Is Apple Finally Losing?

By Aaron Levitt | December 03, 2012 AAA

Known for creating game-changing devices that no one knew they needed, California-based Apple (Nasdaq:AAPL) has been the market darling for the last few years. With hit products like its Mac, iPad and must-have iPhone, the company has managed to beat its competition - like Microsoft (Nasdaq:MSFT) - and investors in the stock have been richly rewarded. That is until a few weeks ago.

It seems that cracks are starting to form in Apple's empire. Glitches with its new maps program, lackluster critical reviews for a few of its new products and increased competition in the fierce mobile market have taken a bite out of the company's shares. What's worse is that analysts now predict that this slide could continue into 2013. For investors, the slide poses a tough question - Is Apple finally losing its mojo?

Guide To Oil And Gas Plays: We've got your comprehensive guide to oil and gas shales in North America.

A $1,000 Per Share?
Not that long ago, analysts were pointing to the milestone $1,000 per share figure for Apple stock. However, it may take a bit longer to get there. The company share price continues to fall as new revelations about its leadership position in the mobile computing market comes to light.

Several weeks ago, Apple shares slid to a five-month low by shedding more than $35 billion in market cap. The sell-off was fueled by an influential research firm's forecast that the device superstar is continuing to lose ground to rival Google's (Nasdaq:GOOG) Android and Microsoft's Windows gadgets. According to International Data, Apple lost market share in the tablet computer space throughout 2012. The research firm estimates that its worldwide tablet market share shrunk to 53.8%. That's down from 56.3% in 2011. At the same time, Android-based products increased their market share to 42.7% - up from 39.8%.

Innovation Is Lacking
The heart of the problem lies within Apple's recent lack of innovation, and innovation is crucial to success. The company has arguably failed to launch any ground-breaking products since the release of the first iPad and iPhone 4 back in 2010. Since then, Apple has focused solely on incremental upgrades across its entire line of products.
For example, sales for its new iPad mini have been strong. The device is essentially a smaller version of the regular iPad, but critics were looking for something more. The tablet PC space continues to get more crowded with new high-tech devices from Google, Microsoft and even Amazon (Nasdaq:AMZN) hitting store shelves just in time for the holidays. Heck, even Barnes & Noble's (NYSE:BKS) Nook HD is getting great positive reviews. When consumers shopping for a tablet, phone or other device, they now have plenty of choices to consider.

The iPhone 5 Disappointed
Likewise, even though the iPhone 5 may have placated the various Apple fan-boys, it has failed to surprise the bulk of consumers and tech experts. Many of the must have features for the iPhone 5 did not happen, and once Apple only innovations - like its Siri voice controls - can now be found on a whole host of devices from competitors. More importantly, these cool features can often be had for much cheaper prices when going with an Android device.

Overall, when it comes to technology, particularly in the fickle consumer space, companies must innovate or they will find themselves falling by the wayside. Just ask investors in the Blackberry maker Research In Motion (Nasdaq:RIMM). Without genius Steve Jobs pulling the strings, Apple may be struggling in that department.

Still Some Positives
Let's be clear, even with all the recent innovation and the loss of "cool," Apple still makes money - a bundle in fact. Revenues at its iTunes store remains quite brisk as Apple set a new record for app sales for the third quarter and saw revenue of almost $2.1 billion. People forget that all of those trend setting iDevices are really a way for Apple to sell those various apps, music, games and movies that are part of the Apple ecosystem. Selling those add-ons produces an amazing amount of free-cash flow .

The company still managed to grow its war chest of cash on hand to record amounts - currently at $122 billion. That amount of money could be used to effectively double the tech stocks dividend. Analysts even predict that the firm could pay a $100 special dividend and still have money left over for working capital. Not many firms can even begin to think about doing that.

So there still some value for the tech firm, even though it's fighting to keep its market share.

The Bottom Line
So, is Apple losing it? In the innovation department, maybe. It'll take a lot of "wow factor" to impress fickle consumers - especially with competition from rivals like Nokia (NYSE:NOK) heating up. At the same time, it still sells plenty of devices and all those apps, music and games that go with them. While it may never get to $1,000 per share, it should turn into a steady dividend payer for investors. In the long term, that might be a better bet anyway.

At the time of writing, Aaron Levitt did not own any shares in any company mentioned in this article.

You May Also Like

Related Analysis
  1. Stock Analysis

    General Motors (GM) Halts Deliveries to Dealers in Russia - Analyst Blog

  2. Stock Analysis

    Will Cuba Be the New Investment Hub for US Telecom? - Analyst Blog

  3. Stock Analysis

    Twitter (TWTR) Targets Russia for Ad Selling Activities - Analyst Blog

  4. Stock Analysis

    Comcast Rolls Out 4K Ultra HD Content by Xfinity in UHD App - Analyst Blog

  5. Stock Analysis

    Are Amazon & Macmillan Making Peace with Multiyear Deal? - Analyst Blog

Trading Center