NYT: Apple will emerge from this downturn stronger than ever

Flush with cash, Apple has an opportunity to pick up smaller tech companies whose valuations have plummeted.

From Tripp Mickle’s “Big Tech Greets Markets’ Slide With a Shrug” in Saturday’s New York Times:

Apple, Amazon, Microsoft and the parent companies of Facebook and Google have lost $2.7 trillion in value so far this year, about the annual gross domestic product of Britain.

So what have the companies done about this thrashing on Wall Street? Microsoft has doubled its employees’ bonus pool, Google has committed to hiring more engineers, and Apple has showered its top hardware talent with $200,000 bonuses.

The dissonance between the stock market’s relative panic and the business-as-usual calm among tech giants foreshadows a period when analysts, investors and economists predict that the world’s largest companies will widen their lead in their respective markets…

In the months ahead, Microsoft, Google, Apple and Amazon are expected to boost hiring, buy more businesses and emerge on the other side of a bearish economy stronger and more powerful — even if they shed some of their total valuation and their relentless growth of the last few years.

“Big tech can say, ‘Forget the economy,’” said Richard Kramer, founder of the London-based advisory firm Arete Research. Flush with cash, he said, “they can invest through the cycle.”

My take: Time to go talent shopping.

27 Comments

  1. Fred Stein said:
    $200K for top hardware. Bet that means chip designers.

    Apple is way ahead in chip design, but the competition for talent, globally is high. In addition the old giants, Qualcomm, Intel, Samsung, NVIDIA, AMD, we have Google, Meta, Microsoft, Tesla and the network technology companies that design their own chips, and quit a few startups. mainly focused on AI and cyber security.

    Natural selection will sort this out. Who ya gonna bet on?

    0
    May 21, 2022
    • Robert Paul Leitao said:
      Fred: This isn’t hard. It’s basic finance and economics. The pandemic/stimulus era is now over. The enterprises that internally generate their own sources of working capital for strategic investments and opportunistic acquisitions win the day. We knew that, right? The days of chasing market moon shots and glamor stocks with “profit potential” are over. In the end, fundamentals matter. Things change when capital has a cost attached.

      1
      May 21, 2022
  2. Jerry Doyle said:
    As we all know, this is an opportunistic period for accumulating new shares in specific quality tech companies that will lead in the 21st century. Apple is one such company. The primary question is how long will this bear market last. (Essentially we are in one although not official as of yesterday’s close. Perhaps Monday it becomes official).

    Talk of a recession is all about 2023. Sub prime loans are beginning to default. Credit defaults are rising to concern levels. Buyers of cars at list prices (and even above list prices) are finding that they can’t sell their cars at a price to pay off their outstanding loans. While car loans are a small part of the economy, this soon will roll over into home mortgages as houses have sold for premiums in recent years. Folk who can’t meet their monthly obligations will find they are underwater. Reminds me of the 2007-2008 economic crises.

    Meanwhile, gas prices are a minimum of $5 in every state now heading above $7 in California. Some folk want be able to fill their tanks and some even get to work. Many of our rural folk must drive to larger cities for their jobs since no jobs exists for them in rural areas. While they have jobs in urban areas, they soon will be unable financially to get to their jobs to work. There is no public transportation for them.

    I’m questioning if some on this chat board in their optimistic outlook for Apple going forward are looking more in the rear view mirror of Apple’s performance and consumers demand for Apple’s services and products in the past, instead of focusing on the consumer today confronted with digesting the financial road that lie ahead for them. In such instances those consumers will cling to their devices and shun new hardware as long as possible. Those folk will not view Apple products as essential. We should know in the coming quarters when Apple reports. No matter, among all the equities out there for investing Apple deservedly is one of the chosen.

    4
    May 21, 2022
    • Dan Scropos said:
      $3.89 in Saint Joseph, MO yesterday for 87. Very lucky to live in a state that values low taxes. The $5+ and $6+ gasoline prices are simply theft.

      I was at the Apple Store Country Club Plaza yesterday, which is a semi-upscale shopping part of Kansas City, and it was absolutely packed. I picked up an Apple Watch SE for a grade school graduate and a new iPad (Sept, 2021 release) for her grade school aged brother. They had very limited iPad stock, but they did have some.

      Probably the most disappointing part of the retail experience is that this is the second time I didn’t receive an Apple Bag with my purchase. You have to request one. Aside from that, the service was excellent, Apple Pay checkout an absolute breeze and I saw products flying off of shelves. If there’s one product I *didn’t* see selling, it was the HomePod mini. Apple Watches and iPhones were literally selling like hotcakes.

      2
      May 21, 2022
        • Dan Scropos said:
          Carrying an Apple Watch box in one hand and an iPad box in the other, while I continue to shop at other stores, wasn’t going to happen.

          2
          May 21, 2022
    • Robert Paul Leitao said:
      Jerry: I appreciate your perspective and enjoy reading your posts. Working out the excesses of lax monetary policies will be painful. In my view, the Fed has not been in a neutral (non-accommodative) stance since just before the Great Recession. We may be at the threshold of a “great economic reset.” Fundamentals matter. As you point out, for tens of millions of US consumers the adjustment is painful even in its early stages. We can’t dismiss that. Anyone still wearing “rose-colored glasses” from the stimulus era really needs to swap them out for a strong pair of prescription lenses to see the new “non-augmented economic reality.” It will be a challenging period, but enterprises such as Apple will emerge in an even stronger competitive position. You and I vividly remember what occurred in the early 80’s to address rampant inflation. My concern this time around is the Fed has responded too late and consequently will be compelled to do too much. The Fed’s inflation fighting tools are only blunt force instruments. Attempting to “jawbone” instead of taking small and deliberate deliberate steps a year ago and six months ago may create some very unfortunate outcomes. Ultimately, enterprises such as Apple with internal sources for capital generation will come out the winners.

      1
      May 21, 2022
    • Nicholas Watland said:
      A lot of valid points….. However, I disagree regarding real estate. Inventory is at 1/3 of the 2007 & 2008 levels and demand is still high even with rates north of 5%. Also, the loan environment is vastly different than 2007 & 2008 as products like the 100% loan-to-value subprime stated income, negative amortization and risky ARM mortgages no longer exist.

      2
      May 21, 2022
      • Robert Paul Leitao said:
        Nicholas: Why do you think inventory remains low? From what I’ve read residential real estate has been “under built” now for years. Also, it’s my understanding 90% of American homeowners have interest rates on their mortgages at 5% or less. Is it also a lack of willingness to move due to higher prices on replacement homes and a desire to continue with a low mortgage rate? I just read an article last evening suggesting “sticker shock” as homeowners who live in areas with properties that periodically undergo market rate tax assessments receive their latest property tax bills. What’s your take on residential real estate pricing and inventory availability looking out over the next year?

        0
        May 21, 2022
        • Nicholas Watland said:
          Robert- Yes, I think your point about the lower rates and higher prices does have merit in the current real estate market. Also, large, private companies lare buying up as many residential properties as possible with cash, and are able to close in a week or less in many cases which makes their offers more attractive to sellers. This in turn shuts out a lot of average buyers from obtaining these properties and prevents inventories from rising. Another factor is rapidly rising rents; people are still able to obtain mortgage payments comparable to the equivalent rental payment. I believe when all things are equal, most people would still rather own than rent a property. Here in the Phoenix area, inventories are currently increasing very slowly; most of the people I talk to in the industry believe inventories will remain historically low for at least the next year.

          0
          May 22, 2022
          • Robert Paul Leitao said:
            Nicholas: Thank you. I have read about enterprises buying up residential real estate. In general, are those homes being rented or are they being purchased for price speculation? Here in northern Los Angeles County, not only are home prices continuing to rise (at least for now), so are the rental rates. At Zillow’s estimated value for my home, on a 30-year conventional mortgage at today’s interest rates with 20% down, the mortgage payment and the estimated monthly rental rate are close to the same per month. Housing affordability is definitely an issue. Of course buying the home has the added costs of property taxes and maintenance. Still, renting homes at these prices leaves little for renters to save toward eventual home ownership. I’m not about to move because purchasing a different home would trigger a much higher annual property tax payment than we are dealing with now (in California property taxes are initially set based on the original purchase price) and the monthly mortgage payment would move much higher due mostly to a much higher interest rate on a new loan in addition to a higher purchase price on the replacement property. The only other option is moving out of state. I’m not “there” yet. But hundreds of thousands of Californians have chosen to migrate. WFH makes the option more appealing to migrate from California for tens of thousands of people looking for a lower cost of living.

            0
            May 22, 2022
            • Nicholas Watland said:
              Robert- These properties are being predominantly rented out rather than “flipped” for profit. Also, as you pointed out, we’re getting a large influx of people from California that have the ability to pay cash or present very strong offers after selling their homes for a significant profit.

              0
              May 23, 2022
              • Robert Paul Leitao said:
                Thank you, Nicholas! I appreciate the insights! I understand why Arizona is an attractive migration destination. On sleepless nights I’ve taken quite a few virtual tours of locations and residential properties around the state. Nice locations at a lower cost of living and very good quality of life. I don’t see the California exodus coming to an end anytime soon.

                1
                May 23, 2022
  3. Several of the emerging players in the AR space are based in Poland and Ukraine. Acquisitions or not, it would behoove Apple, Microsoft, Amazon, FB et al to engage talent in places that could sure use a boost right now.
    Softengi, 4Experience and nomtek in Poland. Program-Ace, Onix-Systems and Ni-X in Ukraine. These are established AR/VR shops. Supporting talent where they live serves a greater purpose than watching these skilled folks relocate to Sofia or Berlin.

    3
    May 21, 2022
    • David Drinkwater said:
      What’s wrong with Sofia or Berlin? I understand that it is important to help people where they live, but it is also not unreasonable to help places where they choose to congregate.

      A fellow rugby fan who worked with IBM for many years has said that Bulgarians were widely chosen for tech support roles because that adapted such great fluency in foreign languages.

      Berlin is also a significant cultural melting pot (or at least was in the 90s and 00s after the Wall fell: I haven’t been back since 2006).

      In London in 2015, the vast majority of the service industry were from Poland (and possibly Russia). Post-BREXIT. I have no idea where *that* state of things will go.

      Come to think of it, with “remote work” becoming so much more common, it’s hard to say how and where to employ and compensate people.

      I suppose I somewhat end up agreeing with you, but I also think that gathering in meat-space is valuable. The “ease” of a simple Microsoft Teams chat takes away from the proper planning for the event, and .. it’s just not the same as seeing the person you are talking to. While I am sure that the “coincidental bumping into’s” that Apple touts are exaggerations, being all together in one place in meat-space does have its merits.

      0
      May 23, 2022
  4. Dave Ryder said:
    @Jerry, I agree that we need to be careful not to overlook the state of the overall economy. I suspect Apple’s customers skew toward those who can more easily handle the downturn but it will surely have an impact on the business.

    1
    May 21, 2022
    • David Emery said:
      The question to ask, I believe, is “does it disproportionally affect Apple’s business?” On the one hand, I suspect people will cut back on more expensive items and ‘durable goods’. On the other hand, Apple products are still both aspirational and in many cases ‘must-have’. Thus I’d predict Apple’s business to do better than average if if revenues do go down (of course the problem is there’s no real comparison for Apple….)

      0
      May 21, 2022
  5. Michael Goldfeder said:
    I’m expecting that many of the subscribers on the Apple 3.0 platform will be contacted and made generous offers too!

    1
    May 21, 2022
    • Robert Paul Leitao said:
      Michael: Any offer under $225 per share and I’ll just say, “What was that number? I can’t hear you!” The longer they wait to speak more clearly the more apt I am to to say, “You need to pay me now for my time. I’m seeing $250 per share on the horizon. This sunrise sure is pretty! What number are you saying?”

      2
      May 21, 2022
  6. Michael Goldfeder said:
    @Robert: I’ll go with the $250 price but that’s only after another stock split of at least 2 for 1 within the next year. I’ll even sign an NDA and promise to wave at Vestager with a one-finger salute!

    4
    May 21, 2022

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