Apple Inc. (NASDAQ:AAPL) isn’t in the same position it was in 2008, and Monday morning’s stock market is making that very clear. Greece’s problems may result in renewed financial crisis. Apple won’t be able to deal with it in the same way it won out during the 2008 collapse. Traders are struggling to interpret that and tell Apple apart from itself on Monday morning.
Back in 2008 Apple was a minor player in a growing market. The firm had better tech, and better marketing than anyone else, and it used it to grow its share and grow the entire market. Right now Apple is the single major player in a market that’s slowing down. That’s going to make it impossible to thrive like it did through the last major crisis.
Apple shares fall on Greece shock
Apple shares lost more than 1% before 6 AM EST Monday as the entire stock market took a tumble on the back of instability in Greece. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY), an ETF covering the S&P 500, was down 0.88% at time of writing.
On Saturday it was revealed, in quick succession, that Greece would make no decision on the bailout terms until a referendum next Sunday, and that the EU was not going to extend its bailout beyond Tuesday.
Greece revealed on Sunday June 28, and through the early hours of Monday morning, its plan to keep the banks from falling apart until at least after that referendum. That plan involves keeping the banks closed all week in order to stem the flow of withdrawals.
Finance Minister Yanis Varoufakis had asked for a one month extension to the bailout terms so that Greece might be allowed to pay the IMF a $1.6 billion sum on Tuesday and continue to pay salaries. The Global X Funds (NYSEARCA:GREK), an ETF indexed to the wider Greek stock market, was down by more than 6% in this morning’s pre-market.
So why should Tim Cook be worried? Europe’s recovery may be overturned by Greek shakiness, and demand across the globe has a much bigger effect on sales of the Apple iPhone than it did back in 2008 and 2009.
How did Apple live through the Great Recession?
Apple expanded slowly and evenly leading up to 2008. The firm did not take advantage of low interest rates in order to drive sales or build stores, and it kept away from cutting prices to drive demand. John Martellaro over at MacObserver made these arguments in the very early days of the financial crisis, but he couldn’t have known how right he was.
While keeping away from the risks that sunk many other firms and benefiting from lower rent and wage costs, Apple did something incredible. It changed the device market entirely, and it did it in less than five years.
The firm’s phones were so far ahead of rivals that even cash-strapped people shelled out to get their hands on one. Apple’s incredible dealings with wireless networks had a hand, of course, in making that possible. You can buy a new iPhone today almost anywhere in the world for $100-$200 and pay the rest off at no interest as part of your wireless bill.
Apple not only did well during the crisis, in those short years it made people spend more on consumer tech than ever before, even as the world around them caved in. Since the beginning of December that year Apple has more than quintupled in value.
It is now the most valuable public firm in the world, and holds more cash than any other firm bar large banks.
Apple tries to survive the law of large numbers
After Apple’s insane sales numbers from 2014 and the first half of 2015 shares in the firm have stalled. Many on Wall Street have put this down to “The Law of Large Numbers,” which some investors believe will slow Apple’s growth from here on out.
Tim Cook, in response to such a question from Goldman Sachs President Gary Cohn earlier this year said “We don’t believe in such laws as laws of large numbers.” There’s one large number the firm, and those with shares, should be looking at if Greece is about to cause worldwide shocks.
Apple sales made up about a quarter of a percent (0.25%) of all global economic activity in 2014. The firm has become so big that removing it and only it would cause a noticeable change in economic growth.
Global growth this year is forecast to come in at around 3.8% according to the IMF Worldwide Economic Outlook. The fund may have to change that vision should Greece’s future turns sour after the events ahead this week, and Apple will be hurt by a big change in global demand.
Europe sinks on Greek defeat
The EU and the ruling party in Greece were not able to come to terms that they agreed on, and the continent’s economy is in chaos this morning as a result. It’s not like Apple does that much business in Greece, and the state is such a small part of sales that it’s complete collapse would not impact Apple numbers.
It’s the effect that Greece is likely to have on the rest of the world that worries those with shares this morning. Greece’s future is unpredictable, though there are three clear roads the country could go down in the coming months.
The first is that it reaches a deal with creditors. The IMF and EU are both still open to such a deal, but it will need to be formed quickly otherwise Greece will be forced into a second option: printing its own currency and defaulting or inflating its way out of its debt.
The third option is that the Mr. Tsirpas’ leadership falls right after the vote next weekend and EU politicians move in to ensure a more cooperative team in charge of the country takes control and strikes a deal.
Any of these three is likely to bring huge tumult to Europe’s markets and the green shoots of growth on the continent are not robust enough to bet on. Germany, the poster boy for a strong European economy, has had slowing growth through the end of 2014 and the start of 2015 and stagflation might be just around the corner.
Telling Apple apart from itself
Apple may not rely on Greece for sales, but it sure relies on Europe, like the rest of the world. If the Greek crack spreads through the Union Apple demand will fall, and the firm’s growth rate will slow.
Apple in 2015 is light years away from where the firm stood in 2008. When your sales change world GDP in a notable way, you simply cannot be as flexible as a smaller firm. Traders are betting against the firm for safety this morning, but it doesn’t really say anything about how the firm does in the long term.
Tim Cook, Luca Maestri, and the rest of the Apple team can take solace in the words of Paul Meeks, from the Sextant Growth Fund. He said on CNBC on Friday I am not necessarily worried about what happens in Greece for the long term. But in the very short term…I am a little nervous.”
Mr. Meeks added that he is “still bullish” on Apple despite the Greek crisis. Apple could, of course, invest its own money in Greece in order to stave off the crisis.
A number of years ago when question on that subject Tim Cook said that of the number of options being considered for the firm’s cash pile, that was not one of them.