Only Apple Can Stop Google

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Apple (NASDAQ: AAPL) is losing business to rival Google (NASDAQ: GOOG), if the latest reports are to be believed. Bloomberg published a report titled, “Apple App Advantage Eroded as Google Narrows IPhone Lead.” The iPhone maker is indeed facing some of the worst times in its history as market competition intensifies across the board.

Apple’s App business is staring at an arguably unstoppable paradigm shift as Google continues to lure developers and consumers to its Android platform. Additionally, recent reports also suggest that Google has started developing iOS Apps, which could further dent Apple’s App business.

The iPhone maker is also facing stiff competition on its iPad business unit from rival companies that have engaged competitive pricing as their core strategy, toward penetrating the industry that Apple has dominated since the invention of the first iPad.

Amazon.com (NASDAQ: AMZN) is one of the major competitors in this market with its Kindle Fire and Kindle Fire HD tablets. The e-commerce giant’s tablets, along with Google's Nexus 7, played a major role in Apple’s idea to come up with a cheaper iPad, the iPad mini. Microsoft Surface RT tablets are also in with a challenge, though not so on pricing.

Google’s one major advantage over Apple is that it’s Apps can be used across several smart devices, including devices made by Samsung Electronics, HTC, Motorola Mobility, Amazon, and Sony Ericsson, among others. Apple’s iOS Apps, on the other hand, can only be used by Apple device owners, which limits its accessible market.

While market competition intensifies, the impact on Apple’s price has been very evident over the recent past. Whether you call it a coincidence or a direct impact, perceptions could be deceiving. In a report published Monday, Feb. 4, Morgan Stanley analysts believe that Apple’s tumbling price has nothing to do with “competition." According to the report Apple’s price movement had a near perfect correlation to its gross margins since March 2012

Apple’s gross margins have always been among the healthiest in the industry, averaging above 40 percent. The recent fall since March 2012, from about 47.5%, then 42.5% and 40% to a low of about 39%, has been tracked by the company’s average stock price per the various quarters. The analysts also revealed that Apple’s gross margin stumble is a cyclical affair, and has nothing to do with structure.

Heavy capital investments towards the development of iPhone 5 are seen as a major nemesis to Apple’s declining margins. Unfortunately, this was indeed necessary for the iPhone maker to stamp its authority in a business it used to dominate without significance challenge from rivals. But things have changed as rivals become venomous and willing to take the battle to the next level.

Bottom Line

A couple of years ago Apple were literally invincible, but Google seems to have found a weak point, which it has utilized well. After all, every giant has a weakness. The biggest question is can Apple reverse the roles and identify Google’s Achilles? Only Apple can stop Google, otherwise Google will soon be looking to launch another strategic attack as it tries to win the battle once identified by Eric Schmidt as the “biggest ever” in the industry.

Apple’s plans to counter Amazon’s threat on its iPads business with the introduction of the iPad mini seem to be paying some dividends, but there are also threats to its mainstream line of iPads, as the minis are feared to be cannibalizing on the 9.7” family. There are also rumors of a plastic cover iPhone set to cater for the low-end consumer segment, but this could yet again infringe on margins, Apple’s main strength.


Nmaithya has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google. 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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