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The rise and fall(?) of Apple

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It had become almost sacrilege to say anything negative about Apple.

Obviously, Apple was going to continue growing and would soon reach $1 trillion in market capitalization. Forget that no company has ever done that before. Think different.

Five companies had previously reached the $5 billion mark. They’re all worth less than that now.

Microsoft, GE, Cisco, Intel and Exxon Mobil, were the others.

Some Apple aficionados don’t want to hear anything negative about the company or the potential of its stock. It’s different this time. (That thought alone should give an investor pause.)

Apple stock has done extraordinarily well. There’s no disputing that. In fact, everyone’s on board, and it’s been almost impossible to hear comments to the contrary about Apple’s future.

But that’s changing.

Facts are emerging.

Stories on Apple have turned negative this quarter despite earnings.

Is the momentum honeymoon over?

Generally, if everyone’s thinking the same, then how much innovative thought is really going on? How many investors are thinking about competitive threats to Apple?

The near-religious zeal Apple fans hold for the company and its products is as much a detriment as it is an advantage. It’s been an advantage during the long stock price appreciation and the booming sales of Apple products.

But it’s a disadvantage now.

The problem with manic activity is that as Apple stock was reaching its riskiest time in the markets nobody wanted to hear about the risk. There wasn’t much listening going on.

It wouldn’t be the first time a company or stock was supposed to defy the odds, the averages. It’s hard to think in the face of such momentum.

Apple investors have done so well over the last few years, it’s hard for them to think that they’re wrong.

They are believers.

Ask not for whom the bell tolls …

Strong belief in brand is incredible. But from an investor’s point of view, it should make contrarian bells toll at this level. Open and honest communication with stakeholders includes discussing threats to the organization.

Doubt that? See the ongoing Wal-Mart story in Mexico, it has potential for great reputational fall out.


Investors would do well to remember momentum buys can end badly.

Here are some competitive threats to Apple:

Fly us to the moon

The stock went straight up recently. It was worth over $6 billion at the time I started making notes for this entry. The Wall Street Journal reported that out of 465 large-cap growth funds Morningstar tracks, 400 own shares of Apple.

So, who’s thinking different?

Have a look at the stock chart below comparing Microsoft and Apple. Pay special attention to how and where both stocks rocketed upward.

What happened to Microsoft over the last ten years until very recently? Will it be different with Apple?

Microsoft’s done better than Apple over its history. Is Apple really that different? Do companies reach a time in their history where they’re too big and too mature for their previous growth trajectory?

Since inception: Apple and Microsoft

A one-year chart on Apple shows a meteoric rise. Not a good sign, perhaps. Might some investors be thinking about taking profits?

What happens if there’s a slip-up in earnings?

Apple’s down more than 10 per cent since its peak in early April. At that time, headlines were shouting about its market cap daily. Admidst all the noise, would it have been better to buy Apple or wait?

Meanwhile, it’s dividend is miniscule.

Steve Jobs is gone

Whether you liked him or not as a person or a manager, it’s hard to argue that Apple’s growth would have been as strong without him.

Do you really need a new iPad?

The iPad accounts for about 20 per cent of sales. What if customers decide upgrades aren’t worth the cost of a new iPad?

When the iPad came out, it was innovative and new. Now, competitors are everywhere, and they’re bent on catching up.

What happened when the PC was introduced to the market? Did things get more competitive or less?

iPhone subsidies

The iPhone is anything but cheap.

If phone companies decide to stop subsidizing iPhones, will iPhone sales grow? What if smartphone sales fall?

What of supplier issues?

The iPhone makes up 50 per cent of Apple product sales. For a good discussion on iPhone subsidies, and the threat a suspension of subsidies would pose for Apple, go here.

Think different this time?

What are Apple’s competitors doing? Have they given up the ghost?

Maybe they’re creating an operating system that boots up in seconds on a 5-year-old Dell laptop?

See video …

And Microsoft’s numbers weren’t exactly awful recently.

Labour abuses, CSR and sustainability

Most people have heard something about Apple’s supply chain labour abuses. Apple’s working hard to redirect attention away from what’s already happened toward what it’s doing to improve the situation. Yet criticism continues to mount.

The following New York Times article and the comments left by readers are a threat to Apple’s reputation. The headline alone is damaging.

Apple’s tax strategy has also received negative attention recently. And guidance came out below analysts’ expectations.

The New York Times recently ran another less-than-flattering story on Apple retail stores. Shortly after, Apple decided to go from “green” to “brown” citing design direction. Great design isn’t green?

Think critically: Critical thinking is a positive exercise

The pace of change in tech is a lightning bolt. Sheer momentum favours Apple, but … eventually momentum stops, or investors sell on earnings.

When it comes to Apple stock, think about the future, think different:

Will ignoring competitive challenges to leap on to the Apple bandwagon pay off? Is the past a good indicator of the future, or is this the beginning of a new paradigm?

Whatever happens critical thinking is anything but negative. Critical thinking is the lifeblood of all creativity and innovation. It shouldn’t stop with remarkable success.

If you’re active in Apple, consider that risk went up significantly when the stock shot straight up. Will Apple get anywhere near the $1 trillion market cap an analyst at Piper Jaffray & Co. forecast? Or the $1,001 stock price another at Topeka Capital Markets sees? Will it become the only company to reach these levels?

That’s a more than 40 per cent increase in the stock price.

The ride may be bumpier from here.

Investor be informed.


How Apple blew it on the iPhone

Apple misses

Business/IT professionals say they’ll buy Android tablets

The New MacBook Pro: Unfixable, Unhackable, Untenable

Apple issues guidance below analysts’ expectations for Q3

Hedge funds dump Apple and buy Microsoft and Google 


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