Despite a Global Shutdown, Apple Will Keep on Going

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Without fail, once every few years there are predictions about the demise of Apple. With the current global pandemic, the naysayers have returned. In response, Apple released a new iPad Pro, MacBook Air and an iPhone. It is very clear that COVID-19 can cause a global shutdown, but Apple will keep on going.

Like many other companies, Apple has been hit by the virus. Late in December 2019, Apple’s suppliers like Foxconn were forced to close their factories in China. Now, while China returns to work, in the west Apple has been forced to close stores and employees made to work from home.

In a very unusual twist, the pandemic also led Goldman Sachs’ analyst Rod Hall to give Apple’s stock a sell rating. Hall expected a massive drop in sales of iPhones, and a decline in revenue generated from services like Apple TV+ and Apple Music.

CEO Tim Cook, however, seems to disagree. On April 17, he held a meeting with all of Apple’s employees. He reiterated his confidence that the company would come out of the pandemic in good shape. According to Bloomberg, who obtained a recording of the meeting, Cook said that while Apple wasn’t immune to the global economic meltdown, “I don’t see any reason to be anything but optimistic.

Supply Chain Woes

Device sales are still a key cog for Apple’s revenue stream, forcing the company to keep manufacturing and selling during the pandemic. The company is relatively well-insulated compared to its peers, but the global nature of the pandemic means that even Apple hasn’t been spared. 

This is where Tim Cook’s expertise comes in. When he first joined Apple in 1998, Cook was brought on for his expertise in supply chain management. Without his intervention, the company would not have been in the position it is today. With Cook at the helm, Apple is unlikely to face any long-term impacts. In the short-term though, it is a different story.

China represents just one part of Apple’s complex puzzle, the assembly. Right now, manufacturing of key components has been badly affected. Malaysia is home to several Apple suppliers. Murata Manufacturing, Renesas Electronics and Ibiden, which make chips and circuit boards in Malaysia have all been forced to close. Micron Technology, Texas Instruments and On Semiconductor have also been badly impacted, but are running as Malaysia has allowed limited semiconductor operations to continue.

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Line operators at an iPhone production facility in China awarded the Green Factory designation. Source: Apple

Despite these setbacks, the company has been able to meet some of its manufacturing requirements, but at a cost. The company was forced to implement a cap of two devices per person on sales in many countries in March. The last time Apple capped sales was in 2007 when the first iPhone was launched.

Lockdowns have also changed shopping habits. To limit the spread of the virus, most countries have closed all but essential stores, and even Amazon has limited shipping of ‘non-essential’ products. The result is less people are buying new devices, so even if Apple didn’t have supply issues, it would still have issues selling devices. The supply chain woes allow the company to carefully balance demand and supply, which is extremely important at this time.

Reasons To Be Optimistic

Recognising the slowing of device sales over the last few years, under Cook Apple has made a transition into services. From music to TV, and books to finance, Apple’s services are looking like a good bet for the company, especially during the current pandemic.  

With a majority of the population locked at home, consumption of digital services has skyrocketed. App market data provider Sensor Tower estimates the average U.S. iPhone owner spent $100 in 2019 on in-app purchases and digital service, up from $79 in 2018. App Annie, an apps analytics firm said that between March 22 and March 28, game app downloads reached an all-time record of 1.2 billion. Despite what Hall said, services are doing just fine.

Apple TV+ is available on all Apple devices. Image: Apple

Apple’s real value isn’t, however, the booming services industry or its supply chain expertise, but the $200 billion in cash the company has. Cook and the company have often been criticized for not spending this hoard, its biggest expense to date was the $3 billion acquisition of Beats. Rather than be berated, Cook should be praised for not using that cash.

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Before the pandemic, valuations were often sky high and many companies overvalued (just look at WeWork and Uber as great examples). Now that money is tighter, Apple can get more bang for its buck. The company is already going down this path, having made three acquisitions in March this year. With thousands of startups and smaller companies desperate for help, there’s no better time for Apple to pounce.

Leveraging the economic situation and its cash hoard has put Apple in a position to become the next Disney. Cook can choose to expand Apple’s healthcare services, Apple TV+ or even Apple Music. There really is no limit to what the company can do. Irrespective of how long the shutdown continues, Apple will keep on going stronger than before. 

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