In coming months, moviegoerswill be treated to a pair of
hagiographic films about Steve Jobs. In early April, we'll get to
see Ashton Kutcher's impression of the legendary tech visionary.
Some time later in 2013, a script Aaron Sorkin -- the man behind
Academy Award winners such as "A Few Good Men" and "The Social
Network" -- is developing will hit the screen.
Count on both films to portray Jobs in a luminescent glow.
But more than a year after Jobs' passing,
mojo is no longer rising. The mighty iPhone has begun cedingmarket
share to rivals, as critics rave about souped-up offerings from
Samsung and others. And now the iPad may be losing steam as well.
And on this score, even Jobs gets some blame.
10 inches -- or nothing
While Jobs was still firmly in control at Apple, he repeatedly
stressed the need for a 10-inch iPad, even as rivals began to speak
of smaller tablet computers. An early foray by
Dell (Nasdaq: DELL)
with a 5-inch tablet was ill-conceived and quickly pulled off of
themarket . But tablet makers focusing on a 7-inch form factor
started makingwaves . Even as these smaller tablet computers
started to make inroads, Apple was undeterred. Finally, sometime in
2012, Apple relented and started to develop the specs for its own
7-inch device, known as the iPad Mini.
That belated effort should have come sooner. In a
recently-released report, research firm IDCnotes that Apple is
starting to lose its tight grip on the tablet computer market. The
key culprit: 7-inch tablets. That's where Samsung,
and others have more squarely focused, so the tablet market share
is beginning to shift. Apple still rules the roost, with market
share exceeding 40%, but this figure used to be more than 60%. It's
no coincidence that Samsung and
have gained more than 10 percentage points of market share in the
segment during the past six months.
This isn't a simple case of the iPad Mini cannibalizing demand
from the 10-inch version. "Several other 7-inch tablets fared well
in 4Q12 (Samsung Galaxy, Amazon Kindle,
Nexus), driving a continuing mix shift to the smaller tablet form
factor. Overall, the 7-inch tablet group held 41.3% market share in
4Q12, up 12.6% from 2Q12; this compares to the 10-inch tablet group
that held 40.6% share in 4Q12 versus 67.3% twoquarters prior,"
notedanalysts at Citigroup Research.
Perhaps the declining market share was inevitable. After all,
the consumer electronics segment is littered with pioneering firms
that eventually lost their grip.
once-dominant cellphones, Motorola's RAZR, and the Sony Walkman all
once controlled their respective markets.
Until they didn't.
The trouble with a falling market share can be seen on theincome
statement as increasingcommoditization within a segment leads to
pricing pressures. Indeed, the iPad's average selling price fell
more than 10% sequentially in the fourth quarter of 2012, which
translates directly into shrinkingprofit margins . Apple posted 44%
gross margins and 37%EBITDA margins in fiscal (September) 2012.
That's almost unheard of in the consumer electronics industry. And
they areprofit levels likely never again to be seen by Apple.
"It's all good."
Tim Cook, who took the reins from Jobs in August 2011, casually
dismisses any talk of Apple losing its cloak of invincibility. At a
Goldman Sachs investor conference this week, he suggested investors
are too caught up in short-term thinking: "We're managing Apple for
the long term, I know people care about quarters and so forth ...
but the profound decisions we make are for Apple's long-term. Not
the short, 90-day clock," he said, according to CNET.
During the past decade, Apple has been able to keep nervous
investors at bay by delivering a long string of blow-out quarters.
In return, the company was never pressed to articulate plans for
future growth clearly. But with growth rapidly slowing, and sales
of once-hot products like the iPhone and the iPad starting to cool,
can such a laissez-faire style of communication persist? Probably
Instead, Apple'sstock will mark time, until and unless the
company can prove that it can either extend the runway for its
current roster of products, or launch another pioneering product.
Rumors of an Apple TV seem to fit that need, but the silence
remains deafening out of Apple's Cupertino, Calif. headquarters --
several years after the first rumors started to swirl. An
Apple device, wearable on your wrist, is also said to be in
development, and could be the kind of hot new product the company
needs. But it's far too early to know.
Until we see a glimpse of that TV, all eyes will remain on the
iPad. In the third quarter of 2013, Apple is expected to launch new
lighter, thinner versions with faster processors, as well as a
version of the iPad Mini with Retina display. In years past,
consumers have been quick to toss their old units in the garbage
and rush out to buy the new ones. It's fair to wonder whether these
new devices will create the same level of frenzy.
Risks to Consider:
As anupside risk, Apple's bulletproofbalance sheet can dole out
all kinds of perks to investors, from huge stock buybacks to
robustdividend hikes... so the stock doesn't have major further
Action to Take -->
It's a bit too soon to write Apple off. But it's not too soon for
Cook to break a sweat and get Apple back on the path of stunning
new product launches. The competition is clearly catching up to
Apple. And the longer the company waits, the harder it will be to
pull away from the pack.
Indeed, companies such as Microsoft, Samsung, Amazon.com,
Google, Asus and others likely feel newly-emboldened by their
market share gains, and are probably going to keep stepping on the
gas. Even Sony, which hasn't even been much of a player in these
segments, is expressing plans to make a major splash in the
smartphone and tablet-computer segments.
-- David Sterman
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David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.