Slide May Continue, Leave the Sinking Boat!

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

Not long ago, Apple (NASDAQ: AAPL) became the most valuable company in terms of market capitalization. Whether or not Apple would go onto become a trillion dollar company was a hot topic for discussion. I was a bear back then, and I’m still bearish, even after its shares have slid by 25% over the last 6 months. It’s not that Microsoft (NASDAQ: MSFT) or Google’s (NASDAQ: GOOG) Android simply stole the market share from Apple. I believe that the missteps by Apple, led to the loss of its market share.

What Went Wrong

Apple has a reputation of manufacturing premium products, and is symbolized with innovation. Obviously, a consumer who spends $600 on an iPhone or an iPad, would expect his purchase to be future proof and a class apart. But lack of innovation in its recent launches has somewhat disappointed the market. Moreover the launch of its iPad 4 soon after the launch of iPad 3 left consumers feeling cheated and disappointed. Then came the iPad mini!

Yes it looks great, and adds the practicality of carrying it around like a phone, but I believe its technical specs cause problems for Apple. It has not only gone on to hurt the sales of iPad 4, but is also threatening its iPhone 4 sales. But one should note that iPad 4 has an A6X processor, whereas the iPad mini carries an A5 processor. Apple has been backing its retina display strongly, and the absence of high ppi (pixels per inch) and a dated A5 processor indicates that a newer iPad mini might be around the corner.

Two things can happen here

1) If Apple decides to launch a refreshed iPad mini soon, to compete with the highly competitive phablet space, consumers will again feel cheated and disappointed. Additionally this would officially mark Apple’s refresh cycle as 6 months, and consumers who prefer to buy retentive products, would refrain from buying Apple products.

2) If a refreshed iPad mini is not launched soon enough, new offerings installed with Google Android would eat up its market share.

More worries

Google Android devices, based on Ice Cream Sandwich OS are gradually being updated to the latest Jelly Bean OS. This update not only adds a new set of features, but benchmarks have revealed that the new OS is faster than its predecessors. Moreover, consumers are eagerly awaiting the launch of Android 5.0, Key Lime Pie OS. Windows is also updating its WP 7.5 devices to WP 7.8, which adds important set of features like Bluetooth FTP. Samsung is also expected to launch its Galaxy S4 and Galaxy Note 3.

Stressed market share

According to a recent report, 86% of smartphones shipped to China in Q4, were equipped with Google’s Android, while only 12% of the devices had iOS. Another report showed that Apple’s global market share has decreased from 51.7% in Q4FY11 to 43.6% in Q4FY12. According to Nielsen estimates, Windows Phone’s market share has risen by 54% QoQ (sequentially) in the US, and is currently the fastest growing mobile OS. In the UK, the market share of Windows Phone has almost tripled over the last quarter. Moreover, the global launch of Windows 8 smartphones this month, would further strain Apple’s market share.

Conclusion

I believe that Apple should be more focused on innovation and it needs to reduce its refreshment cycle. Until that happens, Apple’s market share could continue to tumble. Microsoft’s WP 8 devices might be received well by the market, but its sluggish Windows 8 (PC) sales could present problems for the company.

In my opinion, investors should look to invest in Google, as a major chunk of its earnings are derived from advertising. More Android devices means higher advertising revenues, despite its falling cost/click (CPC). The company has been reporting stellar financials, and its Q4FY12 revenues rose by 36% YoY. Its shares have risen by 51% over the last 5 years, yet it still trades at a trailing P/E of 14.30x. Google gets my Foolish buy rating.


PiyushArora has no 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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