Why Apple is (nearly) recession-proof | Cult of Mac

Why Apple is (nearly) recession-proof


Apple’s financial results were all the company could ask for.
Analysts expect consumers to keep buying Apple products, no matter what the global economy does.
Graphic: Cult of Mac

Although economists can’t agree whether a global recession is on the way, it’s definitely a possibility. But Apple execs don’t seem to have a lot to worry about – market analysts remain generally upbeat about the company.

Here are comments from a range of experts that are sure to warm Apple CEO Tim Cook’s heart.

Not even Apple sails easily through a recession, but …

Central banks around the world, including in the United States, are trying to rein in inflation by slowing down the overheated economies that are driving prices up. It’s possible their efforts will go too far and push us into recession.

If it happens, it won’t be good for any company, including Apple. But the iPhone-maker seems ready to endure poor economic times better than most.

iPhone is essential

iPhone is undoubtedly Apple’s most important product. Sales of handsets brought in 49% of Apple’s total revenue last quarter. If a recession decreases handset sales, it would hit Apple’s bottom line. But analyst Gene Munster from Loop Funds thinks it’s unlikely.

“I believe the strength of the iPhone is because it has transitioned from being a luxury product to an essential one,” Munster wrote in a recent blog post. “The vast majority of iPhone buyers are feeling the pressure from inflation. They are making decisions to save money, trade down on upcoming purchases when necessary, or hold off entirely. And, when faced with these hard choices, they’re deciding to spend on the iPhone.”

He based this partially on a comment Cook made during a July call with investors noting that the company experienced no slowdown in iPhone sales in Q2 2022, despite worries about a possible recession. Instead, revenue from iPhone increased year over year.

Plus, the iPhone 14 lineup is right around the corner, and it reportedly will boast the first 5.6-inch iOS model aimed at more cost-conscious buyers.

Apple makes great Macs

Mac remains a very important product for Apple. Not only do millions of MacBooks, iMacs, etc., sell every year, macOS notebooks and desktops are key to Apple’s growth in the important enterprise market.

With economic worries, sales of PCs are slowing. But the situation looks better for Mac. “MacBook series could be the only bright spot for PC sales in the second half of the year,” reported Digitimes on Monday.

A strong driver of those anticipated sales is likely to be the new MacBook Air, which launched in July with a slimmer design and faster M2 processor. The Air series has been the most popular macOS notebook for many years, and the sleek redesign of the 2022 model seems poised to continue that trend.

While Mac shipments dropped year over year in the second quarter of 2022, you can blame COVID-19 lockdowns in China that slowed production, not lack of demand. Plus, signs keep emerging that this problem is mostly over. Apple faces fewer problems keeping up with demand for Macs now than it did in the spring.

Recession might boost iPad sales

If a recession causes Mac demand to slow, it doesn’t mean consumers will get a cheap Windows PC. They’re more likely to choose a low-cost iPad instead, according to analysts.

“There are several factors that are working in favor of tablets: one being the continued demand for tablets as cheaper alternatives to PCs,” said Anuroopa Nataraj, an analyst with IDC.

Apple critics complain about the relatively high cost of iPhones and MacBooks, but it’s difficult to make the same argument about Apple tablets. The basic iPad is an outstanding value at $329, and education buyers can get it for $299. Many parents that would have bought a MacBook for their children’s school use in better economic times will go with an iPad. That same trend spurred a huge boom in iPad sales during the pandemic.

The basic iPadOS model is so popular that Apple has not been able to keep up with demand since the beginning of 2022. That makes the global chip shortage a bigger problem for tablet sales than a slowing world economy.

There’s plenty of opportunity for services growth

A significant percentage of the money Apple takes in doesn’t come directly from hardware sales. About 19% of total revenue comes from services like the App Store, Apple Music, iCloud, AppleCare+, etc. And there’s good reason to think this will remain a strong source of income.

“The Apple business model is shifting from one that maximizes hardware shipment growth to one that maximizes installed base monetization,” analyst Erik Woodring from Morgan Stanley wrote recently.

Over the years, revenue in this category has grown as the total number of active iPhone, Mac and iPad users has expanded. And the total number of Apple device users continues to increase.

Cook recently told investors in a conference call that in the June 2022 quarter, “We saw great enthusiasm for our products and services, resulting in an all-time record for our installed base of active devices.”

Apple devices aren’t just going to previous customers, either. During Q2, “Nearly half of the customers purchasing a Mac were new to the product,” said Luca Maestri, Apple’s chief financial officer, in the same call. And he said more than half of iPad buyers were buying their first one.

People must own an Apple device to shop in the App Store, subscribe to iCloud, etc. So services revenue is loosely tied to hardware sales. With the installed base of active devices increasing, potential services revenue also increases. Even when economic times are hard.

Recession or no, Apple will be alright

Some of you probably know all this yourself. If your current iPhone is aging, you’re seriously considering the iPhone 14. Or perhaps you have your eye on an upcoming MacBook Pro with an M2 Pro or M2 Max processor. It doesn’t matter what the economists say about the future, you’re buying a new device.

So be aware, it’s not just you. Analysts think millions of people around the world will buy Apple products in the coming months, whether the global economy turns for better or worse. And that’s why Apple is (nearly) recession-proof.


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