Has Apple peaked?

Posted by on June 23, 2010 in Investment Products

It would be difficult to name a company that seen as great of success from such depths as Apple.  Apple has sold 3  million iPad’s in its first 80 days of the products release; meaning a unit was purchased almost every second. The stock has risen 30% this year and now trades at or near its 52 week high. Yet, despite such tremendous and deserved success, has Apple peaked and is it time to sell Apple stock while the going is still good?

This is not to suggest Apple is a bad company. In fact, it is quite the contrary. It is a company to be admired. But is the gushing media praise, and corresponding market expectations, justified given recent stats? Specifically, North American mainstream media continue to focus on the iPhone’s steady erosion of RIM’s market share. However, Smartphones powered by the Android operating system has or will soon surpass the iPhone as 2nd in market share in the U.S. according to most studies.

Given that Android phones are sold by various vendors and various carriers (as opposed to the iPhone which  is exclusively carried by AT & T in the U.S.- for now), it takes a little digging to see that Android phones may pose a larger threat to Apple than RIM. But it tends not to make as compelling a story since it is a bunch of vendors nibbling away at Apple rather than a head to head battle of one company vs. the other.

One wonders if the one carrier strategy in the U.S. will serve the iPhone well in the long-term when Android has many champions in different carriers (distribution being a key component in the Smartphone wars- see below). Android is also Google’s operating system- Google is not going away any time soon.

The practical result is that Apple’s growth may revert to the mean which tends to bring a high flying stock back to somewhat more normal valuations (as a side-note,  how can a company with $40 billion in cash and relatively low R & D spending can be considered investor friendly- how about a stock buy-back or a dividend Mr. Jobs?). To be clear, it may still make good products but it may not be a fantastic growth stock for too much longer if it keeps losing market share (lest I offend any Apple product lovers).

On the iPad front, Apple has the starter’s lead but, again, Google and Verizon are thinking of launching a competing tablet computer to the iPad with the Android operating system. What is worth noting is Verizon has had the largest mobile subscribers in the U.S. so a competing product may have better distribution channels. Plus, if Google and Verizon align, Verizon does not necessarily have to sell iPhones even if it is modified for Verizon’s network. Again, this has the effect of slowing Apple’s growth.

The iPhone 4 may will boast earnings again. However, lest one forget, the longer technology is around, the less impact a new generation has the ability to wow people. Ask Microsoft about the declining wow factor of each new operating system.

This is not the say that Apple will not continue to be a model company. I hope it continues to be so. However, it is difficult for any company, much less one in discretionary consumer products, to maintain its lead for long. Over time, it does revert back to the mean and one wonders if its time to cash out now.

4 Comments on Has Apple peaked?

By The Passive Income Earner on June 23, 2010 at 11:47 am

It’s tough to stay at the top! I read an article yesterday where it was quoting the CFO as saying that iTunes and the AppStore were not making money for them. They were basically breaking even. I would say that their core business is still the Mac and the more they can sell the more profit they will make on their hardware. Apple currently owns the high end PC market. When consumers spend money on a PC, the ones that pay top dollars leave with a Mac, otherwise it’s cheaper low end PCs.

That said, Apple went from 100$ to 200$ (and over this last time) 3 times in the last 4 years. There is always a chance for a drop until the next innovation come up. I am curious to see if they intend to promote their Apple TV and partner with broadcasters to revolutionize the PVR landscape.

By Cynical Investor on June 26, 2010 at 11:02 am

My post some time ago:
http://www.thecynicalinvestor.net/2010/05/apple-quo-vadis.html

What I read in an article:

Funny
” Right now Steve Jobs could sell his old underwear for $200 a pair (the “iPants”), and the sheep would line up at your local Apple store.”

I myself read somewhere else (on a forum) and I quote from memory:
“Steve Jobs takes a crap in the morning and then talks for 2 hours how his crap will revolutionize the crap of the world”.

Frightening
“At $235 billion, the company is being valued at more than Sony, Research In Motion, Dell , Motorola , Nokia, HTC, SanDisk and Palm … put together. That assumes a lot.”

Initially I read only that is being valued more than Sony and I could not believe it, then ‘put together’ and a chill went down my spine.

“Apple is already worth more than General Electric, Wal-Mart, Chevron or Procter & Gamble.”

Hard to believe but true and this is really frightening. It looks like Nortel at its heyday.

I should be happy with the $100 or so profit (see here) and call it a day (investment), otherwise I might end up like RIM where I did not take the $300 profit so now I have a $1,000 loss.

Full article ’7 Reasons Apple Shareholders Should Be Cautious’ here.

By » Weekly round-up of financial blogs Canadian Business Blogs | Advice on Investment in Canada, Stock Market, Small Businesses Opportunities on June 27, 2010 at 11:05 am

[...] Thicken My Wallet asks if Apple’s stock has peaked with so much competition emerging in the smartphone category. [...]

By admin on June 27, 2010 at 1:32 pm

Pretty funny post Cynical Investor.

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