Apple’s latest iPhone brings hope for tech stocks – but only a little

APPLE is set to launch its latest iPhone – the iPhone 14 – on Wednesday (Sep 7), with 90 million units at the ready to meet anticipated global demand.

As usual, the Internet is awash with musings on all the details: design changes, pricing, colours and camera enhancements. With the iPhone release in the making, Apple stock rose over 15 per cent in the last 2 months as investors banked on higher prices for the iPhone 14 and speculated on other releases – augmented reality glasses, perhaps – from the company.

The real question, at least for investors, is whether the latest iPhone will give a lift to tech stocks in a year of uncontrollable market risk events, such as the Russia-Ukraine war, Covid-19 lockdowns in China, snarled supply chains and escalating inflation, that have pushed economies to the brink of recession.

The tech-heavy Nasdaq’s market cap fell 33 per cent from January to June 2022, before bargain hunting set in. Technology indices did recover some of the initial lost ground; but the aggressive and hawkish tone of the US Federal Reserve may have had a negative impact on many growth stocks, which by nature are dominated by technology names.

Apple might be a bright spark for the sector. The company is holding out for major sales momentum, especially since 24 per cent of global iPhone users – numbering around 1 billion – have yet to upgrade their devices. In China, iPhone sales have already increased 147 per cent year on year in the ultra-high-end smartphone segment, according to research company Counterpoint Research. And, an estimated 30 per cent of China’s iPhone users are in the upgrade window.

If Apple does well, other technology companies in its sprawling ecosystem stand to benefit. Apple has 683 global and established suppliers, including huge corporations such as Hon Hai Precision, Pegatron, Quanta Computer and Taiwan Semiconductor Manufacturing Co – all with massive corporate exposure to more than 330 companies worldwide.

Recessionary fears are getting real

Given the macro environment, however, any uptick in Apple stock, its suppliers stocks and the technology sector at large might just be a flash in the pan.

Escalating inflationary pressures have led to a very hawkish interest rate environment, and this is pushing the pace for a potential global recession. Adding fuel to the fire, US Fed Chairman Jerome Powell recently stayed firm on his no-compromise approach with aggressive interest rate hikes.

As the global financial crisis gains momentum in coming months, consumer appetite for big-ticket items will likely be curtailed. Even though smartphones are now an integral part of our lives and have become more necessity than luxury, the iPhone still costs an average of more than S$1,000 in Singapore. For many, that might be a premium item in which they will not want to indulge.

The already-challenged smartphone market this year gives clues to what the future might hold. Smartphone shipments dropped about 9 per cent year on year in Q2, on the back of unfavourable economic conditions and sluggish demand, according to the International Data Corporation. This is the fourth consecutive quarter of decline, as shipments fell to 286 million – 3.5 per cent lower than originally forecast. Samsung and Apple had posted year-on-year shipment volume growth, but only because they had been hit a year earlier, when Covid-19 lockdowns hit production.

It may therefore be a stretch to expect a lift for faltering tech stocks solely on the shoulders of Apple’s newest smartphone. But hey, if you buy the latest iPhone, at least you’d be able to take a snapshot of this moment in time on the latest 48-megapixel camera.

The author is trading strategist at OCBC Securities.