; Date: Wed Mar 18 2020
Today Apple introduced an updated MacBook Air, and a new iPad, amidst a historic economic downturn thanks to a double whammy of a global pandemic, and a global price war in the oil market between Saudi Arabia and Russia. Any company when releasing new products hope their customers will rush to the store and buy buy buy. Apple has relied on a pattern of goading its customers into upgrading every year, and the company has been so successful at this it is one of the largest market-capitalization companies on the planet. But, Apple is probably running headlong into a perfect storm that could do great damage to Apple.
What is this perfect storm? Maybe it will pass shortly enough, but at the moment in which Apple made this product introduction the stock market is in a death spiral. Economically we are looking to be headed for at least a major Recession if not a full blown Depression.
On the one hand there is a disease - Coronavirus - a.k.a. COVID-19 - that is rapidly spreading around the world. It is a novel coronavirus meaning that humans in general do not have immunity to this disease, making its spread problematic, as does the relatively high rate of deaths.
As a result, governments around the world are instituting draconian measures designed to limit the spread of the disease. They are committing what would otherwise be called a massive human rights violation, but instead is called a medical necessity. Namely, whole countries are in lockdown, with people ordered to stay at home and to limit contact with others. A simple thing like taking an airplane flight is essentially banned. Travel between countries is essentially banned. In some countries, even going out for a walk around the block is essentially banned, and is subject to a criminal fine or possibly even jail sentences.
All those actions are behind the stock market death spiral. Namely, staying at home means a large number of businesses simply cannot operate. Factory jobs, for example, cannot be done from home, and therefore any affected production line is halted. Several car makers have announced they've idled their factories, for example.
This means lower economic activity - and that next quarter's financial results in company after company will not live up to the Guidance previously given by corporate management. Since stocks are priced based on future profits, the result of company after company having lower profits means that company after company will see its stock price tumble badly. The investors seem to not be waiting for the quarterly financial results, but are already hammering the stock market.
To compound measures - in the oil market, Russia and Saudi Arabia decided to launch a global price war against each other. This caused the price for oil to tumble. In the USA, most oil production relies on Fracking (a.k.a. hydraulic fracturing), which is a costly oil production method.
Lower oil prices will mean a number of USA-based oil companies will be unable to keep producing oil, which could lead to bankruptcies across the US oil industry. And it means any asset whose price is determined by the price of oil, those assets just lost a lot of value.
That's just the briefest summary of why the stock market is tanking.
Apple and the reliance on the Upgrade Cycle
Getting back to Apple....
Apple, like many technology companies, has been very successful at teaching its customers to upgrade their devices every year. It doesn't matter than an iPhone costs $1000, the iPhone fanboy/fangirl people among us are addicted to whatever is the latest new feature.
Apple has ridden this upgrade wave to become one of the largest companies (in market capitalization) in the world. To keep improving its standing, Apple relies on its customers upgrading every year or two, and therefore Apple constantly dangles new features in front of its customers.
On a normal day we'd be oooo'ing and awwww'ing about the new Magic Keyboard not just for the MacBook Air, but for the new iPad Pro. Oh, and did you hear that iPadOS now supports trackpads? And that iPad Pro Magic Keyboard has a built-in trackpad? Doesn't that mean I can now ditch my laptop, and just use the iPad with the new Magic Keyboard as a laptop?
That would be a normal response to those announcements. To read the announcements, head over to Apple updates MacBook Air, Mac Mini and launches new iPad Pro, all with more goodness
But as I just outlined, these times are not normal times. Want proof? On the same day of Apple's announcement, the US Congress passed a massive $1 trillion bailout package for the US Economy. This includes direct payments from the US Government to all citizens so that we'll have some money coming in when we might have otherwise lost our job. Another measure is to prohibit being evicted by landlords during this crisis.
What I predict is that sales for these new products will not live up to Apple's expectations.
Apple will have made significant investments into production lines supporting what would have been the normal feeding frenzy - but the lower sales will mean Apple has to eat the cost of those investments.
Apple will therefore run into serious problems, and will stumble. It is a big enough company that it probably will not fall. But it will surely stumble.