The Curious Case of Apple’s Future

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

From embracing Steve Jobs’s philosophy of making integrated products, to rebelling against his vision with the introduction of a cannibalistic iPad mini last month, is Apple’s (NASDAQ: AAPL) recent 20%+ dip from its all-time stock market high due to the company going astray from Steve’s magical philosophy? Besides the stock market, Samsung’s flagship smartphone, the Galaxy S3, also managed to outsell the iPhone 4S in Q3 2012. With speculation rife about the stock breaking the $800–$900 barrier, the tech giant’s stock is currently being traded below the $550 mark. So, what should the average investor do in this case; fight or flight?

Apple's Performance

Apple is a name that requires no introduction. Cupertino technology giant and an innovative spearhead with the introduction of its ‘i’ revolution – i.e., iPods, iPhones, and iPads – it holds more cash than the U.S. Federal Government. CEO Tim Cook took the decision to start paying cash dividends to shareholders, which has boosted the company’s financial profile for investors. Furthermore, the company has also won numerous court battles against its primary smartphone competitor Samsung, who are due to pay more than $1 billion to Apple for infringing its patents. Most recently, Apple also settled a patent infringement dispute with HTC in which a dismissal of all current lawsuits was announced. Further details of the settlement have been kept confidential.

At the time of writing, Apple’s open stock price was $539.09, and market capitalization was at $510.8 billion. The company has been competing with far too many companies due to its diversified product line, but its largest revenue yielding products (i.e., the iPhone and iPad) only have two clear-cut competitors on the stock market: Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT). While the iPhone 5 and iPad Mini both had successful launches, Nexus and Windows products have been fast catching up with Apple’s lead. Apple has outperformed the market for more than three years now. Compared to the S&P 500 and the Dow Jones Industrial Average, Apple’s stock has been a clearly distinguished line. In recent times, the stock has taken a downward dip due to a lack of innovation in the company’s new products, and competitors catching up quickly to the market leader. Some argue profit-taking has set in, as many are selling while the stock still has the marginal highs of its bygone years.

Its competitors are just beginning to venture into the handheld category with full force. Google still earns more than 90% of its revenue from advertising, so its venture into hardware remains to provide a measure of success or failure. Furthermore, Microsoft’s launch of the Surface and Lumia phones has been widely deemed innovative, but next quarter’s results will show consumer responses to these products, which is expected to boost the company’s showing on the stock market.

What does the future hold?

Truth be told, the company seems to have lost its knack for innovation. The question on everyone’s mind is “will apple rebound?” I think it will not, for a while at least. And here’s why: while the company’s financials remain intact, it simply does not have the innovation in the tank to get ahead of its competitors. The primary selling point of any Apple product has always been its ability to differentiate, but now its competitors are taking up that mantle.

Nokia introduced wireless charging; Samsung introduced NFC; Microsoft introduced Windows 8; and Google introduced Nexus 7. These were all steps into new territory for the respective companies. What did Apple introduce? A smaller-sized iPad, a new charging connector (which will cost its customers more money to upgrade from the older design), and an increased screen size which has already been done and dusted by all of its competitors.

Furthermore, with Obama’s re-election and announcement of capital gains tax, investors may have been prompted to unload shares in anticipation. Apple may have won the battle with Samsung in court, but Samsung seems to be striking back as its S3 outsells the iPhone 4S. A direct comparison with the iPhone 5 is not available at the moment, as the latter was only available for sale for the final nine days of the quarter. Quite frankly, Apple has never been challenged on its own ground before – until now.

I understand that a lot of analysts and investors argue that Apple’s ecosystem, size, profitability, brand awareness, product quality, support, and product performance is far more developed than its competitors, but do any of these elements have sustainability into the future? As sustainability is fueled by new products that have the capacity to retain or gain market share, I fear sustainability is fast escaping Apple.

Final Words

I believe that Apple will no longer be able to scale the heights that it has done before, but the stock, company and product line still have a lot to offer, which is why selling the stock right away is not a wise option. Not so long ago, Apple was considered to be a highly profitable and safe bet; this consideration still holds. However, with the decline in stock price, an opportunity for investors to buy more has popped up.

Apple’s short-term prospects seem bearish and unattractive, but due to the company’s financial strength, expect it to climb back up as soon as the next quarter results become even marginally clear.

 


Marina Avilkina has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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