2019 Marks a Milestone in Apple’s Growth Story

Overall, 2019 has been a phenomenal year for Apple (AAPL). The stock has been on a bull run. As a result, the company has emerged stronger following top-notch product launches. Apple has a definite roadmap for 2020. First, we’ll take a look at significant developments in 2019.

Landmark product releases in 2019

Apple rolled out some revolutionary products for buyers in 2019. The AirPods Pro flew off the shelves ahead of the holiday season. We’ll discuss Apple’s top product launches in 2019.

Apple Airpods Pro and Apple Watch

The AirPods Pro launched in October—Apple’s scene-stealer for the quarter. Notably, the Airpods Pro is the company’s latest high-end wireless earphones. With advanced features like noise-cancellation and water-resistance, the earphones cost $249. Due to instant popularity, Apple faced shortages before the holiday season. Apple had to turn to China to meet the demand shortage. 9to5 Mac reported Bernstein analyst Toni Sacconaghi’s prediction that AirPro’s shipment would double to 85 million units in 2020. He expects the AirPods Pro to bring in $15 billion in revenues by 2021 and emerge as “Apple’s third-largest business.”

Meanwhile, Apple’s release of Apple Watch 5 upped its game in the health device market. The company is the leader in the hearables space, according to the IDC’s report. Apple Watch is a vital factor in the company’s dominance. AirPods and Beats headphones also supported Apple’s growth. According to Loup Venture, Apple Watch will contribute nearly 12% to the company’s revenues in 2025. To ensure its growth, Apple must continue to innovate and add high-end health monitoring features.

iPhone 11

One of the most prominent launches in Apple’s annual event was the iPhone 11 series. The company launched iPhone 11 with the iPhone Pro and iPhone Pro Max. With a base price of $699, the company positioned the iPhone 11 as an affordable smartphone with high-end camera specs. As a result, the iPhone 11 was popular in emerging markets like India and China. Since the phone launched in the last few days of the third quarter, we’ll have to see its actual impact in the first quarter of fiscal 2020.

However, JPMorgan Chase expects the iPhone 11 shipments to increase from 185 million units in 2019 to 195 million units next year. Some analysts think that if the demand for these low-priced iPhones goes higher, it will have a negative impact on the average selling price. Read iPhone 11 Sees Higher Demand: Boon or Bane for Apple? to learn more.

Cheapest iPad

Another significant product launch in 2019 was an affordable iPad for $329. By launching this iPad, Apple placed itself in direct competition with Windows Laptop, Microsoft Surface Go, and Google Chromebook. The affordable iPad is more like a low-priced MacBook. Apple wants to capture a share in the 2-in-1 laptop market. Since the latest iPad is Apple’s cheapest one, it doesn’t have a lot of high-end specs. The IDC’s report indicated that Apple was the leader in the global tablet market in the third quarter with over 30% market share.

Apple’s notable developments in 2019

Apple hit a lot of milestones in 2019. From settling a legal battle to dodging the imminent December 15 tariffs, the company has been busy this year. We’ll discuss some of the company’s remarkable developments in 2019.

Battle with Qualcomm

Apple had been in a dispute with Qualcomm over 5G intellectual property since 2017. In March, Qualcomm won a $31 million lawsuit against Apple. The legal ruling said that the company used three of Qualcomm’s smartphone battery patents, according to a report from The Register.

In April, the tech giants announced that they settled the case on patents and royalties. Apple entered into a six-year deal with Qualcomm. The latter will supply chips and modems to Apple. The agreement could be extended beyond two years. Qualcomm had a lot at stake and Apple was losing business in China and Germany. Apple agreed to pay the royalties and both companies decided to end the legal battle.

Opened an iPhone facility in India

In a move to hedge against the imminent risks of a trade war, Apple announced an investment of $1 billion in India in September. The company invested the money to expand iPhone manufacturing in India. Apple also got an exemption from a 20% import duty in India. Now, the company is manufacturing the iPhone XR at the Foxconn facility, which is close to Chennai. The company also plans to manufacture the iPhone 11 in India in the future. Getting the high-tech iPhones assembled in China was a comfort zone for Apple. Will India be able to handle the challenges of building advanced iPhones?

President Trump visited Austin

In November, President Trump visited Apple’s new campus in Austin. Keeping his word about manufacturing the MacBook Pro in the US, CEO Tim Cook gained President Trump’s confidence again. Notably, President Trump has had a cordial relationship with Cook. He met Cook on many occasions in the past. In this case, Cook mainly wanted President Trump to understand that levying tariffs on consumer electronics would put Apple at a loss against Samsung. President Trump also acknowledged Cook’s perspective when they met for dinner in August. According to CNBC, President Trump said, “I thought he made a very compelling argument.” Apple also benefited when the December 15 tariffs weren’t levied amid progress in the trade talks.

December 15 tariff exemptions

The December 15 tariffs were obstructing Apple stock’s growth. If the tariffs had been levied, they would have impacted the margins on iPad, iPhone, and Mac. The tariffs would have also impacted the demand for Apple products ahead of the holiday season. However, the US and China softened their stance and canceled the tariffs. Apple escaped the 15% tariffs in this round of the trade talks.

According to a Wedbush analyst, the partial trade deal saved $150 per iPhone 11. Apple wouldn’t have passed the tariffs on to buyers. The company would have absorbed the tariffs to maintain demand. However, the tariffs would have dented the company’s margins, which isn’t desirable. The AirPods, HomePod, Apple Watch, and Mac face existing tariffs. We’ll have to see if the products are exempt from the next round.

Apple saw expanded services in 2019

Adding more subscription-based services helps Apple withstand the seasonality in hardware revenue. After witnessing a slowdown in iPhone sales, the company wants a strong service portfolio for survival and growth. In November, Bloomberg reported that Apple might bundle its subscription services in 2020 to boost its subscriber base. We’ll discuss the top four services that Apple launched in 2019.

Apple News+

Apple News+, which is a subscription-based digital news service, launched in March. The service assimilates content from over 300 newspapers, magazines, and other online publications. Currently, the subscription fee is $9.99 in the US, while it’s $12.99 per month in Canada. Apple announced the acquisition of Texture, a digital magazine subscription, in 2018. The company completed the acquisition in 2019. The acquisition formed the base for Apple News+. The subscriptions started with 200,000 members in the first two days of the launch.

However, over the past few months, Apple’s news subscription service hasn’t gathered much interest. Publishers aren’t happy with the service’s revenue-sharing plan. Meanwhile, users aren’t happy with the interface or compatibility. To learn more, read Apple News+ Needs to Rise from Its Slump.

Apple Card

In August, Apple launched Apple Card, which is backed by Goldman Sachs. The titanium card offers 3% cashback on dealings with Uber Eats, Uber, T-Mobile, and Walgreens. The card is Apple’s way of diversifying its offerings and increasing its inclination towards service-backed businesses. By launching the credit card, Apple planned to divert more of the users towards Apple Pay. In the future, the company wants to launch iPhones through a subscription-based model, which Apple Card will facilitate. However, the company is operating in a crowded space. Other tech companies including Facebook (FB) and Google (GOOG) also venturing into financial services. In November, Apple Card also came under the radar due to alleged gender discrimination during credit appraisal.

Apple Arcade

The company’s game subscription service, Apple Arcade, launched in September with a monthly fee of $4.99. The service started with over 100 games on the platform. Notably, the platform is available across all of Apple’s hardware devices. The company is focusing on exclusivity with Apple Arcade. The service roped in top-notch game developers. Third-party developers are also offering their titles on the platform. There’s an immense growth opportunity for premium gaming. Apple Arcade is a no-add platform. Apple Arcade was successful and well-received for family gaming. However, according to a SensorTower report, the service accounts for less than 2% of the App Store revenue.

Apple TV+

Apple TV+, which launched in November, is Apple’s ambitious project to step into the world of video streaming. The video streaming space already has dominant players like Netflix and Amazon Prime. Apple TV+ officially kickstarted the streaming wars. With a huge content spending budget, Apple TV+ launched with nine original shows. However, the service received a mixed response. Apple’s subscription charge is the cheapest among all of the services at $4.99 per month.

The company offered a one-year free trial offer for buyers of new Apple devices like the iPhone, iPad, Apple TV, and Mac. As a result, Apple has a ready subscriber base of nearly over 1 billion iOs users. Apple TV+’s real test will start when the trial period offer ends. To survive the streaming wars, Apple TV+ will likely add sports streaming and licensed content to its library. However, analysts think that Apple TV+ could generate up to $9 million in revenues by 2025.

Controversies in 2019

Besides a lot of significant product launches, Apple had its share of controversies in 2019. Ranging from protests in Hong Kong to a few legal battles, the company has seen it all this year. Let’s take a look at a few of Apple’s controversies in 2019.

Hong Kong protest

Apple came under pressure when a new app on its App Store tracked Hong Kong police members’ movements during the protests in October. The app called “HKmap.Live” used crowdsourced data. Apple said that there was a security threat. Criminals used the app to vandalize locations where police action wasn’t pronounced, according to The Guardian. China is a vital market for Apple. The company can’t afford to anger the Chinese government. As a result, Apple discontinued the app.

AirPower cancellation

On March 29, Apple announced that it canceled the launch of its AirPower charger, according to a CNBC report. Apple issued a public apology and stated that the product didn’t meet the desired standards. AirPower, which was announced in 2017, was supposed to launch in 2018. However, the product never launched. On the AirPower cancellation, Wedbush analyst Daniel Ives said that the AirPower cancellation “does not move the needle financially speaking, but it’s a hit to the golden Apple brand,” according to CNBC.

Spotify sued the company

In March, Spotify sued Apple and filed a complaint with the European Commission against the alleged “Apple-Tax.” Spotify blamed the company for charging a high 30% tax on each transaction done through its system. Allegedly, the tax favored Apple Music, which competes directly with Spotify. The latter also alleged that Apple allowed its services to break specific rules, which were sacred for third parties.

Tax battle in Ireland in 2019

Apple found itself embroiled in a tax case with the European Commission amid outstanding taxes in Ireland. The European competition commissioner, Margrethe Vestager, imposed a tax fine worth $14 billion on Apple in 2016. In September, the European Commission’s General Court summoned Apple to give its appeal after three years. Previously, the company denied the allegations. CEO Tim Cook called the allegations “total political crap,” according to CNBC. However, the company paid more than 14.3 billion euros to the European Commission in 2018. The money is part of Apple’s escrow account.

Apple Card faced a probe

In November, Apple Card faced another controversy due to credit limit approval. A tech entrepreneur, David Heinemeier Hansson, and Steve Wozniak, Apple’s co-founder, accused the company of gender discrimination while deciding the credit limit. Apple Card granted Hansson 20x more credit limit than his wife, who had a better credit score. Wozniak also blamed Apple for a similar incident that happened with his wife. The company’s algorithm drew criticism for these practices. New York’s Department of Financial Services initiated a probe on Goldman Sachs. Unfortunately, Apple Card faced the regulatory investigation between months that it launched.

Notable acquisitions in 2019

Apple maintains confidentiality when it comes to acquisitions, especially about its deals with smaller companies. With a cash reserve over $200 billion, it isn’t a surprise that the company acquires startups at breakneck speed. In May, Cook told CNBC that the company purchased 20–25 companies over the previous six months. We’ll discuss some of Apple’s significant acquisitions in 2019.

Intel’s 5G modem business in July

Apple acquired most of Intel’s (INTC) 5G modem business for $1 billion in July. However, the transaction was completed in the first week of December. Intel’s equipment, intellectual property, and nearly 2,200 employees will be part of Apple, according to the deal. Through the acquisition, Apple will get access to a massive number of Intel’s wireless patents. Buying Intel’s smartphone modem business would help the company expedite the development of its own 5G modem.

Ikinema in October

In October, Apple purchased Ikinema, a UK-based motion-capture company that specializes in motion captures, AR/VR, and games. The company has proprietary technology that converts video footage of a person into animated characters. The acquisition strengthens Apple’s attempts to foray into the AR/VR space. The company has acquired many small AR companies in the past. IKinema might be able to add a new kinematics technology in Apple’s software kit, which will enhance its AR offerings.

Spectral Edge in December

Apple’s latest acquisition is Spectral Edge, a UK startup that has a machine-learning algorithm to improve lowly-lit smartphone images. The company acquired Spectral Edge to offer sharper images through iPhones. The startup’s technology could be added to the iPhone’s camera app. Top-notch photography is a distinguishing factor for smartphones. Apple wants to do everything it can to boost iPhone features.

Fiscal 2019 results

In fiscal 2019, Apple’s total revenues fell 2% YoY (year-over-year) to $260 billion. The fourth quarter was the best-performing quarter. The company posted 1.8% YoY revenue growth. The revenues were stable in the third quarter. However, the first and second quarter saw about a 5% YoY revenue decline each compared to the same period in 2018. In terms of the net profit, all four of the quarters posted a drop. For the second and third quarters, the decline was in the double digits. In the fourth quarter, the net profit fell 3.1% YoY to $13.6 billion.

The flagging iPhone business and higher cost of sales weighed on the company’s results in this fiscal year. We’ll have to wait for Apple’s results for the first quarter of fiscal 2020 in January to understand the impact of the iPhone 11 and AirPods Pro.

In the latest quarter, Apple’s inclination towards the wearables and services segment became quite evident. The wearables segment is performing better than Mac. iPhone and Mac were the only businesses that witnessed lower revenues in the fourth quarter.

What to expect in 2020

2020 will bring immense challenges and opportunities for Apple. There’s a line-up of iPhones that might include 5G versions and the affordable iPhone SE2.

Tech Radar indicated that there could be an upgraded iPad Pro in 2020 with a 12.9-inch screen. Citing Apple analyst Ming-Chi Kuo, Tech Radar reported that the screen will be a mini-LED display with a 3D camera. The analyst said the display will “significantly improve productivity and the entertainment experience.”

Apple also wants to produce an AR/VR headset, but we don’t have specific information about the actual launch date. In October, Bloomberg indicated that the AR glasses would come next year. However, another Bloomberg article in November reported that the AR/VR gaming headset would come in 2022, while the glasses would be available by 2023.

While Apple Watch is adding more health-oriented features rapidly, users are waiting for sleep-tracking functionality. Fitbit already has sleep-tracking functionality. In February, Bloomberg indicated that the company would add the feature by 2020.

On the services front, Bloomberg indicated that Apple would launch a subscription bundle that would include Apple TV+, Apple News+, and Apple Music.

Apart from the release of hardware products or a service subscription bundle, investors will be interested in how trade talks impact Apple. Markets expect the company to make a comeback in China amid affordable 5G iPhones.

Apple stock has already returned more than 80% year-to-date. Although the stock will likely see a bull run next year, there are a few risks. The company has to do a balancing act between strengthening its services and wearables segment and reviving the iPhone business. We’ll follow every development on Apple’s timeline in 2020.