Apple's inability to give iPad users a compelling reason to upgrade has hit JB Hi-Fi's revenue.
Who is responsible for the 7 per cent fall in JB Hi-Fi’s share price? The real culprit is Apple.
More specifically, the fall in sales of Apple’s iPad is the single biggest reason that JB Hi-Fi's revenue numbers were soft in the final quarter of 2014 and fell in July.
Illustration: John Spooner.
The revelation was a shock to the market, sending some analysts back to their desks to downgrade the forecast earnings for 2015.
The reality is that this was an accident waiting to happen. Those who keep a watch on Apple will have known already that their tablet sales were very sluggish. Stores like JB Hi-Fi rely on demand for innovative products to keep sales growth bubbling along but recently Apple’s tablet sales have been disappointing.
On Monday, JB Hi-Fi’s chief executive Richard Murray noted Apple’s latest quarterly figures showed revenue from iPads was down by 23 per cent. He also observed that people were holding on to their tablet devices for longer. This is despite the fact that there has been no shortage of updated versions coming on to the market.
The latest of these, the iPad Air, was released in November. It was a fifth-generation iPad and wasn’t a dud. Indeed, it had plenty of attractive new features.
The problem is that Apple made its early versions too well. They are sufficiently durable, robust and with such good battery life that there is no compelling need to upgrade.
Murray reckons that rather than being discarded, older iPads are being passed on to other members of the family, crimping what would otherwise be demand for new units.
In addition, the newer breed of larger phones is also cannibalising the iPad, offering screen sizes sitting between that of an early generation smartphone and a tablet.
Indeed, there is lots of talk that the new iPhone 6, due for release in September, will ultimately come in two screen sizes, the larger of which geeks have already dubbed the phablet.
Technology industry research group IDC – an acknowledged gospel of information in this area – has recently revised down its global sales for tablets for calendar 2014 to a growth rate of 12.1 per cent (there was 51.8 per cent tablet growth in 2013). It predicts that the larger screen devices will pick up some of the slack.
The trouble for JB Hi-Fi is that the slump in tablet sales (and iPad sales in particular) is largely responsible for a 3.2 per cent drop in sales revenue and 5.5 per cent fall in like-for-like sales in July 2014.
Murray says the first half of financial year 2015 will be affected by the drop in tablet sales, even though he predicts the full-year sales will be about 3 per cent higher. The trouble for Murray is that he could not credibly say what might replace these weak sales.
Apparently the hot new product in the electronics market is the uber-large television. Of course, the iPhone 6's release will provide some sales bounce, as will some new games consoles that are due out before Christmas.
(Having said that, a large proportion of new iPhones will be sold directly through Apple, or standalone phone outlets on plans).
Murray would prefer to see the market take a deep breath and a longer-term perspective. The company is no stranger to the lumpy effects of innovation and maturing products and considers its retail proposition as relying more on its customer experience, including price.
A smaller contributor to JB Hi-Fi’s sales woes has been softer consumer sentiment after the budget in May. However, in the past month consumers have generally become more confident as many of the harsher budget measures are proving difficult to get through a hostile Senate.
In a more general sense, JB Hi-Fi’s share price has been performing well – at more than double where it was two years ago – although well shy of its $21-plus in September 2013.
It is a stock that has generally divided the market. There are those that consider it highly sensitive to online disruptive players, given the company was traditionally heavily weighted towards CD and DVD sales.
Then there are those that credit it with being one of the best-managed retail groups in the country. It is clearly working hard to adapt its product mix with the rollout of its home appliance stores, JB Hi-Fi Home. Many of these new stores are conversions from traditional stores.
However, investors remain cautious despite the fact that the full 2014 profit released on Monday was healthy and at the higher end of the range that had been expected.
Total sales for 2014 were up by 5.3 per cent; comparable store sales were up by 2 per cent and its net profit up by 10 per cent.
Nonetheless, not even the announcement of a more generous dividend payout ratio could romance its jittery investors.