What's Wrong with Apple?

Since so many people love the products, a better question is probably to ask what is wrong with Apple's stock price.  Over the past few months, Apple stock price has fallen nearly 30% in value.  This kind of drop indicates that there is something more going on than a simple price correction.  I would guess that even those who don't follow the stock price have noticed a slight drop in enthusiasm for the products.  Though, keep in mind where the enthusiasm level started; people camping overnight and foregoing food and toilet paper to buy the latest thing.

I think the best explanation for the falling stock price stems from two primary things.  The first is that Apple is likely returning to more realistic growth expectations.  No company can sustain exponential growth forever.  This means that the stock price will start to reflect the long-term growth projections instead of the meteoric growth of the last few years.  Another way to characterize this is that Apple is evolving from a high growth company to a more "value" company.  Typically "value" companies have stable and predictable revenues, low price to earnings ratios, and often a dividend due to good cash flow.

There is a second factor influencing the stock price, which is spooking investors.  Many analysts are attributing the drop in value to Apple losing its edge over the competition.  The smart phone sales reports are showing that other products have gained a lot of ground.  Samsung's Galaxy SIII has been outselling the iPhone in recent months.  When Apple first came out with the iPhone and iPad, there was really nothing else that could compete.  After a few years, the competition has come up with a flood of products in hopes of peeling away some of those massive profits.  This is only natural, and a positive part of the capitalistic environment.  I don't think anyone would want just one choice of smartphone.

So here's more of my point of view on this.  If it is Apple's goal to continue to be number one, then I think they need to step up their game.  As an example, Apple could put out an iPhone with an oversize screen similar to the Samsung products.  One good thing is that they are developing a cheaper iPhone, the mini, to compete more in developing markets.  Apple also needs to come out with "the next big thing" to keep this story going.  There's been mention of Apple TV and some kind of wrist-watch product that perhaps could fill the bill.  Investors are wanting that product already.

As a final note to investors, be careful about this recent drop.  Some analysts are calling it a "bear trap" and are expecting to see the stock price take back 20% of the drop.  It's very possible that this is a good time to invest.  Apple reports quarterly earnings next week so watch closely.  I think they likely had a good quarter and they will get a good stock bounce.  So you might be wondering if I will invest?  I have decided to stay on the sidelines.  I think Apple will continue to put out some of the best products, but I feel that the headwinds are greater than they've ever been.  I also don't have enough confidence in Apple's management right now, and the competition has become very stiff, and often cheaper.

I will say one more thing that some people might take as a rub against Apple.  I think Apple is losing some of the original hipster free love image that it used to have.  People used to buy Apple because they weren't Microsoft, and weren't trying to monopolize the world.  Now that Apple has become so big, I'm seeing some of the bullying that we used to see from Microsoft and others.  The patent lawsuits seem to be a bit petty.  From a cultural aspect, I find recent management actions a turnoff.  I also don't like that Apple was trying to take over the Google maps function.  I think it is a mistake for Apple to become more proprietary, instead of working with the other companies people love, like Google.

 So for now, I'm just going to enjoy watching.  So what do you see in Apple's future?  Are you still keeping the faith?