Apple (Nasdaq AAPL) shares have been hit recently as some question its innovation following component cancellations. The stock is currently down nearly 30 percent since hitting highs of over $700 last September.
While analysts confirmed orders were being cancelled, that may not be the main reason for the drop. It doesn’t have to do anything with margins, unit sales, distribution, manufacturing faults, or the ecosystem.
The issue is that Apple has now become a follower instead of a leader.
Think about it. The iPhone 5 has a first-class user interface, but Apple opted to go with a paltry four-inch display when rivals were coming out with devices at five-inches and beyond (think the Samsung Galaxy Note 2 ‘phablet’). Seems like a small mistake and cramming high-technology into a thin profile is not an achievement that should be take lightly. It’s just that Samsung did it, too, and released its product months before Apple’s hit the shelves.
The component issue is largely being attributed to Apple doing a quicker refresh and trying to get a larger, more competitive iPhone on the market. Not only will Apple be competing with Google (Nasdaq: GOOG) Android-based devices, but Research In Motion (Nasdaq: RIMM) will have BlackBerry 10 out within a month, Samsung is working on its Tizen OS, and there are several small outfits modifying Nokia’s (NYSE: NOK) former MeeGo OS to enter the market. All doing so with larger, faster, more reliable devices.
Then you have the iPad. Apple’s main iPad with its 9.7-inch display is a sure winner, continually coming in atop global market share reports. However, Apple ceded in having to make a smaller tablet with the iPad mini. Though still looking for a breakthrough in the States, the smaller tablet has seen strong demand in the Asian markets.
Both the iPad and iPhone (and, years ago, the iPod) were revolutionary. Not the newest of concepts, but the best-executed versions.
Some of Apple’s best days might be behind it save for another innovation in smartphones or other personal devices. Despite chatter of a full-on TV set from the company, a higher price-point would still put volumes to the low-end of the spectrum. For an example, look at iMac quarterly volume; the offerings are high-quality and lauded by just about everyone, but spending upwards of $2,000 is something that happens once every several years. Not like turning in a smartphone every two on contract.
There’s one more point to make: leadership. Author Ron Galloway issued a piece to the Huffington Post today questioning CEO Tim Cook at the helm of Apple. Though it may be unfair to keep comparing Cook to the late Steve Jobs…that’s just the way the cookie crumbles when you follow a legend. A never-ending comparison.
Galloway notes that Jobs was a “transformational” leader, versus Cook being a “transactional” one. Transactional is a leader more focused on keeping the cogs oiled rather than producing a different type of widget in which to put the oil.
Galloway also points out that this is the type of leader Apple needs right now given its plan to make China its largest customer. He notes that Apple’s main focus right now is getting products into the emerging middle-class in China, something Cook is executing one (well, save for the iPad mini shipment delays).
That’s all well and good, but China is a tough place. Markets were riled last year when China’s GDP didn’t produce a double-digit result. China is at the mercy of the global economy; less orders coming in, the less China’s manufacturing economy will grow. Sure, China is becoming less-and-less an manufacturing outfit. Much of what was once produced there is now moving to other markets and even Apple is bringing some product manufacturing to the State to save on costs.
Cook’s best move in China to-date has been the introduction of financing for its devices. Announced last week, Apple is offering financing via China Merchants Bank with payment plans ranging from one period all the way up to 24 periods (with interest on the latter end).
But, aiming to enhance distribution and penetration isn’t what got Apple to where it is today. It helped, but just look at Microsoft (Nasdaq: MSFT) which has massive product penetration and yet its share price has been stuck in $20 to $30 limbo for the past decade. Growth doesn’t care about distribution; growth comes from awesome, first-mover products.
We suspect that Apple shares might have another run on launch of some new devices this year, but its unlikely that the same trajectory will be taken. The higher-end smartphone market is almost too saturated in developed markets and Apple’s willingness to create a low-end device for emerging markets only reinforces that idea.
So, while some upside might still remain, Apple may very well be a shadow of what it once was. Let’s just hope it comes back out of the dark…and soon!
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