Although Apple has earned itself a reputation for developing super cool gadgets and aggressively defending their owners’ privacy, there’s a lot more that goes into determining their share price and overall profitability.
One of the biggest influences is foreign currency fluctuations. Since two-thirds of Apple’s income is now generated outside the U.S., the ebb and tide of the currency markets can be as telling for Apple investors as the interest in the latest and greatest iPhone model.
Strong Dollar, Weak Dollar
When the dollar is strong, it actually hurts Apple profits because it means products sold overseas are effectively being purchased for less.
When only roughly 33 percent of Apple’s business is domestic, a strong dollar means lower income overall. For example, third quarter 2015 earnings were 15 cents less per dollar than they had been in the same quarter in 2014, largely due to the strength of American currency at the time. The average sales price for the iPhone globally at the end of 2015 was $691 – the dollar’s strength reduced the effective value of that price point by $49, or roughly seven percent.
Apple investors can breathe a sigh of relief, though, at least for now. Although the dollar gained more than nine percent on a trade-weighted basis in 2015, it has already weakened by 2.5 percent this year. This weakening helps companies that are significantly more popular in foreign markets, like Apple, both in real dollars earned and on paper valuations. As profits have begun to climb once again for Apple, the S&P 500 has also started to recover.
What’s Next For The Dollar?
Where the dollar’s headed this year is pretty easy to guess, considering it’s an election year and the trade deficit is still a huge concern for Americans. Chances are good the dollar will continue to weaken at least a little. That spells good news for Apple and other companies heavily invested in foreign markets, as well as those investors who continue to hold their shares.
Even if the dollar is a strong influence on Apple’s profits, the quality and desirability of their product will remain a key ingredient in their overall performance. The new Apple Music service, upcoming iPhones and Apple watches, as well as the perception of a commitment to security customers are developing due to the company’s recent scuffle with the government, are other pieces of the Apple success puzzle.