How Apple's Top Line Will Look in 2014

Despite having a strong year in terms of product releases, shares of Apple (NASDAQ: AAPL  ) did not perform well throughout 2013 due to concerns regarding market saturation, Google's (NASDAQ: GOOGL  )  Android expansion, the always-present Samsung  (NASDAQOTH: SSNLF  )  threat, and the company's ability to protect its high profit margins.

As a result, Apple underperformed last year. Will Apple investors see a better 2014? To answer this question, consider the company's trends in product releases, top line, and profitability.

Lower average selling prices
According to Braeburn Group, the average selling price for the iPhone fell from $629 in 2012 to $607 in 2013. At the same time, the average selling price for the iPad fell from $531 to $450. This decreasing trend is expected to continue in 2014, as the company lowers price points to remain competitive with Samsung.

Macintosh business unit may get stronger
With more than 70% of the company's revenue derived from iPhone and iPad sales, Apple is almost entirely focused on mobile. The company's exposure to the PC business has diminished considerably in the past five years. Last year, Apple only obtained 12.6% of its total revenue from the Macintosh business unit.

However, the Macintosh is far from becoming a legacy. After several years, Apple finally released a major refresh to its MacBook Pro line. The new MacBook Pro comes with fourth-generation dual-core and quad-core Intel processors, retina display, and the latest version of Apple's operating system, OS X. Moreover, the company is also introducing an entirely new Mac Pro workstation. These releases should help Apple deliver positive Macintosh unit sales and revenue growth in 2014.

Apple and Asia
In 2013, Japan and Greater China were Apple's fastest-growing regional revenue segments. This trend will strengthen in 2014, as the company recently signed distribution deals with China Mobile and Japan's NTT Docomo. Together, these deals give Apple exposure to more than 800 million new consumers.

In particular, the China Mobile deal is expected to be a game-changer for Apple, providing the company with as many as 30 million additional iPhone sales next year, according to Argus Research. But, the downside is that Apple may have sacrificed either margins or addressable market to make the deal happen because it has less negotiating power than China Mobile.

The iTV
In a 2012 earnings call, Apple CEO, Tim Cook, hinted at the release of something bigger than the current Apple TV. Since then, rumors have surfaced that Apple will enter the smart TV industry with a major product release, the iTV. Supposedly, this device would have 3D capabilities, be Internet enabled, and enjoy perfect synchronization with other Apple devices. 

Although nothing has been confirmed, the iTV could, theoretically, bring significant additional revenue to Apple, as the global TV market is expected to see as many as 229 million units shipped in 2014.

Google and Samsung
Google's Android threat will remain strong. However, because the open-source operating system already dominates 81% of the global smartphone market, a significant decrease in Android's growth rate is also expected. Android may have already peaked in the U.S., according to comScore data. To capture Android's market share, Apple must also compete with Windows Phone, which has recently experienced strong sales in Europe and Australia.

Samsung stands to lose market share in China as the long-awaited deal between Apple and China Mobile materializes. To protect its leading position, the company may introduce aggressive discounts or speed up new product releases. The Korean giant's main competitive advantage is that it can offer better tech specifications on its smartphones than Apple, but for the same price.

Final Foolish takeaway
Overall, 2014 looks like it should be a good year for Apple. The company could easily deliver low double-digit revenue growth this year, as its top line will benefit from Android market saturation, distribution deals with China Mobile and NTT Docomo, new product releases, and a stronger Macintosh business unit.

However, the company may have a hard time protecting its traditionally high margins, as the average selling price of its flagship devices continues to decrease. Additionally, Apple's massive share repurchase program, high dividend, and amazing liquidity make it a must-watch stock for 2014.

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Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2014, at 11:54 PM, johnestromjr wrote:

    Sorry but your article was a waste of bandwidth. Apple didn't come out with their new iPhones and iPads until late September and beyond. Patience, grasshopper.

  • Report this Comment On January 05, 2014, at 6:40 AM, JbUps wrote:

    How about if Apple were to buy Bing. This could be a great addition to their ecosystem. Let's see how things would play out once there is some real competition to Google search. Maybe they would'nt be able to give phones away and waste money robots and other distractions (which WS loves) when there golden goose stops laying as many golden eggs.

  • Report this Comment On January 06, 2014, at 4:42 PM, tkell31 wrote:

    Too big to grow much anymore. It is what it is, a dividend stock with a small enough dividend that the price isn't supported very well. Continuing the buyback and increasing the dividend again should continue to raise the floor, but $420-560 seems like a reasonable range to expect.

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11/26/2014 4:00 PM
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