Global capital is revaluing Apple.

Apple has been quite a talking point over the past two days, as Wall Street's pessimism toward it is accelerating to build up.

Following KeyBanc's downgrade last month, Jefferies cut Apple's rating to "underperform" and lowered its target price to $263.66. At present, six institutions have given Apple a "sell" rating, tying the highest record since 2012, and its overall rating has also fallen to the lowest level since 2019.

Analyst Edison Lee pointed out that due to poor yield rates, Apple has scrapped the 20th anniversary all-glass iPhone model, which indicates that lifting the average selling price through new form factors is more difficult than expected.

The foldable iPhone to be released next month is seen as the only hope, but the price hike of components such as memory will inevitably push up the selling price. Lee believes that this will only be a niche product and cannot shoulder the heavy responsibility of driving growth.

Apple's stock price fell more than 1% in pre-market trading, down about 8% from its recent high, and the weak sales guidance in its financial report is the direct trigger.

Looking at the entire US stock market, technology stocks show divergent performance, while Chinese concept stocks strengthen at night.

At the macro level, the non-farm payroll data for July in the US was revised down significantly, and the job market cooled down markedly, weakening expectations for interest rate hikes. Meanwhile, the "cash-burning" race in the AI sector is becoming increasingly fierce. Microsoft's cash reserves have dropped significantly, and giants such as Amazon and Google are also issuing bonds heavily to raise funds to support data center expansion, but the high interest rate environment keeps borrowing costs at a high level.

However, JPMorgan Chase remains optimistic and recently raised the year-end target price of the S&P 500 index to 8000 points, on the grounds that AI investment is starting to translate into strong corporate earnings, injecting confidence into the market outlook.

But as I see it, when the top company in a certain industry begins to struggle even to "make a piece of glass that meets expectations", it means that the underlying logic that has driven the high-speed operation of this industry for more than a decade has fundamentally loosened. The yield issue is only the tip of the iceberg above the sea, and beneath the surface lies the fact that the appreciation model of the huge industrial capital is coming to an end.

Apple's troubles today do not belong to Apple alone.

The Truth Behind Yield Issues

What exactly is the all-glass iPhone? According to supply chain information, it does not mean adding a layer of glass to the existing metal frame, but using an almost whole piece of 3D curved glass as the main body of the fuselage to wrap the antenna, structural parts and screen entirely inside.

If this concept is implemented, the appearance will be extremely stunning, and the hand feel will be completely different.

But behind this stunning effect is an extremely harsh cost list.

To make glass meet the requirements of drop strength, radio frequency signal penetration, heat dissipation and waterproofing at the same time, brand new equipment and process lines need to be invested in links such as material formula, hot bending forming and laser processing.

As long as the yield rate of any process drops below 50%, the cost of a single case will soar to hundreds of dollars, not to mention assembly loss and after-sales risk.

Apple has set an extremely high mass production yield threshold internally, but according to Jefferies' supply chain survey, the actual output has never been able to meet the standard.

So this is where the contradiction lies.

When product form evolution approaches the limit of physical materials, even taking a small step forward will lead to an exponential rise in the required fixed capital investment, while the uncertainty of output also increases synchronously.

R&D costs, depreciation of special equipment, scrap losses...

All these will be added to the constant capital part, and each finished product that can be successfully delivered must share the cost of a large number of failed products.

The innovation itself remains the same, but the "cost-effectiveness" of innovation has deteriorated sharply.

It should be noted that any commercial innovation that cannot achieve stable mass production within an acceptable cost range, no matter how advanced the concept is, cannot be transformed into sustained excess profits after all.

In the past, Apple has repeatedly proved that it can sell expensive innovations at higher prices, so as to cover costs and retain amazing gross margins. The OLED full-screen and stainless steel frame of iPhone X once encountered initial yield difficulties, but all of them were successfully overcome.

The abortion of this all-glass project shows that the physical and process barriers that can be easily crossed are getting fewer and fewer, and every remaining barrier is so expensive that even Apple has to give up.

Isn't this also the core dilemma faced by today's smartphone industry? Manufacturers want to create price differences through drastic changes in product forms, so that consumers are willing to pay a higher premium for a "completely different" mobile phone. However, the rigidity of the physical world, the slow progress of materials science, and the ceiling of manufacturing precision jointly raise the cost of realizing "drastic changes".

When the scale of invested capital expands to a certain critical point, even if the unit selling price can be increased in the future, the return on capital of the entire product line will tend to be mediocre.

Apple's cancellation of the all-glass model is essentially a result of precise financial calculation defeating product idealism.

This also shows that the path of maintaining excess profits through hardware appearance revolution is getting narrower and narrower.

Can Foldable Screens Truly Take Over the Baton?

With the all-glass solution scrapped, all eyes are turning to the foldable iPhone expected to be unveiled next month.

The market is pinning its hopes on it, expecting this product to open a new upward cycle of simultaneous growth in volume and price, just like the first-generation big-screen iPhone in the past.

If we look at it without fan filters, there is actually a pair of almost unsolvable contradictions tied to foldable screens.

First of all, its bill of materials is far more complex than that of bar-type mobile phones.

The foldable screen itself, the precision hinge module, the dual-battery design, special heat dissipation materials, and the higher requirements for miniaturization of components after the space is sacrificed by the folding structure, are all pushing up the material cost.

In particular, the prices of key components such as memory chips are currently rising sharply. To maintain its high-end positioning, Apple can hardly make concessions on core materials. Calculated based on the existing supply chain cost, if a foldable iPhone wants to maintain the hardware gross profit margin that Apple is accustomed to, the retail price can easily exceed $2000, and the high-end version will be even higher.

What does this price point correspond to? It refers to the very small number of consumers in the global mobile phone market who are willing to pay more for one mobile phone than the price of two MacBook Airs.

The absolute number of this group of people is not small, but in the context of the total annual iPhone shipment of more than 200 million units, the proportion is destined to be very limited. High pricing naturally locks the product into a "niche product", which is an iron law that has been repeatedly verified in the consumer electronics field.

Moreover, niche products cannot achieve scale effects, so it is impossible to force the supply chain to reduce prices through huge orders. The cost of core components such as screens and hinges remains high for a long time, which in turn strengthens the rigidity of high pricing, forming a self-closed loop of "high price - narrow audience - difficult to reduce cost".

The market trajectory of foldable phones in the Android camp has already provided a prior sample.

After five or six years of iteration, the price of mainstream foldable phones has gradually dropped from nearly 20,000 yuan at the beginning to less than 10,000 yuan, and some brands have even lowered the price to the 7,000-yuan range.

Although this process is painful, it has indeed brought foldable phones from an extremely niche market to a quasi-mainstream market.

However, if Apple really sets the price far higher than its peers, it will automatically give up this channel of price reduction.

In the eyes of consumers, the competing products of a $2000 foldable iPhone may not be Android foldable phones, but the combination of "another bar-type iPhone plus an iPad", or even the sum of "a decent Windows laptop plus a mid-range mobile phone".

This cross-category value comparison will greatly reduce the actual attractiveness of the foldable iPhone.

There is a very straightforward sentence in Jefferies' report: "We still believe that such an expensive mobile phone will only be a niche product." If this judgment holds, then the logic of placing the task of increasing average selling price and profit margin in the next few years entirely on a niche product has fundamental fragility.

A foldable iPhone can make the average selling price figure in the financial report look better in the short term, but it is difficult to fundamentally change the general trend that the overall business profit margin of Apple returns from excess to average.

What is more worthy of vigilance is that if the sales volume of foldable phones fails to meet expectations, the huge R&D and production line construction costs invested in the early stage will become a heavy amortization burden, which will in turn erode profits.

The Collective Turn of Financial Capital

Thus, the situation has emerged where six institutions have given sell ratings, Apple's overall recommendation score has dropped to the lowest level in five years, and less than 60% of analysts recommend buying.

The proportion of buy recommendations for Microsoft, Amazon, and Nvidia all exceeds 90%. This hot and cold divergence cannot be explained simply by "Apple's innovation is slowing down". Financial capital has always had a keen sense of smell, and it often adjusts its position in advance before the fundamental displacement of industrial profits occurs.

The core value anchor of Apple is one-time hardware sales plus peripheral service revenue. The premise of this model operating well is that people are willing to pay for an increasingly expensive mobile phone every two or three years.

When the cost curve of product form evolution begins to deviate from the curve of consumers' willingness to pay, the foundation of this model will be shaken. Capital will not wait until profits actually drop to act, it will compare the expected profit margins of different industrial sectors in advance.

At present, in contrast to Apple are those companies that are deeply tied to AI infrastructure.

Microsoft and Amazon control the entrances of cloud computing and AI model services, and Nvidia directly sells computing power hardware. The market believes that they can get a larger share in this technological wave that is still in the cash-burning stage.

However, this is exactly the most tricky part of the current situation.

US tech giants are borrowing money to invest in AI at an unprecedented speed. Amazon has issued $92 billion in bonds this year, Google $77 billion, and Meta and Oracle $25 billion respectively.

At the same time, Microsoft's cash reserves have decreased by $8.4 billion compared with the same period last year, and Amazon's total cash has decreased slightly after issuing bonds. This shows that the cash-burning speed of AI infrastructure investment is so fast that even large-scale financing can only barely maintain cash balance.

At the physical level, these investments are transformed into servers, chips and data centers; at the financial level, they are transformed into huge accumulated fixed capital, but the matching end consumer demand and profit model have not been fully established yet.

Besides, there is the shadow of the poor US job market.

The US non-farm payrolls unexpectedly lost 23,000 jobs in July, and the number of new jobs in May and June was significantly revised down, with a total of 103,000 jobs overestimated. The cooling of the job market means that household income is under pressure, which is an indirect blow to Apple, which relies on consumers' spending on mobile phone replacement; it is also not a good sign for tech giants that need enterprises and consumers to continue to pay for AI services.

Now in the market, part of the capital is fleeing to hard assets for hedging, and part is flowing to markets with lower valuations and more complete industrial chains, such as the collective strengthening of Chinese assets.

Connecting the downgrade of Apple's rating with these phenomena is actually the roadmap of global capital spatial transfer.

If an industrial sector can no longer continue to extract excess profits through form innovation, financial capital will flow out of this sector and pour into fields that are considered to be able to start a new round of high profit margin cycles, even if these fields are still burning money on a large scale at present.

When the return on investment in these new fields begins to show uncertainty, capital will quickly diversify risks and flow into precious metals, energy and undervalued regional markets.

Apple's six sell ratings tying the 2012 record is a section of this entire logical chain, which declares that the attractiveness of excess profits in consumer electronics hardware is systematically weakening.

Final Notes

Therefore, my judgment is that in the next two to three years, Apple's hardware profit margin will hardly return to the high-speed expansion track.

Even if the foldable iPhone is released, its shipment volume in the entire life cycle is likely to hover at the level of 10 million units, and cannot drive a comprehensive mobile phone replacement wave like the big screen era in the past.

In order to maintain revenue growth, Apple is bound to further promote its service business and increase the proportion of subscription revenue, but the growth of services itself also depends on the expansion of the base of active devices. Once hardware sales stagnate, the growth rate of services will hit the ceiling sooner or later.

The process of Apple's stock sliding from growth premium to value pricing may have just begun.

Secondly, it concerns the AI investment bubble. The accumulated fixed capital of tech giants in AI infrastructure has reached a quite high level. If killer applications and payment scenarios of sufficient scale cannot emerge in the next one to two years, the return cycle of some investments will be greatly extended.

At that time, the high valuations given by the market to AI-related enterprises will face correction pressure. Just as Apple's ratings are constantly being downgraded today, the valuation logic of AI giants may also switch from "unlimited imagination space" to "input-output ratio".

In this process, the periodic surplus of computing power chips and the signs of price war in cloud services are worthy of close observation.

Then there is the global industrial chain and capital flow.

When US consumer electronics innovation enters an interval of high cost and low return, industrial capital will pay more attention to markets that can popularize mature technologies at lower costs and on a larger scale.

The rapid iteration of Chinese mobile phone brands in foldable phones, imaging and AI terminal applications has shown that high-end manufacturing capabilities are not unreachable.

For financial capital, the "relative undervaluation + complete physical industrial chain + huge local effective demand" represented by some Chinese concept stocks and Chinese assets at present will continue to form gravitational pull.

This flow is not a temporary thematic speculation, and behind it is the embodiment of the law of average profit margin acting in the global scope.

In the past 15 years, the smartphone industry has created a rare myth of excess profits in the history of human business, and Apple stands at the top of this pyramid.

In that golden age, every major appearance and function reform could be successfully transformed into a higher selling price, which could be readily accepted by the market, forming a positive cycle that seemed to last forever.

The abortion of the all-glass iPhone is like a highly symbolic rest note that interrupts the rhythm of this cycle.

When the limits of physical materials, the rigidity of manufacturing costs, and the boundary of consumers' wallets all converge at the same time, innovation is no longer the magic of turning stone into gold. It must honestly return to the basic economic proposition of input and output to be tested.

In this sense, Apple's troubles are neither the first to appear nor the last.

It just reminds the entire technology industry in a rather expensive way that the era of maintaining excess profits through form changes is coming to an end. In the next stage, popularizable advanced technologies, down-to-earth high-end experiences, and technical ecosystems that can form national-level applications may be the key to determining the outcome of competition.

Whether a mobile phone's glass body can be manufactured may only be a small episode, but the chapter opened by this small episode is worthy of careful consideration by all people in the technology and capital world.

This article is from the WeChat official account "Dongzhen Strategy", author: Dongzhen Strategy, published with authorization from 36Kr.