How Far Can the Mighty Apple Fall?

Apple may be the world's most celebrated electronics company, but its formerly high-flying stock price has plummeted to Earth.

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Bobby Yip / REUTERS

Apple may be the world’s most celebrated electronics company, but its formerly high-flying stock price has plummeted to Earth over the past six months, declining 40% since last September. On Wednesday, that trend continued when Apple shares tumbled 5.5%, briefly pulling company shares below $400 for the first time since December 2011, and wiping out more than $20 billion in shareholder value.

Wednesday’s decline was apparently triggered by a disappointing sales forecast from one of the company’s key suppliers, which fueled fears of weakening demand for Apple’s signature iPhone and iPad products — and added to growing concern about a weakening global electronics market. Apple’s dramatic stock slide has cost the company the title of the world’s largest company by market capitalization, a distinction that once again belongs to energy giant Exxon Mobil.

The question now is whether Apple shares are likely to keep falling. Apple, which reports earnings results next Tuesday, is now trading at slightly more than nine times earnings making it extremely cheap relative to the broader market. Even so, many analysts are cautioning that the stock could fall further still — with some pulling out the classic warning that investors shouldn’t attempt to “catch a falling knife.” Or, as Auerbach Grayson analyst Richard Ross told Forbes: “Until this stock can show me something, there’s no reason to be a hero.”

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Apple had already been facing growing competition from the likes of Google and South Korean electronics titan Samsung, weighing down Apple’s stock price in recent months as investors wait for the company’s next breakthrough product. Then, on Tuesday, Cirrus Logic, which supplies Apple with audio chips for the iPhone and iPad, warned of “a decreased forecast for a high-volume product” from one specific customer. Although Cirrus Logic did not name the customer, at least 90% of the company’s business comes from Apple, according to Reuters. Cirrus Logic shares fell nearly 16% on Wednesday.

That prompted Bernstein Research analyst Toni Sacconaghi to lower his sales forecasts for both the iPhone and iPad by one million units each. “We believe multiple news reports and checks support demand trending below our previous estimate from January,” Sacconaghi wrote in a note to clients cited by The Wall Street Journal.

Apple has experienced several quarters of slowing growth since its shares peaked last fall, just before the company announced the iPhone 5. Last quarter, Apple generated profit of $13.1 billion, but that was flat compared with the year-ago period — the company’s lowest rate of profit growth in a decade. And the threat from Samsung is looking especially acute these days. Some analysts believe its new Galaxy S4 smart phone could draw consumers away from the iPhone. In 2012, Samsung eclipsed Apple in global smartphone market share with 30.3% of the market, compared to Apple’s 19.1%.

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Apple did account for 69% of the smart phone industry’s 2012 profits, according to Canaccord Genuity analyst T. Michael Walkley, as cited by Forbes. But few believe Apple can maintain an edge based solely on the strength of incremental improvement to the iPhone and the iPad. Instead, many investors feel, the company needs new breakthrough products of the kind Apple’s late co-founder Steve Jobs delivered repeatedly during his remarkable career — and current Apple CEO Tim Cook has yet to introduce a truly breakthrough new product of his own.

Persistent rumors suggest that the company will eventually introduce a new television device, or perhaps a high-tech watch, either of which could revive investor enthusiasm for the company. But analysts don’t expect Apple to unveil a new product until the summer at the earliest, and maybe not until the fall. Until then, the knife may just keep falling.

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16 comments
wksndays
wksndays

Enough already. Apparently for over 30 years Apple has always been as ready to fail as the commenter wanted it to be. It's still here. Wake up. General Motors was bankrupt several years ago. Look out your window and count the new Chevys.

ForbesBenny
ForbesBenny

Tim Cook is not Steve Jobs so it may be a lot of time before the fluctuating shares stop. If you are going to read the news today about Apple, it is not 'Oh, how the mighty Apple has fallen' or 'How far would the mighty fall?' Maybe they are losing the war of the words because Steve Jobs is not here anymore or it is their business model. I remember Vivek Sood wrote in his blog and his best seller book The 5-star Business Networks that you need to keep up with INNOVATION and always check if your business model is obsolete. Tim should think fast before Chinese Mafia takes over China, SE Asia and sells a lot of orig iPhone they magically created.

MatthewPieri
MatthewPieri

It was ridiculous for all these investors to assume and push these types of stock up and up and up.  Newsflash, even sheeple wake up, you can't count on someone just mindlessly buying a new device year after year after year when  a) the new innovative product is a few years old  and b) the difference in upgrade from model to model is less.  No common sense in investing, just like the housing bubble, the electronics bubble assumes sales just for the sake of sales.  Humans are smarter than that.

ListentoJohnMar
ListentoJohnMar

The difference between PORNOGRAPHY and EROTICA is the lighting. The difference between SUICIDE and MARTYR is publicity/the media coverage. The difference of APPLE to SAMSUNG is Steve Jobs. And now that Steve Jobs cannot holler and put some sense into them. They need to keep up the pace.  Another is The difference of APPLE to DELL - NONE. Apple is following the footsteps of Dell. Vivek Sood author of the book The 5-star business network PREDICTED this would happen. In his article
http://tinyurl.com/theapplestartstorot he discussed APPLE's Business Network Conundrum

Scott_Wilson
Scott_Wilson

When most of your profit depends on you being "cool", it's not surprising when you start to lose value when you aren't "cool" anymore. 

mahadragon
mahadragon

Biggest crock in the news today. 40% drop in stock price but not a 40% drop in revenue or profits. In fact, Apple reported record revenue and profits in the last report. The genuises on Wall St will short a stock at the drop of a rumor. What happens on Wall St has nothing to do with the company on the opposite side of the country. Apple is busy creating wealth. Wall St is busy circulating it.

AdamChew1
AdamChew1

No other single company share price has been affected by rumors published by Bloomberg, NYT, Reuters, WSJ etc than Apple.

movieas
movieas

apple is not 'hip' anymore, especially amongts the youth. hasnt been since 2012 and now the result of that is showing. in fact, it has a very anti-cool, anti-hip image these days. meaning, if you own an apple product, you are considered to be a tool.

samsung on the other hand is what apple used to be a few years ago. and apple has now become microsoft.

firmsoil
firmsoil

I am shedding crocodile tears for this offshore tax shelter US tax dodger corporation.

DeweySayenoff
DeweySayenoff

Okay, here's one that stretches the boundaries of cause and effect, but go with me on it for a moment.

Apple creates a fad called "tablets".  I used tablets in the past and even bought (a very cheap) one to see what all the fuss is about.  Now, I laugh even harder at the notion that tablets will replace desktops.  It just reproved to me that the tablet form factor sucks and no amount of accessories will change that.  At best, it's not even as good as a crippled laptop.

So, tablets are a fad, but Apple's magical marketing team, headed by the late, great Steve Jobs (whose only real genius was taking current tech, wrapping it in an impractical form with an annoying interface and selling it as if it was God's gift to tech-kind at a price no sane person would pay for exactly the same thing off the shelf from another company) managed to convince a good number of people that this was the next "sliced bread".  This led a lot of suckers to buy the thing which in turn created a certain curiosity - much like a cult does. 

Tablets had been tried, and failed, at least twice before, but the marketing genius Jobs got a lot of people to use them and think they were great, which convinced others to get into the tablet game.  The marketing and peer pressure kept the fad going for a lot longer than it should have (which says really awful things about the gullibility of the consuming public). But that had to end eventually.  There is only so much wool one can pull over so many people's eyes before people start to take a closer look at what they've done and re-think it's practicality.  I've talked about the "new tablet smell" wearing off eventually in the past, and it seems that this may be happening.  After all, Apple dominates the tablet market. in numbers.  A drop-off in those numbers wouldn't necessarily come as a result of competition.  It's more likely a disillusionment with the tablet.  The new tablet smell is wearing off and people are beginning to realize just how annoying the form factor really is.

But what I think really broke it for Apple is Microsoft's leap into the tablet market.  Not because Microsoft has a great tablet - an "Apple killer".  Microsoft tablets suck just like every other tablet out there for the same reason - form factor.  What Microsoft made was an illusion killer.  Apple had this seemingly LSD-induced "creation" commercial that made their little toy look "magical" (if not hallucinogenic).  Microsoft is not known for imagination, cutting-edge technology or even much regard for its customers (Neither is Apple, for that matter, but they're more polite about it).  The images conjured up by the marketing behind both companies paints very different pictures.  And when the stolid, staid, humorless boys from Redmond leap into the Tablet game, the illusion of tablets being "fun" and "magical" and "better" is shattered.

People are waking up from the tablet dream and realizing they're wasting their money on an expensive, almost useless paperweight.

I imagine this will come as a shock to many marketing and tech business strategy executives who bought into the fad by creating whole lines of new products no one will want - like Windows 8 and the "don't call it Metro" interface.  The fact is, tech sales are down across the board - not just in tablets.  Microsoft's new OS has been all but declared a disaster for the company.  With a concurrent 20% DROP in new PC sales in the months following the release of Windows 8 (when the manufacturers and end sales folks are REQUIRED to return all previous versions of non-OEM Windows and tech with Windows pre-installed on them), it's obvious that people don't want a finger-painting OS on a machine with a form factor that doesn't facilitate the use of touch even if it has the ability.

But the bottom line is that with Microsoft going all in on the Tablet fad, the illusion that the Apple tablets were different, new, innovative, unusual or great was shattered.  People realized that Apple products didn't differ that much from Microsoft products and BOTH products were awful to deal with.  Both COMPANIES did the exact same thing, and Apple suffers from the egregious sin of over-charging their customers for something that really isn't superior to what other companies offer.  Different, yes.  Superior, no.

The fad is over.  The Tablet has lost its new tablet smell.  Tech is reeling because they retooled for a fading fad, and was dealt a near death blow by the major OS producer falling for the fad in the first place.  Maybe Windows 8.1 (the Blue version - so called because that's what color executives turned when they held their breaths waiting for their latest software creation to soar to new heights of popularity, which it never did) will save the tech market.  At the very least, it will give the manufacturers some time to come to their senses and take stock of the situation.  Tablets are so yesterday.  There's nothing really on the horizon (yet) to leap in to.  But there are billions of PC's out there which will need replacing.  It may not be the sexiest market on the face of the planet, but it's certainly a steady one when more rational heads prevail in product development decisions.  Tech can retool for that market while Microsoft fixes it's rectal-cranial inversion and goes back to making the most dominant OS on the face of the Earth for the most dominant computing device on the same planet for a change.

Now, that we've reached the end of this cause and effect journey, here's the conclusion I came up with: This drop in Apple stock (compounded, I'm sure, by highly unpopular and un-Jobs-like tech releases) is mostly Microsoft's fault for shattering Apple's carefully crafted illusions about tablets in general and the backlash against them is tanking the PC market, too, because people are sick to death of finger-painting and want their old, familiar start buttons back.

This is just my theory and you're welcome to your own.  Thanks for taking the ride.

LillyPig
LillyPig

ipads, iphones, and macbooks no longer represent a source for Apple's sustainable competitive advantage in an industry where innovation by one company is easily replicated by many others to acquire the market share that was once wholly dominated Apple.

MrBenGhazi
MrBenGhazi

And so the speculative process winds down, only to repeat again when Apple becomes "hot." Don't look to these stocks for long-term growth anymore people, speculation rules the modern game.

mobeontv
mobeontv

I disagree. Tablets are not a fad. Apple's implementation of its user interface and snappy responsiveness of its iPads represents their investment in R &D , and as a result created the best user experience compared to competition. It was not peer pressure that fueled the success of the iPads but rather it was great product that was not only easy to use but had great apps to boot. Although some manufacturers have almost caught up with Apples iOS operating system, Apple will continue to do well, but not as well when Steve Jobs was at the helm. The iPad was not simply different, it was superior in almost all aspects when it first came out. Nothing like it had the finesse, styling, ecosystem and utility it embodied. As mobile processors become much more powerful, tablets will replace desktops - And I'm even running 90% business from a tablet. Mark my words, tablets and its successive generations/iterations will be around for awhile.

mobeontv
mobeontv

I disagree. Tablets are not a fad. Apple's implementation of its user interface and snappy responsiveness of its iPads represents their investment in R &D , and as a result created the best user experience compared to competition. It was not peer pressure that fueled the success of the iPads but rather it was great product that was not only easy to use but it had great apps to boot. Although some manufacturers have almost caught up with Apples iOS operating system, Apple will continue to do well, but not as well when Steve Jobs was at the helm. The iPad was not simply different, it was superior in almost all aspects when it first came out. Nothing like it had the finesse, styling, ecosystem and utility it embodied. As mobile processors become much more powerful, tablets will replace desktops - And I'm even running my 90% business from a tablet. Mark my words, tablets and the successive generations and iterations will be around for

mobeontv
mobeontv

I disagree. Tablets are not a fad. Apple's implementation of its user interface and snappy responsiveness of its iPads represents their investment in R &D , and as a result created the best user experience compared to competition. It was not peer pressure that fueled the success of the iPads but rather it was great product that was not only easy to use but it had great apps to boot. Although some manufacturers have almost caught up with Apples iOS operating system, Apple will continue to do well, but not as well when Steve Jobs was at the helm. The iPad was not simply different, it was superior in almost all aspects when it first came out. Nothing like it had the finesse, styling, ecosystem and utility it embodied. As mobile processors become much more powerful, tablets will replace desktops - And I'm even running my 90% business from a tablet. Mark my words, tablets and the successive generations and iterations will be around for awhile.