apple could experience some economic turbulence that could cut its profits.

Will Inflation Hurt Apple (AAPL)?

Additionally, inflation could hurt Apple because it relies on consumer products (iPhones) and tablets that are luxury goods. People with less money cut spending on luxury products first.

For example, US inflation rates rose from 5.4% in October 2021 to 8.3% in August 2022. However, I think the real danger to Apple (AAPL) is consumer inflation, such as food inflation. For example, the US food inflation rate rose from 5.3% in October 2021 to 11.4% in October 2022. Higher grocery bills mean less money for a new iPhone.

However, many people need smartphones for their work which helps Apple make more money. In particular, older people who want simple and reliable products now have to buy a smartphone. Which helps Apple.

For example, Walmart (WMT) gave 740,000 employees Samsung XCover Pro phones in June 2021, CBS News reports. Conversely, most employers require workers to supply their own phones, which benefits Apple.

What Value Does Apple Offer?

I think Apple (NASDAQ: AAPL) still offers enormous value. For instance, Apple reported total assets of $336.309 billion on 30 June 2022.

Yet Apple is losing value. For example, the total assets shrank from $381.191 billion on 31 December 2021. Thus, Apple cannot retain value.

Conversely, I think Apple (AAPL) is a value investment at the $140.09 Mr. Market paid for it on 7 October 2022. Apple’s share price fell from $141.11 on 5 October 2021.

Moreover, Apple is still an excellent dividend stock. Apple has scheduled eight 23₵ quarterly dividends through 12 August 2024. Apple had a 92₵ forward dividend and a forward dividend yield of 0.66% on 7 October 2022.

I consider Apple a value investment. However, Apple is a value investment that faces a questionable future. In particular, Apple will have to deal with the problems of Chinese production and microchips at some point.

Threats to Apple

For example, they manufacture over 90% of Apple products in China. Yet, COVID-19 lockdowns are crippling the Chinese economy. A longer term threat is conflict between the US and the People’s Republic of China, which could block trade.

Apple will need to correct this situation by moving production, which will be expensive. Ultimately, I think Apple will have to build factories in the US, Europe, or India, which will be expensive. America already has a labor shortage which will make production expensive.

For example, a new Micron semiconductor factory in Upstate New York could cost $20 billion. I think an Apple factory in the US will be even more expensive.

Finally, the chip or semiconductor shortage threatens manufacturers such as Apple. Companies such as Micron (MU) are trying to alleviate the shortage with new factories, but those facilities will take years to complete.

US-China tensions could threaten Apple because Taiwan is the center of the world’s semiconductor industry. Any conflict over Taiwan could shut off the semiconductor supply and shut down Apple.

I think Apple (AAPL) is still an excellent value investment but is a company that could require drastic and expensive changes to survive. Investors need to understand that Apple’s cash machine could soon vanish.