(Report Producer/Author: Futu)
First, the company overview: the global consumer electronics giant
The global consumer electronics giant has gradually built a product kingdom, and the market value once exceeded 3 trillion US dollars
About Apple and its history
Founded in 1976 in Silicon Valley, Apple is a global consumer electronics giant known for its innovations among high-tech companies. Apple's core hardware products include iPhone, iPad, iMac, wearable series of Apple Watch, AirPods and Beats series products, in addition to Apple TV media players, HomePod smart speakers and iPod music players. Core software products include Appstore, and subscription services include Apple Care, Apple Music, iCloud, Apple Pay, Apple TV+, and more. The self-developed hardware is mainly based on the most core component processors, A series and M series chips. The self-developed software mainly includes macOS, iOS, iPadOS, watchOS and tvOS five operating systems, iTunes player, Safari web browser, Shazam music recognition, as well as iLife and iWork creative and productivity packages, as well as finalCutPro, LogicPro and Xcode and other professional software.
Apple has abundant cash reserves, buying back $86 billion in fiscal 2021, and is better equipped to deal with risk and improve shareholder returns
In the context of geopolitical risks and intensified macro policy risks, companies with abundant cash reserves, the ability and willingness to carry out large-scale repurchases are more favored by the market.
Apple has abundant cash reserves. As of FY22Q1, Apple has about $202.6 billion in cash reserves, exceeding the market capitalization of companies with a total market capitalization of less than 60 in the United States (such as Nike, Merck, Intel and other companies). At the same time, compared with the technology companies Google and Microsoft, by the end of 2021, Apple's cash flow reserves are much higher than Google ($169.2 billion) and Microsoft ($132.4 billion), and Apple is not as keen on foreign investment as the other two companies.
Company financial analysis: iPhone business is the company's core source of income, the company's product and service ecology is increasingly perfect
Company segmentation
Apple's core revenue source is the iPhone business. From FY2017 to FY2021, the iPhone business revenue accounted for more than 50% of the company's total revenue, which is the company's high-quality cash cow. However, with the rapid development of wearable business and service business, the company's dependence on the iPhone single business has declined, building a more comprehensive and healthy product ecology and business development model, which is also conducive to reducing the negative impact of the iPhone product cycle on the company's revenue. The services business is now the company's second largest source of revenue, with revenue rising steadily from 14% in FY2017 to 19% in FY2021. Wearables and other businesses are the second largest source of revenue for the company's hardware business, with revenue rising rapidly from 5.6% in FY2017 to 10% in FY2021. The revenue share of the Mac and iPad businesses was relatively stable, falling slightly from 10.88% to 9.21% and from 8.47% to 8.36% respectively.
Company revenue
Apple's revenue in the latest fiscal quarter was affected by the supply chain. FY22Q1 Apple's total revenue of $123.945 billion, YoY +11.22%, although affected by supply chain shortages, but the performance is still beyond market expectations, mainly driven by the iPhone 13 series, and the company's strong supply chain management capabilities under the supply chain problems in the later stage to alleviate. In fiscal 2021, the company's revenue was 365.817 billion US dollars, yoy+33%, the highest growth rate in history, mainly benefiting from the best-selling iPhone 12 and 13 series products, online stimulation of Mac, iPad, wearable and other products demand, and Huawei's sales rebound in Greater China after the restriction.
Revenue of the company by region
The U.S. region is the company's basic disk, and the proportion of revenue in Greater China is growing rapidly. The proportion of revenue in the US region to total revenue has remained almost always above 40%, contributing the most important source of revenue. Since the Huawei ban, the revenue share in Greater China has increased from 15.6% in FY19Q1 to 20.8% in FY22Q1, and the revenue growth rate has reached a record high of 87% in FY21Q2.
Company profit level
The company's product structure is optimized, and the gross profit level hit a record high. Apple's gross margin has remained at a high level in the industry, with the company's gross margin improving from 39% to 42% from fiscal 2014 to fiscal 2021, mainly due to the higher proportion of high gross profit product sales in total sales and the increasing price cap of the iPhone.
Second, hardware business: soft and hardware integration, to build core barriers
iPhone business: software and hardware integration, self-developed chips and IOS ecology to create the core competitiveness of products, brand loyalty is extremely high
Core competencies
Self-developed chips and IOS ecology have built a very deep moat. Apple is committed to achieving the integration of software and hardware, and completing the transformation from hardware manufacturing to software platform. With ultra-high performance, the self-developed A series chips have built technical barriers that are difficult for other manufacturers to overcome, coupled with the self-developed iOS system, the overall adaptability and optimization of the mobile phone have reached the best. In fact, Apple is packaging self-developed chips, hardware products, iOS operating systems, Appstore, various API interfaces and IAP into an iOS ecosystem. Therefore, when users buy Apple mobile phones, they not only buy mobile phone hardware, but also pocket Apple's iOS ecology. The closed iOS ecosystem provides users with a smoother, safer and more convenient consumer experience, which has become the core competitiveness of the iPhone.
iPhone business: The high-end mobile phone market has significant advantages, and its market share continues to expand
Smartphone market situation
Smartphones have entered an era of single-digit stock growth, and the market is highly concentrated. According to IDC data, global smartphone shipments reached 1.35 billion units in 2021, YoY+5.7%, while the market share of the top five mobile phone manufacturers of Samsung, Apple, Xiaomi, OPPO and vivo increased to 71%, and the shipments of other mobile phone brands fell by 12.5% year-on-year. Mobile phone manufacturers have intensified the inner volume, smartphone innovation has reached the neck, and product competitiveness is more reflected in core technical barriers, product ecosystems and user loyalty.
iPhone business: Revenue is affected by supply chain difficulties, and it is expected that supply chain problems will be alleviated in 2022 to ensure adequate supply
Supply chain issues are expected to be alleviated in 2022. In 2021, due to the repeated epidemics, the production capacity of southeast Asian factories and global shipping capacity are limited, and the entire mobile phone industry is facing the problem of supply chain shortage, which has greatly affected the output of the mobile phone industry. As the largest customer of the supplier, Apple often enjoys the supplier's priority right and lower prices, so even if it is plagued by the supply chain, it is relatively less affected than its peers. At the same time, in order to ensure chip production capacity, in 2022, Apple accepted TSMC's price increase for the first time, and predetermined 120,000-150,000 pieces of 4nm chip production capacity in advance, and the price increase was only about 3%, far lower than the average price increase of 8-10% of TSMC. Management said that after November 2021, the supply chain problem began to gradually improve, and it is expected that the problem of insufficient capacity in 2022 can be greatly alleviated, driving the company's revenue growth.
iPhone business: product portfolio optimization covers more levels of consumer demand, driving shipment growth; software and hardware upgrades and replacement plans to drive user replacement, it is expected that the iPhone 15 ushered in a new round of replacement tide
Portfolio optimization covers more levels of consumer demand. The iPhone series tends to pay attention to distinguishing between ordinary and professional products, further expanding the pricing range of products, and meeting the needs of cost performance and high-end. iPhone13 mini and iPhone 13 are only equipped with a castrated version of the A15 chip, but at the same time the lower limit of the mobile phone capacity is increased from 64GB to 128GB, and the starting price of the National Bank edition is 300 yuan lower than that of the iPhone 12, which improves the product price performance; while the iPhone Pro and Pro Max models are equipped with full A15 chips, the maximum capacity is increased to 1TB, and the maximum price of the iPhone is raised to 12999 yuan, breaking through the upper limit of historical pricing. Meet the needs of high-end products. The iPhone 14, which is expected to be released this fall, will follow the same product strategy. At the same time, the iPhone SE product line will compete for the mid-range mobile phone market share. The first 5G iPhone SE (A15 chip and starting price of $429) released in March 2022 is expected to drive mid-range shipment growth.
iPhone business: The best-selling of high-end models has made ASP significantly improved, while strong supply chain management and chip self-research capabilities are expected to further reduce costs, and profitability is expected to continue to improve
The demand for high-end iPhone models is more vigorous, and the ASP has increased significantly. Apple's official website data shows that compared with the iPhone 13 and iPhone 13 mini, the iPhone 13 series of high-end models iPhone 13 Pro and iPhone 13 Pro Max have longer appointment times and more demand, mainly due to the better configuration of high-end models. Benefiting from the best-selling of high-end models and the increase in pricing caps, the ASP of the iPhone has increased significantly, according to estimates, the ASP of the iPhone has increased by 36% from $619 in 16Q4 to $843 in 21Q4.
Wearable business: The wearable market is developing rapidly, and Apple occupies a leading position
The wearable market is growing rapidly, with smartwatches and TWS true wireless headphones growing faster than the industry average. Unlike the smartphone industry, the wearable market still has a lot of room for growth. IDC data shows that global wearable device shipments reached 533.6 million units in 2021, an increase of 20% year-on-year, and shipments are expected to reach 800 million units by 2025, with a compound growth rate of 12% in 5 years. Among them, the product penetration rate of TWS headphones and smart watches is still not high, and the base is small, so the growth rate of smart watches and TWS true wireless headphones exceeds the overall growth rate of the wearable market, and shipments are concentrated in advanced markets such as North America and Europe. CCS Insight expects smartwatch shipments to reach 258 million units in 2025, with a five-year compound growth rate of 14.9%; Counterpoint expects TWS shipments to reach 570 million in 2025, with a five-year compound growth rate of 20%.
Wearable business: A large number of iPhone users support the penetration of wearable products, and health management functions provide differentiated competition
With 1 billion iPhone users, wearable product penetration is expected to accelerate. The main competitiveness of Apple's wearable products lies in the interconnection between the iOS product ecosystem, and the huge iPhone user base will drive the sales of related products (such as wearable products). At present, the penetration rate of AirPods and Apple Watch among iPhone users is low, and there is still a large room for improvement. According to Apple's official disclosure, the iPhone active installation base in 2020 exceeded 1 billion, at the same time, IDC data shows that the shipments of AirPods and Apple Watch in 2021 are 86 million and 38.25 million, respectively, we measured that by the end of 2021, the penetration rate of AirPods and Apple Watch in iPhone users is low, 21.7% and 10.6%, respectively, there is still a high room for growth.
Mac and iPad business: Mac and iPad shipments hit a new high; under the fierce market competition, the product competitiveness is highlighted
The PC market hit the highest shipments in 10 years, and tablet shipments hit the highest level since 2016. According to IDC data, the total pc shipments in 2021 reached 349 million units, an increase of 14.8% year-on-year, and the annual shipments of the PC market reached a new high since 2012. Among them, the top five personal computer companies in 2021 are Lenovo (23.5%), HP (21.2%), Dell (17.0%), Apple (8.5%), and Acer (7.1%). According to IDC data, total global tablet shipments in 2021 increased by 2.9% year-on-year to 168 million units, the highest level since 2016.
Mac and iPad business: M series chips promote ecological closed-loop and improve product performance; hybrid office demand drives the growth of the PC market, and supply chain recovery drives the iPad business
M series chips promote ecological closed-loop, significantly improve product performance, and drive business revenue growth. After the launch of the M series of chips, Apple has gradually completed the chip replacement plan, and all product lines have gradually equipped with self-developed chips, opening up the iPhone, iPad, mac software systems, and further promoting the product ecological closed loop. Apple launched the first generation of M1 chips in November 2020, followed by the release of M1 Pro, M1 Max, M1 Ultra chips, which are installed on the Mac and iPad product lines, including MacBook Air, MacBook Pro, Mac Mini, Mac Studio, iPad Pro, iPad Air and other products. M Series chips have excellent power consumption and performance, driving mac business revenue growth. The release of the M1 chip drove the revenue growth rate of the FY21Q2Mac business to rise by nearly 70%, while the release of the M1 Pro and M1 Max chips drove the Revenue Growth Rate of the Mac business in FY22Q1 far exceeded that of all segments. At the same time, the processor in the iPad product is converted from the A series to the M series chip, which will make it a professional production tool, and the anchoring effect also makes the M series chip improve the cost performance of the iPad product line.
Third, the service business and new performance growth points: support the company's long-term development
Service business: Revenue has maintained high growth, profitability is significant, there is still room for further improvement
The service business maintained steady and high growth, and to a certain extent smoothed the company's performance curve. FY2021 service business revenue of 68.425 billion US dollars, revenue growth rate of 27.3%, hitting a new high since 2018. Unlike the large fluctuations in hardware business revenue (FY19 revenue growth rate is negative), the service business revenue growth rate has maintained a stable high growth, which has smoothed the cyclical fluctuations of the company's performance to a certain extent. The continuous growth of Apple's hardware ownership and active users, especially the historic achievements of Apple's hardware business in fiscal 2021, will effectively support the growth of the service business in the future.
Appstore business: Benefiting from the increase in paying users and a rich application ecosystem, it drives revenue growth
Appstore is the only way for iOS users to officially download apps, and must adopt Apple's API payment system, which has a natural advantage. AppStore provides a distribution service for applications and in-app digital goods, in order to protect its own interests, Apple in the Developer Agreement requires developers to agree: need to pay up to 30% commission for iOS applications and in-app purchases, subscriptions; prohibit the opening of the App Store in the App Store; need to use Apple's IAP to process any transaction. At present, the Commission Fee Rules of appStore are mainly divided into three types: a. developers with annual revenue of less than $1 million use a 15% commission fee rate; b. Developers with annual revenue of more than $1 million use a 30% commission fee rate; c. Reader developers can pay externally.
Licensing business: iOS devices have huge search traffic, and Google has an incentive to maintain its default search status in Safari
Revenue in the licensing business comes mainly from Google. Sitting on the huge traffic of iPhone users, Apple can obtain revenue by licensing to third parties, and the current licensesing business is mainly divided into two parts: google pays traffic channel fees, and other advertising costs. Among them, the vast majority of Apple's license business revenue comes from Google, Google through cooperation with Apple iOS devices (iPhone, iPad, macbook, etc.), Google Search as the default search engine, for which Google needs to pay Apple a certain traffic acquisition costs (TAC, traffic acquisition costs).
Subscription services and other businesses: rich products, improved service quality, and occupy a leading position in the market segment
Subscription service products are abundant. The subscription service business refers to Apple Music, Apple TV+, iCloud, Apple Arcade, Apple News, Apple Fitness+, AppleCare+, Apple Pay and other software applications launched by Apple, involving video entertainment, cloud storage, games, news, health, hardware repair, payment and other services.
New performance growth points: The AR/VR market has ushered in an explosion, and Apple may challenge a dominant Meta
The AR/VR market ushered in an outbreak, and the market grew rapidly. According to IDC data, the global AR/VR headset market increased by 92.1% year-on-year in 2021, with shipments reaching 11.2 million units. New entrants and more widespread applications in the business will drive the accelerated growth of AR/VR headset shipments, which are expected to increase by 46.9% year-on-year in 2022, and global shipments are expected to reach 50 million units in 2026, with an annual compound growth rate of 35.1%. According to past experience, Apple's participation in the competition will create new market demand, which is expected to accelerate the outbreak of the AR/VR market.
Excerpts from the report:
(This article is for informational purposes only and does not represent any of our investment advice.) For usage information, see the original report. ）
Featured report source: [Future Think Tank].