Apple Inc. (AAPL): Declining Advantage Is Undeniable

investDavid Trainer: Last week, The New York Times posted a story relating Apple Inc.’s (NASDAQ:AAPL) lackluster growth in the Chinese mobile phone market. In China, Apple is playing second fiddle to Samsung as consumers are demanding phones with larger screens at cheaper prices – the new iPhone 5s runs about $875 dollars in the country, while the Samsung Galaxy S4 is $775 and the older model Samsung Galaxy Star Pro is available for just over $100.

Even with the introduction of the entry-level iPhone 5c, recent reports have Apple’s Chinese mobile market share ranging anywhere between just 8-12%, while Samsung has a 21% market share and Android phones have a 79% market share.

This news corroborates our core assertion that Apple cannot have pricing power and market share at the same time. No one can for an extended period of time. The problem with AAPL is that it is priced for the company to achieve market share penetration and growth at high prices. The reality is that the quality of Apple products versus competitors is declining. Prices will have to come down just to maintain market share.

The competition is catching up in terms of the technology in their phones, but they’re also catching up to Apple in terms of the overall user experience. For the last three years, Forrester Research has done customer-experience surveys of the consumer electronics sector. This year, for the first time, Sony (NYSE:SNE), Microsoft (NASDAQ:MSFT), and Samsung all finished narrowly ahead of Apple.

Apple did not do poorly in the survey. In fact, it improved its score from 79 last year to 81 this year, well in the range that Forrester considers “good”. However, its three competitors all made bigger improvements from this year to last. Meanwhile, Amazon (NASDAQ:AMZN), whose Kindle competes with the iPad, came in way ahead of the pack with an excellent score of 91.

Figure 1: Competitors Surpass Apple

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Sources: WSJ

Apple’s struggles in China and the recent Forrester Survey reaffirm my belief that the company’s competitive advantage is declining. Past innovations, both in their products and the way those products are sold, no longer make Apple clearly superior to the competition.

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