Felicity Duncan: Apple in 2015 - boom or bust

APPLE has had a very strong year – its stock is up almost 46% year-to-date, its earnings grew over 20% year-on-year, and 2014 saw the successful launch of the iPhone 6 family of new phones, among other products.

All of this naturally begs the question, what does 2015 hold for the tech giant? After a banner year like this, where exactly can Apple go from here?

Today, we’re going to take a stab at answering that question. First, we’ll look at some of the highly anticipated product launches that Apple has lined up for 2015, then we’ll consider the company’s financial prospects for the year ahead.

It’s going to be a gadget-y year

In 2014, Apple had some very solid launches that will feed into its 2015 numbers. In particular, the new iPhone 6 sold very well; analysts are predicting that sales of the new phone in Q1 2015 will top 60 million, beating Apple’s previous quarterly record for iPhone sales of 51 million units.

Looking ahead, there are a lot of launches scheduled for 2015 that should keep the money rolling in.

Of course, the biggest buzz for 2015 surrounds Apple’s impending Apple Watch launch. Unless you’ve been living under a rock, you’ve heard about this product – a smart watch that will sync closely with your iPhone, giving you instant updates and probably linking up with Apple’s new health monitoring software.

There are rumours that the Apple Watch may be sold at high-end retailers as well as at Apple stores; the watch is likely to be marketed as much as a fashion accessory as it is as a piece of tech. Whatever the final launch plan and specs, the Apple Watch is likely to sell at least reasonably well, and to open up a new product category for Apple.

2015 will also see updates on Apple’s core stable of products. We can expect another new iPhone, an updated iPad, and the usual stable of new Apple desktops and laptops with crisper screens, faster processors and sleeker design. There is also a possibility that Apple will launch an updated version of Apple TV, although this has been rumoured for years. All in all, there should be enough new guff in stores to keep the punters coming.

What about the money?

New products are all well and good, but assuming Apple does bring this batch of new products onto the market, what does it all mean for the company’s financial year ahead?

Looking at the numbers right now, Apple is heavily reliant on iPhone sales (see table below). As you can see, almost 60% of the company’s revenue comes from iPhone sales, with Mac and iPad sales contributing another 30% and the other product lines making up the difference.

Looking at the trends, you can see that Mac, iTunes, and accessories sales tend to be stable throughout the year, while i-device sales tend to peak in the first quarter (holiday shopping, presumably). While the iPhone had a fantastic 2014, the iPad saw sales steadily decline through the year.



Then, of course, there is the Apple Watch. The wearable device could introduce a whole new product category to the Apple lineup (depending on how sales go), and could help make up for slowing iPad sales. The newly introduced Apple Pay could also boost revenues going forward, helping to bump up the contribution from the services line. So what will 2015 look like?

Well, for a start, iPhone sales are likely to be just as strong going forward as they have been this year. As I mentioned, the iPhone 6 launch has been a huge success, and sales of the new device should drive revenues along strongly for the first half of 2015.

Later in the year, a new iPhone launch could add a further boost.

Is it a buy?

The crucial question is, should you buy Apple? After the stock has run so hard this year, it’s a conundrum. First, there is upside potential thanks to the runaway success of the iPhone 6 and the soon-to-launch Apple Watch. Second, there is the fact that, at a P/E of just under 18, Apple is actually trading at a reasonable valuation (the S&P 500 is trading at a PE of over 20).

On the downside, there is the fact that US markets have run very hard this year, and are unlikely to repeat the performance in 2015, and the fact that it is very unlikely that Apple will deliver 2015 returns that equal 2014.

Overall, then, there are some risks attached to buying Apple, but if you’re lucky enough to already have it in your portfolio, it’s a definite hold.

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