Apple Inc. (AAPL) is holding its ground after an inauspicious start to the year, aided in part by a defense of the technology giant by CEO Tim Cook.
Apple shares were flat before the opening bell on Wednesday, though they still are up around $9 since the company on Jan. 2 pre-released very disappointing revenue numbers for its first quarter.
Wednesday's pre-market movements follow comments from CEO Cook in an interview with Jim Cramer on "Mad Money" in which he took on "naysayers" headlong in the face of news that production cuts are coming at Apple, which is a holding of Cramer's Action Alerts PLUS charitable trust.
"I'm never surprised by the market, to be honest with you," he told Cramer. "Because I think the market is quite emotional in the short term. And we sort of look through all of that. We think about the long term. And so when I look at the long-term health of the company, it has never been better."
Given Apple's ability to make popular gadgets and its large base of recurring customers, Cook argued that much of the company's story is going untold.
"I'm giving you my honest opinion that there is a culture of innovation in Apple," Cook declared. "And that culture of innovation, combined with these incredible, loyal customers, happy customers, this ecosystem, this virtuous ecosystem, is something that is probably underappreciated."
Services Start to Shine
Adding to Cook's optimism is that Apple's services revenue has become more and more the story as the company moves away from being a hardware company to a broader tech company.
Cook argued that this is one of the key underappreciated segments in the stock.
"The product pipeline has never been better," he said. "The services are on a tear."
Given that services were a bright spot in the company's stock-shocking pre-release of results last week, it explains why Cook would depict Apple as more of a sum-of-the-parts story rather than purely a seller of iPhones, which now make up 60% of the company's revenue.
And he is not alone in viewing Apple that way.
"We continue to view the growing installed base (+8% in FY18), Services engagement (+14% est. revenue per device in CY18), and hardware attach (nearly 50% wearables growth in December 2018) as signs that Apple's platform value and customer loyalty continue to grow despite the weaker iPhone product cycle," Morgan Stanley analyst Katy Huberty wrote on Wednesday.
Huberty noted that she believes the services and other revenues coming in should help offset concerns about iPhones in the longer term as the company begins to shift the mix of its product portfolio. Based on that analysis, Huberty set a $211 price target and an "Overweight" rating for the stock.
Her take echoes that of Jim Cramer, who noted that services revenue is the key story for investors looking down the road.
"I feel confident that the Service revenues and the other revenues, whether they be the watch or the airpods -- both capacity constrained -- and the Macs themselves are going to make a bigger and bigger piece of the pie," Cramer wrote in a column on Tuesday, summing up the shift. "Remember if this company were followed by consumer products analysts it would be trading at about $230 right now as it has more growth than any of the consumer packaged goods companies and the business is really very good away from China and some emerging markets."
Of course, questions about China and its impact of Apple's business remain top of mind for investors at present.
The news on Wednesday has not gotten any more encouraging, either, as the Nikkei Asian Review reported that Apple has asked suppliers to cut production on its XS, XS Max and XR iPhone models by about 10% for the next three months.
Apple's iPhone slowdown has largely been blamed on the emerging market and a deceleration in the Chinese market, with Cook himself fingering the nation as a key culprit in the company's forecast cuts.
"Most of our revenue shortfall to our guidance, and over 100% of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad," Cook wrote in his letter to shareholders last week.
The slowdown was exacerbated by Qualcomm's (QCOM) continued legal challenges to Apple's efforts to sell older, cheaper phone models in the nation to a weaker consumer.
Despite the production cuts and Apple's obvious hit from the trade war, Cook was confident in phone sales, calling the XR "the most popular iPhone every day, every single day, from when we started shipping, until now."
Cook was likewise confident in a resolution to the China-American trade spat in the coming months.
"We believe, based on what we saw and the timing of it, that the tension, the trade-war tension with the U.S. created this more-sharp downturn," Cook told Cramer. "I believe that's temporary. Because I think that, when you really look at it, it's in both countries' best interests to come to an agreement."
Because iPhone sales still make up more than 50% of the revenue stream, Apple remains an iPhone story to many market minds.
That will likely make Wednesday a difficult trading day as news of the iPhone supplier cuts spook the market.
"I think Apple is not well understood in some of Wall Street," Cook argued in his time with Cramer. "If you really back up and look at Apple, in our last fiscal year we had $100 billion of revenue that was not iPhone, $100 billion. And in this last quarter, if you take everything outside of iPhone, it grew at 19%. Nineteen percent on a huge business."
That steady shift, coupled with the cash on hand for the company and its forward price-to-earnings (PE) ratio of just 12, could make Apple a compelling investment case for the long term.