Consumers love Apple (NASDAQ:
) products. Hours before the iPhone 5 was released, one eager
that she "wouldn't give a s*** if it didn't have nothing." In her
opinion, new features and upgrades were not necessary. "I would
be in line anyway," she insisted. "I just love iPhones. I would
never have any other phone but an iPhone for the rest of my life.
So when they have iPhone 83, I will be in line."
If investors were that loyal, Apple shares would have crossed
the $1,000 mark weeks ago; but Apple's value is not climbing.
On September 21, the company achieved an intraday high of
$705.07. In the following weeks, the iPhone maker plummeted 20
Two days ago, Apple proudly announced that it had sold
three million new iPads
, beating some analyst estimates. The company combined sales of
both the iPad Mini and the fourth-generation iPad, preventing
investors from knowing how well either device performed.
Nonetheless, this provided a huge bragging point for the
Investors were satisfied for literally a day. That is not an
exaggeration; Apple shares rose on Monday to above their five-day
low. One day later, Apple's value experienced another dip.
In spite of the positive iPad sales, investors must still be
feeling the burn of the
botched mapping application
disappointing iPhone 5 sales
and the general lack of interest in new Apple products.
One hour before the iPad Mini was released, Benzinga was
surprised to learn that
only 15 people
were waiting in line at one Metro Detroit Apple Store. According
, crowds were thin everywhere except New York.
This is the part that worries investors. Apple will not
continue to grow if it cannot excite the masses.
Worldwide, the firm is still growing. iPad sales may be
tanking in the United States (unlike smartphones, people do not
need to buy new tablets every 12 to 24 months), but they seem to
be doing quite well overseas. Without new markets, Apple would
not have been able to sell three million tablets last
For more than a year, Apple has said that China and other
emerging markets are an important part of the company's future.
If Apple scores a widespread deal in China or sells a large
number of iDevices in the nation, investors are likely to take
For the time being, however, investors want the company to
simply come out with products that are genuinely impressive. The
iPhone 5 was too predictable to fulfill that expectation, and the
iPad 3 and 4 were too similar to their predecessors.
Apple had an opportunity to impress investors when it unveiled
next-gen MacBook Pro
. While the 15-inch model was very creative, the 13-inch model
proved to be a dud
Instead of focusing on the iPad Mini, investors should have
paid attention to the new iMac, one of 2012's most inventive
products released. Unfortunately, that device will not change the
market. It may inspire Apple enthusiasts to upgrade or lure a few
new customers, but its profit margins will be lower than the iPad
only costs $188
to manufacture), and it will sell far fewer units.
This is a big problem for Apple. Its biggest products
(iDevices) are no longer attracting the level of attention that
they did in 2011. Thus, the company's sales are not as large, the
lines are not as long and investors are not as impressed.
Analysts have speculated that the company needs a new product
-- namely a television set -- to reinvigorate the business. But
even in the best-case scenario, this will not satisfy investor
demand. It may excite Wall Street and raise Apple's value back to
$700, but those gains will not last.
Televisions are expensive, long-lasting, low-margin devices.
The companies that manufacture them do very well when consumers
wish to upgrade, as witnessed by the high-def boom. Now that
everyone has upgraded, domestic sales have slowed to a crawl.
The struggling economy has not helped this situation.
Consumers are less likely to buy a 50-inch flat screen if they
can't afford food or other necessities.
), Panasonic (NYSE:
), Sharp and other Japanese companies made the mistake of placing
too much emphasis on the TV business. Now all of these firms are
Analysts speculate that Apple could circumvent the challenges
of the TV market and make billions by developing a pay-as-you-go
alternative to cable. Realistically, the company does not need to
go through the hassle of selling televisions to pull this off. It
could theoretically acquire Comcast (NASDAQ:
) and launch a cable service today.
Aside from a buyout (which seems unlikely), Apple does not
have many options in starting a pay-TV service. Analysts believe
that Apple must secure a number of content deals first. Even if
the firm is successful in this regard, Apple must think about
infrastructure (how will the service be delivered?) and cost (how
much can Apple charge per channel?).
Most analysts assume that Apple will stream the service online
and charge a low fee for each channel. The former element comes
with a number of challenges, including data caps (which are
employed by almost every major broadband provider).
The latter is somewhat of an oxymoron. Apple is a manufacturer
products. It only charges a low price for music and apps because
they were employed to sell iPods, iPhone and iPads. If the goal
of its pay-TV service is to sell new televisions, Apple might do
the same for cable. Otherwise the company will charge as much as
possible -- and raise its rates slowly over time, just like the
In the best-case scenario, free (over the airwaves) channels
would sell for $1 to $2 per month. Basic cable channels would go
for $2 to $5, while HBO and Showtime would likely maintain their
existing pricing scheme. At those prices, frugal TV watchers
could save some money.
Unfortunately, those prices are not likely to stay the same
forever. Either content providers will raise their rates and
force Apple to do the same, or Apple will do it to increase
profits. Either way, the consumer loses. In time, subscribers
could end up paying higher monthly fees for fewer channels than
they currently receive with a traditional cable provider.
If Apple enters the pay-TV business, it will also have to deal
with the headaches of greedy content providers that
pull their channels
to get higher fees.
As a manufacturer, Apple may still be interested in the sales
potential that a pay-TV service can bring. It may very well be a
profitable venture for the firm. But it will not create the
iPhone- or iPad-sized revolution that analysts expect.
Consequently, Apple shares may continue to fall, regardless of
the products it releases in 2013.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.