Why Apple Won’t Turn Around (But 4 Quick Fixes)

Marie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Since the iPhone’s release in 2007, Apple (NASDAQ: AAPL) held the enviable position as “the cool kid on the block.” And even as Apple shares plunge, I continue to hear that a turnaround is soon “coming to a broker near you.” I concede that a turnaround may be in Apple’s future, but it isn’t imminent. Not by a long shot.

For evidence, we should look at Apple’s Taiwanese manufacturing partner Hon Hai Precision Industry. Recently, the firm began to aggressively search for new contracting opportunities. Before, Hon Hai thrived by producing iPhones and iPads for Apple. Now, however, as competition weakens Apple, Apple’s manufacturers are also starting to hurt.

In the words of a Hon Hai executive:

As our production capacity has grown to such a large scale and existing major-brand customers offer limited order growth, we need to actively expand our client base to help increase our manufacturing volume. (Emphasis added.)

That major brand is Apple. And the limited order growth? iPhone.

iPhone losing glamour

At first glance, it may seem that Google’s (NASDAQ: GOOG) Android is playing catch-up to the iPhone. Not the case. As of the most recent quarter, Android has 52% of the US market while Apple is down to just 37%. A look at the global market reveals an even bigger problem for Apple: As of the first quarter of 2013, Android commands 75% of the global market, up from 59% a year ago. Comparatively, Apple’s iOS has only 17%, down from 23% last year.

<img alt="" src="http://g.fool.com/editorial/images/48066/holcombe-apple_large.JPG" />

For Apple, the numbers are headed in the wrong direction. The company is fast losing ground in its core industry. If the iPhone 5 rollout is any indication, consumers aren’t all that impressed with what the iPhone has to offer. The pool of customers willing to buy the iPhone simply because it’s an iPhone is drying up, and Apple has failed to create a new design or other innovation. Adding a few whistles to the iPhone 5 and calling it the iPhone 6 won’t cut it this time. Sorry, Tim.

As consumers become disillusioned with the iPhone, they are opening their eyes to the features that Android has to offer (not to mention its more affordable prices). For example, in the past, Apple boasted a more complete app store. Now, Android has just as many – both companies offer over 800,000 applications to run on their respective platforms.

Keep an eye on the future, but heed the past

Last month, Microsoft’s (NASDAQ: MSFT) Windows Phone gobbled up 3.2% of global market share and jumped to third place, passing Research in Motion’s (NASDAQ: BBRY) BlackBerry. The change is significant because it shows RIM’s declining trend – just four short years ago Research in Motion commanded over 40% of the smartphone market.

The Windows phone’s carrier, Nokia (NYSE: NOK), decided to transition to a smartphones-only lineup. Nokia will no longer sell its feature phones, only the Windows Phone. Apple must remember that Nokia still owns a good portion of market share in many parts of the world.

BlackBerry’s rapid decline from smartphone juggernaut to insignificant player should be a lesson to Apple executives. Even after the iPhone was released in 2007, RIM continued to gain market share in the US. RIM’s share peaked in 2009 at 41% while Apple had only 25%. Back then, it meant something to have a BlackBerry in your hand. If you had a BlackBerry, you were a businessman. You were important. And you could type faster.

But as the image wore off, RIM did not improve its phone enough to compete. RIM failed to realize that users value a phone for more than making calls and surfing the net – the phone is an extension of the person holding it.

Until recently, having an iPhone meant something. It meant that you were hip. But now everyone (and their mother) has as iPhone. The cool-factor is wearing off. The iPhone is slipping. Luckily for Apple, it isn’t too late to avoid RIM’s fate. But something needs to change. Now.

4 Fixes

Here are four simple ways Apple can innovate:

1. Get a cool “no cord necessary” charge feature like Nokia. As an added bonus, Apple won’t tick off hotels, who have to update their imbedded iPhone plugs every time the plug changes (which is too often).

2. Instead of running away from Google’s Mobile Wallet, create something called “iPayments.”

3. (Please!) Let users run numerous apps at the same time.

4. Give users an interface they didn't know they wanted.

Bottom line

Apple doesn't have the mobile market to itself anymore, and that’s why its share has shrunk. According to Trefis, the iPhone accounts for almost 50% of Apple’s stock price. Reverse the market share trend, reverse the stock price.

Apple rode the iPhone for too long, and competitors caught up. Consumers are realizing that there just might be something out there that’s better. Something their Mom doesn’t have. So assuming no fixes, that’s why I think that Apple won’t turn its mobile business around.

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Article by Randy Holcombe, edited by Chris Marasco. Neither has a position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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