Home > Apple Inc. (AAPL) Is Doomed To Go The Way Of Other Dying Brands
Print

Apple Inc. (AAPL) Is Doomed To Go The Way Of Other Dying Brands

April 23rd, 2013

brand

Keith Fitz-Gerald: With Apple Inc. (NASDAQ:AAPL) off nearly 50% from its $705.07 a share high set last September, many investors want to know if it’s a buy.

Not in my book. Here’s why:

Have you ever wondered how billionaires continue to get RICHER, while the rest of the world is struggling?


"I study billionaires for a living. To be more specific, I study how these investors generate such huge and consistent profits in the stock markets -- year-in and year-out."

CLICK HERE to get your Free E-Book, “The Little Black Book Of Billionaires Secrets”

1. The company has held on to its premium pricing strategy for too long. Going out on price as it has recently with iPhones, for example, is the death knell of competitive differentiation. Businesses that engage in price wars have a very difficult time climbing back up the proverbial ladder.

2. The present management team is having trouble fulfilling the late Steve Jobs’ vision, and execution appears to be stumbling. The Maps thing, for instance, was an unmitigated disaster and shattered Apple’s image of invincibility. The public noticed.

3. Apple has lost its “head start.” The company used to be one to four years ahead of everybody else with every aspect of its design, function and software, especially when it came to iPads and iPhones. Now they’re lucky to have six months…if that. Apple owned the vanguard in devices. Now it’s simply one choice among many.

4. Consumers no longer feel the need to upgrade every time something new comes out. Better, bigger, and cheaper smart phones from Samsung, HTC and other makers have displaced the “gotta have it” drive for everyday people. Diehards and early adopters will never change; it’s just that their numbers have gotten smaller as the numbers of those seeking utility have gotten larger.

The Changing Landscape at Apple

Translation?…

Increasing earnings pressure and diminished value in the years ahead.

Apple is doomed to go the way of Intel Corp. (Nasdaq: INTC) and Microsoft Corp. (Nasdaq: MSFT). Both are quality companies, as is Apple, yet both struggle to produce anything even remotely resembling excitement and are trapped in their own legacy. My good friend Barry Ritholtz put it succinctly on Tech Ticker: “Apple is transitioning from a growth stock to a value stock.”

The other thing to remember about Apple is it now oozes MBAs, whereas it used to ooze innovation.

No doubt Apple’s business managers are plenty smart, but they’ve become more cautious, too.

Jobs enjoyed — even relished — a certain sense of creative recklessness, and I think that’s gone. Apple doesn’t seem to embody the same entrepreneurial energy it once had, at least to me anyway.

Anecdotally, I personally shifted from iPhones and iPads to Droid power this year. The price points were better when my team needed new equipment, and the developer market seems deeper. I miss the dependability of my iPad, but not enough to go back.  I can’t imagine I’m alone.

We still run a few Apple boxes in our office, but most of the time those are in parallel with Windows emulators because that’s where the financial software we need to do our research runs best.

Apple lovers will no doubt take issue with what I have to say and I respect that…Apple is a great company making great products. I just don’t think it’s a great investment at the moment.

The Apple TV and wristwatches everybody seems to be placing hopes on are non-starters. Consumer purchasing patterns reflect slowing big ticket item buying behavior and tech weariness across the board as the financial crisis and “recovery” wear on.

Besides, I can talk into my smart phone. Why do I need to talk into my wristwatch, too? If anything, I increasingly want to disconnect from all this technology that the twenty-somethings tell me will improve my life.

Big Problems in China

Admittedly, I once thought China would pick up the pieces if Apple dropped from the tree, but now I am not certain. A lot has changed there in Apple’s world.

It’s not that the Chinese don’t love Apple. They do. So much so, in fact, that knockoff artists even created a chain of fake Apple stores so real that employees thought they were working for Cupertino.

But the company has had its share of labor problems and those don’t seem to be going away anytime soon. If anything, they’re worsening.

That’s led to quality control issues and an unprecedented apology from CEO Tim Cook to the Chinese people covering both shoddy repairs and warranty policies. Never mind that what prompted Cook’s apology was a ring of Chinese customers substituting fake parts, declaring they don’t work, then submitting the phones for replacement and using the repaired phones to build entirely new iPhones for the black market.

Beijing is currently cracking down on Apple’s App Store, citing objectionable content, including porn and illegal publications. It’s also targeting Apple’s operations, especially its servers, which are located outside China and therefore a censorship issue for China’s infamous “Great Wall” security network. This reminds me of the Google situation a few years ago.

Reading between the lines, I think there’s a “full court press” on.

China has been increasingly reliant on Droid-based technology for the past few years. Whereas Beijing once viewed that as a plus, they increasingly view that as a liability. So they’re going to undermine the top dog (i.e. Apple) in an attempt to create more competitive elbow room for home-grown companies like Lenovo (PINK ADR: LNVGY) and Huawei.

Apple’s penchant for secrecy isn’t helping much, and the company has been eviscerated by obviously planted stories in that nation’s national media about customer discrimination, corporate hijinks and patent challenges.

Team Cupertino is also defiant. Let’s not forget that Apple pulls down approximately $1 billion a week. It’s only natural now that Beijing’s figured out how much this has “cost” their manufacturing base — and they want a bigger piece of the action.

Apple historically has not cut the pie. And, unless they learn to do so quickly, rising Chinese nationalism may undermine Apple’s leadership position on top of its profits.

Finally, what about all that cash?

Apple’s got an estimated $150 billion in the bank. Columnist Henry Blodget – yes, that Henry Blodget who famously got banned from the securities business for issuing a glowing recommendation of Apple while privately referring to it in an email as a P.O.S. – makes the case that you could effectively buy the company today for less than $390 billion, wait a few years and essentially own everything free and clear.

I don’t disagree…what I have a problem with is that I don’t think Apple’s earnings are going to support the equation needed to meet Blodget’s expectations.

Higher fixed costs + higher manufacturing costs + lower pricing = lower margins and lower earnings.

No…I would not buy Apple.

Related ETF: Technology Select Sector SPDR (NYSEARCA:XLK)

Money MorningWritten By Keith Fitz-Gerald From Money Morning

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.


NYSE:XLK


 

Tags: , , , , , , , , , , , , , , , , , , , ,

Facebook Comments

Comments



  1. Keldon Ashe
    April 23rd, 2013 at 21:45 | #1

    I agree with all of the Apple supporters on this site. This is the type of article that tries to convince the uninformed to abandon their shares and drag the price lower. This is a directed media assassination so that investors who failed to buy into Apple before these targeted attacks can reset the price and buy stocks to horde until Apple shares reach the appropriate value it had before. I would not doubt that according to these analysts, to use the term loosely, believe that Google too is doomed to fail. Hopefully, enough of the public has more common sense than to believe articles like the above. If so, Apple will likely resume its place as the tech powerhouse is has been for the last 5 years. In closing, Apple reported a 95% rate for customer retention, there is nothing more to say.

  2. Paolo
    April 23rd, 2013 at 14:23 | #2

    An article full of cliches… Map disaster? Fixed long time ago, try using both together and see taht both make errors

  3. real smart money
    April 23rd, 2013 at 13:18 | #3

    Microsoft dying, Dell dying, HP dying, Nokia dying, Samsung runs tech ?
    Get your head out of your ass.

  4. LP
    April 23rd, 2013 at 12:14 | #4

    Very good article.
    “Apple historically has not cut the pie. And, unless they learn to do so quickly, rising Chinese nationalism may undermine Apple’s leadership position on top of its profits.”
    This is the most crucial part of the article and is exactly what is happening.

  5. Jonaskinny
    April 23rd, 2013 at 11:58 | #5

    APPL a dying breed? Gotta be kidding. I just rolled my entire IRA into it … easiest buy I’ve ever made.

  6. herm
    April 23rd, 2013 at 11:39 | #6

    The more you state in your commentary the more sophmoric you sound..you are not switchcing to android..if you owned apple products you would not switch..the operating system, quality and seamless integration with all apple products is unmatched (my friends Samsung has broken three times)..you simply don’t get it and never will..I can’t wait to see if your on the daily (I need to get printed bandwagon)when the stock is back over $600

  1. No trackbacks yet.




Copyright 2009-2014 WBC Media, LLC