If recent trends continue, Apple Inc. (
) could be the worst-performing mega-cap name in the fourth
quarter. Let's take a look at some potential reasons why the stock
continues to pull back.
The Meteoric Rise and Troubling Fall
Leading up to the big release of the iPhone 5, Apple's shares
increased by 74% from the beginning of 2012, hitting an all-time
high of about $705 in September. Since then, the stock has declined
by 21%. Part of the pullback could've been due to unrealistic
expectations for the new iPhone (which was released the day AAPL
hit all-time highs).
The stock has continued to lose value on a fairly consistent
basis. In fact, Apple shares fell almost $25, or -4.3%, on
Wednesday alone. This trend continued today with apple down another
20 points or so, marking the seventh down day for Apple in the last
nine trading sessions. Let's examine some potential factors behind
why Apple continues to fall.
1. Two Straight Weak Quarters
When Apple's third quarter ended, it reported results that left
Wall Street analysts very dissatisfied. The stock's earnings
increased by 17% to $8.8 billion, or $9.32 per share. Revenue also
increased from the previous year, coming in at $35 billion.
However, analysts expected much more for the quarter, estimating
EPS of $10.35, and revenue of $37.2 billion.
At that time, Apple had an earnings forecast for its fourth
quarter of $7.65 per share, with revenue of $34 billion. Analysts
expected EPS of $10.22 and revenue $38 billion in the next
When fourth quarter earnings were announced late last month, net
income came in as another miss for AAPL. Analysts were expecting
earnings of $8.75 per share, but actual earnings were only $8.67
per share. However, the company did manage to beat estimates on
their Q4 revenue, reporting sales of $36 billion, beating
expectations of $35.8 billion. Still, two straight quarters of EPS
never bodes well for any stock
2. Declining Tablet Market Share
In the third quarter of 2010, when Apple released its first
iPad, the company held an astonishing 93% of the tablet market
share. At the time, it seemed that Apple was untouchable, but as
competitors including Samsung and Amazon began to jump in, its
powerful market share began to fall.
Apple's market share had declined to 73% by the fourth quarter
of 2010. Less than a year later, in the third quarter of 2011, the
company lost even more of its market share, falling to 59.7%. In
the third quarter of 2012, market share was just 50.4%, nearly a
46-point decline from the its market share two years prior.
Samsung has become Apple's leading competitor in the tablet
industry with its Galaxy Tab 2. Its market share has increased
drastically in the past two years, going from a 6.5% market share
During the third quarter of 2012, Apple shipped 14 million and
Samsung shipped 5.1 million of the 27.8 tablets shipped during that
period. Trailing behind them were Amazon, shipping 2.5 million, and
Asus, who shipped 2.4 million of their tablets. Apple's still the
leader in the tablet space, but it's no longer head and shoulders
above the competition. With new Microsoft-based (
) "Surface" tablets due this year, expect Apple's market share to
fall even further. This trend has to be concerning to
3. A Surprise Shake-up at the Top
On Wall Street, big internal changes for a company usually don't
bode well. Last month, Apple reported some major changes to their
top management. The company noted that Senior Vice President of iOS
software, Scott Forstall, would be leaving the company in 2013, and
would be working as CEO Tim Cook's advisor until then.
This change resulted in remaining top management, including Jony
Ive, Bob Mansfield, Eddy Cue and Craig Federighi, taking on more
responsibilities within the company. Additionally, it was noted
that John Browett, who worked as head of retail would also be
leaving the company. Tim Cook planned to oversee retail until a new
manager was found.
4. Struggles from Suppliers to Meet Quality and Production
Since the release of the iPhone 5, Apple's manufacturers have
had a very hard time keeping up with demand for the product. Apple
noted the iPhone is not an easy product to make, and it is
important to make sure that quality is not compromised in the
Shipping estimates for the phone have been around 3-4 weeks as
the holiday season approaches. Concern over the balance of supply
and demand could very well have played into Apple's declines, as
holiday shoppers must be wondering whether a new iPhone could
arrive in their stocking by Christmas. If not, they may have to
purchase a phone from one of Apple's competitors instead.
5. It's Hard to Make "Revolutionary" Products
When Apple introduced its first iPhone to the market, it was
something completely new and exciting to consumers. Making calls,
texting, and taking pictures on phones were available on phones
before the iPhone, but once this new gadget entered the market, a
whole bevy of new features became the new norm. Full touchscreen.
No physical buttons. A simple, compelling operating system
including a good web browsing experience. These features had never
before been seen, and even with a steep asking price, the iPhone
became the number one smartphone in the world without much
Then in 2010, the first iPad was released. Essentially, the iPad
was a larger iPhone that couldn't make phone calls. However, the
iPad made it easier for people to do things they previously did on
their computers in a more convenient and mobile way. The tablet
market was essentially born with this device, and Apple quickly
dominated tablet market share (as mentioned previously, that market
share has dwindled in recent years).
So Apple reinvented the phone with the iPhone and reinvented the
computer with the iPad. What's next? Well, that's exactly what
investors are wondering. Can the company pull another rabbit out of
its hat, or will its product release cycle be relegated to
incremental updates of existing devices?
The Bottom Line
No one can predict the future, but a clear bearish trend in
Apple shares has emerged over the past several weeks. Investors
should proceed with extreme caution regarding AAPL shares. While
the company has seen extraordinary success in the recent past, it
faces real threats to its business growth. Its recent share price
decline reflects just that.
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