Is Apple in trouble?

February 5, 2013

    o-APPLE-STOCK-DROPS-facebook

    What a difference a month makes!

    After a troubling earnings call on January 23, shares of Apple have dropped steadily. A recent rebound is promising, but will they return to form any time soon? Does this downturn indicate that Android is a real threat to Apple and iOS? We’ll take a look at the recent events, and consider how Android may have finally started putting nails in the Apple coffin.

    The earnings call

    On January 23, a strange thing happened. For the second time in a year, Apple failed to meet its earnings expectations. Some analysts are even referring to their Q1 2013 profit as “flat”. Apple has always been relied upon to pace the tech market, or at least outperform its counterparts. With this earnings call, Apple has lost nearly $50 billion in market value. The stock has fallen from $701.95 per share with a volume of 3.13 million on September 18, 2012 to $453.62 per share as I write this on February 1, with a volume of 20.5 million.

    This represents a loss in market capital of around $50 billion. A sizable sum, but also one that hardly fazes the tech giant. We’re wise to keep in mind that this $50 billion is the combined market value of Dell, Nokia, and BlackBerry. To this, Apple CEO Tim Cook seemed relatively unconcerned, saying:

    “The most important thing to Apple is to make the best products in the world that enrich customers’ lives. That’s our high order bit. That means that we aren’t interested in revenue for revenue’s sake. We can put the Apple brand on a lot of things and sell a lot more stuff, but that’s not what we’re here for. We want to make only the best products.”

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    What’s next?

    Tim Cook also pointed out a number of things “in the pipeline”, but refused to elaborate. With a completely new mobile product lineup in 2012, one would expect its earnings to be through the roof. As rabid as Apple fans are and with the history Apple has of selling iPhones, it was a fair bet it would make its earnings. New devices, new connection port, and revamped iOS (iOS 6) suggest Apple should see a lot of users flipping older devices for new ones.

    Even though they sold 18 million more iPhones and iPads over last year, it wasn’t enough. First, Apple has a propensity to release an iPhone, only to launch an “update” labelled an “S” device a year later. Many users will wait for the new iPhone 5S rather than jump on board straight away. There is also rumbling of a low-end iPhone being targeted at the Asian market, which should cause some demand here in the U.S. too.

    Connectivity

    Apple also changed the connection port from the tried-and-true 30-pin connector to a Lightning connector. While this was necessary moving forward, it does put some users off the updated hardware. Changing one thing for Apple causes a ripple effect throughout the entire line, so users are keen to wait until they can reasonably afford all new stuff. A 30-pin to Lightning dongle was offered, but that’s just another cord to keep track of. The $10 price tag was also mildly insulting to many users.

    TV

    Apple has not confirmed its TV set yet, which is expected to be a game changer, and we’re sure it will be fantastic. The TV market, however, is declining. Apple doesn’t do anything part-way, so we know it will be stellar unit… with a hefty price tag. It will appeal to the hardcore Apple user who has a few grand to spend on a TV, but overall the device isn’t expected to perform well. A premium TV if you can afford it, but top-dollar tech items are a dying breed.

    Apple Inc

    Winners and losers

    Apple stock is tied into quite a few funds, and mostly hedge funds. With 1,948 institutional holders, 65% of Apple stock is diversified across a broad spectrum. In examining the activity of some of these investors, many of the larger firms have dumped quite a bit of Apple stock and one notable overseas account has relinquished all Apple stock. This is the broadest holder spectrum of any other stock.

    With the holdings spread so thin, this lends itself to a mob mentality. When larger firms start unloading stock, it’s a big blow to the market value. Smaller firms follow suit, and the tumble is in effect. There will always be differing opinions on the stock with a large company like Apple. Some will pick up stock at the current discounted price, while others will wait it out and see just what the market is going to do before making a decision.

    Bonds

    Apple is tied closely to many hedge funds and slow-growth retirement accounts. Apple is considered a conservative stock to keep in your portfolio, a near foolproof investment. When a hedge fund manager decides to relinquish Apple stock, it has to do with the overall security of his investments. As security is a primary concern in today’s market, the attention turns to the bond market. Apple may be one company, but it is usually a large part of a fund, and any volatility can spell disaster for the smaller guys. Bonds are slower growth, but a much safer bet.

    android-vs-apple

    The Android issue

    Until Ice Cream Sandwich, Android was nowhere near as user-friendly as iOS. Much of Apple’s income is tied into the direct sales of mobile devices, so its mobile OS had to be great. It was, and is, but Android is now considered on par with iOS for many. It seems Google has effectively beaten Apple at its own game.

    In September of 2012, precursors to the events on January 23 may have been set in motion. With Jelly Bean on the horizon, Google stock was even with Apple’s, and even began to outperform Apple. Up to that point, the two companies had flip-flopped for stock value, with Apple usually seeing the slight edge. They also experienced the same trends, an indication they were equally pacing the tech sector.

    Once Google convincingly overtook Apple for stock value, those trends began to reverse. Around December of 2012, Google would begin to see the market react very differently. Where the two giants once walked the same path, they were now juxtaposed. If Google was up, Apple was down. It indicates that investors were beginning to see Google stock as solidly as Apple’s. Were they ditching Apple for Google? It seemed so.

    Perception

    While the lowly consumer may seem like a far-off concern for investors, the market is driven by users. If users are happy with a product, it sells. The last two iterations of Android were a leap forward in terms of the user experience. It was eye-opening for the market, and users began to pay attention. With Android’s growing market share, this OS could no longer be dismissed.

    Another factor is fragmentation, and the rise of higher-end Android devices that can operate these great new OSs is a boon for Android. Apple’s iPhone is essentially one device running one OS, so the fragmentation is much lower. The company controls the entire process, where Android is open source. As Android grows, device manufacturers push each other to create amazing devices. This rise in quality devices means more Android users, as the new breed now outperforms iPhones. The fragmentation gap narrows every day, and new iterations are adopted rapidly compared to past releases.

    Control

    While Android is free, and perhaps not considered “profitable,” the platform has some necessary restrictions. Google keeps an eye on partners via the Open Handset Alliance, and goes so far as to exclude them for violating the terms if need be. A mobile device is also a gateway to the related marketplace and a huge market share means more Play Store dollars. The Play Store is expected to outperform the App Store by the end of 2013, perhaps a more accurate sign of Android dominance.

    CEO-APPLE-TIM-COOK-COM-GOLDWOOD-2

    Confidence

    The heart of this matter is investor confidence. An out-of-left-field bad earnings call is not the root cause of this recent turmoil, but may be the last straw for many. Apple has had some recent issues that are out of character, and may hint at larger issues.

    First is the Apple Maps fiasco. Apple had a good thing going with Google Maps, as is evident by the surge of downloads the first weekend it returned to the App Store. Apple boldly went its own way with a proprietary maps app, and it was a disaster. It was a rare miscue by Apple, but a very deep kink in the armor. The subsequent apology left many wondering just what the issues were in Cupertino.

    The recent management issues have been both notable and curious. We all know people get hired and fired every day, but the shifting at the top of the food chain is suspect. It hints at poor leadership and calls Tim Cook into question. Tim Cook can never be Steve Jobs, we all know that, but these issues are still surprising. The management movement coupled with a re-alignment points more directly to a leadership problem than anything else. Tim Cook took over from Jobs directly. He inherited Steve’s system, and there were none of these issues before, which calls his leadership capability into question.

    All things considered

    Apple made some long term investments during Q4 2012, and had some supply chain issues. It began switching to green energy for all data centers, which is a huge undertaking and quite expensive. This will yield along term gain, but is a sizable short-term investment. Its supply chain issues centered around the Mac line of computers, which is the biggest non-mobile device segment. This led Apple to re-commit to making computers domestically. Couple those with ongoing litigation, and an unusual amount was spent to counteract an unusual amount gained.

    Apple v Google

    Conclusion

    Apple will always have a place in the market because it has a very loyal fan base. Even though the recent earnings call is troubling for Apple, the issue is how it responds. If it continues to walk the path it currently does, we may see further valuation issues with the stock. Many investors are refusing to purchase Apple stock, a sign the market may not be as enamored with the company as it was before. Apple will have to do some things to be part of the market, whereas in the past it was quite the opposite. Google and Android have set the pace for the mobile technology landscape. Like its stock, Apple is now a position of playing catch-up.

    Comments

    • Mike Bastable

      A rather silly article written by someone who states `android is my life…I believe him, since he seems to know little about anything else, certainly little about Share prices and stock trends. This piece mainly sourced from this own sites reporting was I feel designed purely for the headline.
      I have to ask myself a question: why do I read so much Apple rumour on an Android site? Why the petty slim on truth speculative articles?
      Android won’t kill Apple. Eventually something new will come along and take over from both. Market share is important, Google is only too aware of that, hence Android development to protect and serve its core search services.
      Funny I do not see similar articles on Apple sites discussing Samsung developing a new OS Tizen to possibly rival Android (headline: is Android in trouble?).
      Please encourage your writers to stop this silly flaming war.Many use both Android and iOS and we wish both platforms well.
      For readers looking for knowledgeable non partisan financial insight in Apple share prices and the intrigues and nuances of the Financial markets may I suggest Huffington Post.
      Nate: please get back to being and doing what this website proclaims in its name: Android Authority! …now there is an interesting subject I would like to read about. Why fragmentation at all? Why does LG fail to update its devices (especially in Europe), key lime pie? What happened to open source in Android, why r phones rooted, so many great questions to ask Nate. You LIVE for Android???? OK, Nate: live a little (insert smiley face here)

      • http://twitter.com/andreimp Andrei Muresan

        Geez, talk about frustration … :-) I think it is a very interesting article. Way to go Nate !
        What can you do … hatter gonna hate ;-)

        • Mike Bastable

          the posting was NOT hate, i just want to point out that there are better things (in Nate’s area of expertise) to write about. Your knee jerk reaction, and probably the reaction of every poster is sad. Apple fanboys used to really piss me off (i have always used mac) Android fanboys are becoming just as bad. Google and Android is doing fine, just not as well as iOS purely because iOS is a cash generating juggernaut. Apple’s last financials were the second best ever published in the Tech sector. The Share issue has its roots in wider events and is not at all simplistic…Apple’s fortunes are not tied to Android. We should avoid repeating past failures Apple vs Microsoft etc.
          Did i seem frustrated i was aiming for disappointed. Disappointed in this kind of silly speculation on a site meant to be ABOUT Android!
          Again no HATE but love, i would LOVE Nate to write about his REASON FOR LIVING!, his Passion!: Android!!!!!!!!!

          • Tjaart Blignaut

            “Did i seem frustrated i was aiming for disappointed. Disappointed in
            this kind of silly speculation on a site meant to be ABOUT Android!” You are being an ass. It’s perfectly common to evaluate the competition. People who like Android want it to be more successful, and that means Apple has to be less successful. There is no happy middle ground. Apple’s falling share price has been making news everywhere, and many people are eager to get their hands on analysis.

            “Android won’t kill Apple. Eventually something new will come along and take over from both.” So the core of your argument seems to be that Nate does not agree with your analysis.

            “Please encourage your writers to stop this silly flaming war.Many use both Android and iOS and we wish both platforms well.” Being a fence sitter is just fine, but it doesn’t mean that people who are opinionated on the matter are “fanbois”.

            I read through the article again after reading your comments and to me the article reads very balanced and mild, no fanboism there. Furthermore Nate’s evaluation of and the reasons given for Apple’s woes reflects the analysis of many other journos around the web, and financial journos too.

            “Google however rarely bashes Apple, they are to a great extent partners
            and innovators together, pushing each other to greater achievements and
            better products, as fr-enemies and occasional partners when it matters
            (Kodak).”
            Really not true. The relationship between the two companies have ignited a cold war. If they are partners in innovation why is Apple suing Android manufacturers?

            Please read the article again and then read your comment. Maybe you will come to see that you are being an ass. It never hurts to be polite when you criticise, and when an article contradicts your opinions that doesn’t entitle you to rage about it.

            • Mike Bastable

              The last Pierce of criticism was fair, i was fence sitting a bit

        • On a Clear Day

          Apple bashing? Since when is doing your best to pull together so many disparate strings of information floating around re a subject and trying to organize it in a fashion that helps make sense of it bashing?

          And why is it news? Because it is News!

          Apple has only itself to blame for the focus of attention it has brought upon itself and its poor – of late – performance in the market and in the sale of its products (albeit poor is a relative term when you count the number of devices it has in actuality sold).

          Apple makes good products, which many people love; though in my opinion as a former cell phone salesman of both Android and iPhones many of them are not necessarily the most circumspect re researching relative value to price options.

          So be it, to each his own and more power to them and to those who enjoy and are happy with Apple products.

          Ultimately, I see Apple continuing to slide – downhill. Companies that were lead by charismatic leaders, who didn’t truly foster associates or were unable to find followers who were either as gifted as they tend to begin to implode after about 24 to 48 months, which may be what we are seeing here.

          Who knows? Do I really care about Apple anymore or need to now that all the delightful, feature laden Android devices are available, nope!

          This article is positing the question, and nicely too, that apparently more and more consumers are beginning to feel similarly to the way I feel, or perhaps not. We’ll see, won’t we?

      • MasterMuffin

        I agree with you in the fact that AA has too many articles about Apple and they always start comment wars and hate :(

        • http://www.facebook.com/santeri.liukkonen.1 Santeri Liukkonen

          In my opinion Android Authority should write more of these longer and more brief articles about everything mobile in general, ALSO the competition. Without articles like these i guess this site would be all about rumors and reviews, but it also offers some in-depth look about what’s happening in the mobile space right now. I think it’s okay to have a broader look at what’s happening around Android..

          • MasterMuffin

            Yea it’s okay to have some articles about competition, but too much is too much (!) and it brings the hate to AA (and Apple trolls)

      • fatyss

        couldnt have said better
        i think your article was worth rEADING :)

      • http://twitter.com/jared889 sergio

        the only customer that gets spanked by a company and they give them their money like job said”you re holding wrong ” that proves that jobs thought that apple customers are knuckle heads

    • http://www.facebook.com/santeri.liukkonen.1 Santeri Liukkonen

      Open source is what people want and it’s the future.. Consumers get smarter and they will start to understand that Apple’s ecosystem is very closed up and limited. I really think that neither the Apple as a company or it’s stock will ever grow any more that it has done till now or return to it’s former glory..

      • Mike Bastable

        I agree about Apple, i don’t think they really care. They just make things: buy them or don’t buy them. Android should be 100% open, no bloatware, carriers locking the handsets, phones still running two year old software because lazy manufacturers wont update or allow updates. So good point Santeri

        • http://www.facebook.com/santeri.liukkonen.1 Santeri Liukkonen

          Haha, let me guess Mike, your mobile phones of choice are Google Nexus series! ;)

          • Mike Bastable

            yup!

    • rookie

      it’s just matter of time before Samsung and Google shut apple down, just matter of time

    • Lars Didriksen

      apple is not really in truble but they will be if they dont act soon. Apple has not come up with anything innovative for a looong time. Tablets: look MS did that years ago, not an innovation despite what apple will have you believe .. smartphone…look HTC under the name QTEK made the first phone PDA hybrid the Qtek XDA (yup thats how the XDA forum started way back when) sure iphone polished things up…but has stayed stale since, the small screen even of the iphone 5 is DOA compared to todays other phones like the S3 and nexus 4 line. and android is moving FAST. still apple has a fan base thats very loyal..is till hera people saying things like NFC..i dont use it..well ok but thats just stupid and will result in stagnation. i use NFC to pay train fare chek in etc. all the time. apple need to move or risk being stuck in the past.

    • http://twitter.com/jared889 sergio

      android fans dont wait in the sidewalk for 7 days to get a toy and they dont even know why they buy the latest apple toy, take a look at the line at any apple store check how many losers hoping to get a life buying apple ,grownup with a costume pathetic

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