Have you seen the share price of Apple Inc. (NASDAQ/AAPL) lately? Since it traded at its record high of $705.07 on September 21, 2012, it has been a mess. Faced by rising competition, better products, and superior pricing, Apple has seen its price shaved by about 28.0% in what has been a trend reversal to the bearish side, according to my technical analysis. Apple is on the verge of breaking below $500.00, a move that was last encountered on February 16, 2012.
There are questions swirling around regarding the ability of CEO Timothy Cook to deliver the superlative revenue growth traders have been accustomed to in the past. The problem is with the rise of Samsung Electronics Co. Ltd. and Google Inc.’s (NASDAQ/GOOG) “Android”-based phones and tablets; the competitive environment has tightened, so Apple will need a “Plan B,” according to my stock analysis.
The slippage in Apple’s business is evident. Apple shipped 14.6% of the total smartphones shipped globally in the third quarter, versus 23.0% in first-quarter 2012, while Samsung’s shipments surged to 31.3% in the third quarter, according to International Data Corporation (IDC). (Source: “Apple Cuts Orders For iPhone Parts As Demand Slips,” Yahoo! Finance via Wall Street Journal,January 13, 2012.) The article also speculates that Apple is cutting its orders for parts used to build the “iPhone 5” due to lower demand.
Chart courtesy of www.StockCharts.com
In my view, Apple is in trouble, based on its global market share and declining revenue growth. According to analysts polled by Thomson Financial, Apple is estimated to grow its revenues by 22.2% in fiscal 2013, falling to a mere 15.1% in fiscal 2014. My stock analysis suggests that these are not growth metrics investors are paying for, and they pale in comparison to the 70.0% and 80.0% growth seen in 2011.
In my stock analysis, Apple needs to do something else to drive revenue growth, instead of just launching new “iPhones” and “iPads.” CEO Cook has visited China on numerous occasions, and trust me; he is not there to visit the Great Wall or Tiananmen Square. With about a billion mobile phones in the country, my stock analysis suggests that Apple wants a piece of the action and realizes that selling $600.00 iPhones won’t cut it. Heck, even a $300.00 iPhone would likely be too high for the masses, based on my stock analysis. Of course, this is if Cook wants to dominate the Chinese market, which I believe he does, as my stock analysis also suggests.
There is speculation that Apple is developing a cheaper iPhone to be launched later in the year, according to the Wall Street Journal. (Source: “Apple said to be developing cheaper iPhone,” San Francisco Business Times, January 9, 2013.) If true, my stock analysis supports this strategy, as Apple needs to sell much less expensive phones in the emerging economies and hope these buyers eventually upgrade to the company’s more expensive products.
According to my stock analysis, with Samsung and Nokia Corporation (NYSE/NOK) already selling cheaper smartphones in China, it’s not rocket science to surmise that Apple would follow suit. The problem I see is the price point for the cheaper iPhones. My stock analysis suggests that the iPhone would need to have a major haircut in price. While I’m not exactly sure what that price point would be, it would definitely need to be much lower than the current price of the iPhone. Of course, my stock analysis notes that Apple also needs to consider the margins for the selling price—too low, and margin erosion occurs; too high, and no one buys.
What I sense is that Apple will likely organize venture deals with China’s major mobile operators to try to sell the phones in a way similar to what we see in the U.S. If a customer opts in for a two- or three-year phone plan, the price of the phone falls, and Apple makes money on recurring revenues.
The bottom line is: Apple needs to do something new to create new revenue streams and to help drive growth to what it used to be; otherwise, the company could be in trouble.