6 Reasons Apple Won't Rally in 2012

There's never a shortage of Apple (Nasdaq: AAPL  ) bulls.

The world's most valuable tech company is percolating globally and cheap by most historical measuring sticks.

There isn't a lot of suspense here. A whopping 50 of the 55 analysts following the company have the stock rated as a buy or strong buy. Does that worry you? It certainly concerns me.

Barclays Capital analyst Ben Reitzes isn't leaving the herd, issuing a note yesterday detailing the six reasons that the class act of Cupertino will rally next year. I'm not entirely sold on the proposition, so let me go over what can go wrong with each of his six catalysts for big gains in 2012.

New iPad is coming
The original iPad came out in April of last year. The iPad 2 followed 10 months later in February of this year. It would be a shock if Apple doesn't hit the market with an updated tablet early next year.

Yes, the iPad 3 is going to up the ante. Reitzes sees a stronger processor, better cameras, and Siri voice recognition. It will sell well, but is the iPad 3 going to be strong enough to provide the kind of material gains that the iPad 2 had over the initial spurt of Apple's first tablet?

This won't be a slam dunk. Keep in mind that Apple didn't have Amazon.com (Nasdaq: AMZN  ) selling millions of Kindle Fires at $199 when earlier iPads hit the market. Analysts have actually been in the rare position of scaling back iPad 2 sales projections this holiday quarter.

Apple is likely to respond with a calculated price cut. Reitzes and I agree on the front. Introducing the iPad 3 starting at the historical $499 price point -- but keeping the entry-level iPad 2 model around at $399 -- makes sense. However, what if it's not low enough to encourage the buyers of much cheaper tablets? What if the market for tablets will follow the trend of Android outgunning Apple in smartphone market penetration?

The iPhone reach is growing
A year ago, only AT&T (NYSE: T  ) customers had access to the iPhone in this country. Today, smartphone buyers have actual choices.

However, Apple's real growth here will come from overseas growth. China has embraced the device for its high-end consumers, and other companies have been bitten by the bug.

This sounds like a rosy scenario, but let me revisit data from sales tracker Gartner that details worldwide smartphone sales during this past quarter.

  Q3 Handsets Q3 2011 Share Q3 2010 Share
Android 60.5 million 52.5% 25.3%
Symbian 19.5 million 16.9% 36.3%
iOS 17.3 million 15% 16.6%
RIM 12.7 million 11% 15.4%
Bada 2.5 million 2.2% 1.1%
Microsoft 1.7 million 1.5% 2.7%

Source: Gartner.

Ouch! Did Apple's iOS actually lose global market share? Yes, it's a growing pie. Apple handset estimates actually rose by 28% over the past year. The overall smartphone market simply grew faster. Perhaps more important, some will argue that the third quarter was a fluke. Apple stunned investors with weaker-than-expected iPhone sales, largely because everyone knew that the iPhone 4S was coming during this quarter. Apple should bounce back, but for now it's hard to argue that the iPhone is the platform of choice when Google's (Nasdaq: GOOG  ) Android is eating its lunch.

The iPhone 5 is coming
Were folks disappointed with the iPhone 4S, or simply disillusioned that Steve Jobs wasn't there to tell them that they wanted it?

We know that next year's shiny new iPhone will be better. It will feature a new design, be more powerful, and likely come with several features already found in Android phones, including 4G LTE connectivity and NFC chips for mobile transactions.

However, Apple doesn't get better in a vacuum. Everyone else doesn't stand still. Android's already working on a rival to Siri's digital assistant. Microsoft (Nasdaq: MSFT  ) is paying handset leader Nokia (NYSE: NOK  ) billions to back the software giant's fledgling mobile operating system. Apple's iconic smartphone will get better, but clearly so will everyone else.

New Macs are on the way
Global PC sales have been stagnant all year.

We're seeing a different scenario play out in this realm. Apple's actually gaining market share here, but the pie isn't growing much.

Apple's Mac and MacBook renaissance can be traced a decade back to the introduction of the iPod. The company experienced the halo effect, where success in one category influenced the buying decision in others.

Well, iPod sales have been shrinking for several quarters. The real halo here has been the iPhone and to a lesser extent the iPad. And some will even argue that the success of tablets and smartphones as "good enough" computing devices is what is actually eating into PC sales.

Well, where does the halo go now that Apple is losing market share in the tablet space to Android gadgetry and Android has overtaken iOS on smartphones? If Microsoft paying Nokia billions to champion Windows pays off, does this mean that even Microsoft has a halo waiting?

TVs
Rumors of a full-blown Apple television by the end of 2012 keep inching toward reality.

A new category will clearly be incremental to Apple's model. If we consider that iPhones and iPads may double as slick remote controllers, a successful iTV may don a halo effect of its own.

Apple can make this work, but it won't be easy. Folks won't upgrade their TVs every year or two the way they do with iPhones and iPads. Logistically speaking, Apple stores will have to sacrifice some selling space of other gadgets -- and a lot more warehousing space in the back -- to make room for larger TV displays. It's also hard to picture folks carrying out heavy and gargantuan television boxes from the stores.

I'm on record as liking this move, but PC makers and tech companies have bombed in earlier efforts to cash in on the bigger screens. It will pay off for Apple, but at a much slower adoption clip and with thinner margins than the rest of its lines.

Dividends make sense
There's too much cash snoozing on Apple's balance sheet, but what else is new.

Even if Apple comes through with a dividend announcement, will this really help the stock? If anything, it may signal to the market that the Cupertino giant needs to appeal to income investors because the past few years of heady growth are over.

Yield chasers may have applauded when Microsoft initiated a dividend policy nearly nine years ago, but the stock has been a dud since then. Do you really want that to be Apple? The meatier the yield, the more concerned investors will be about Apple's internal growth projections.

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The Motley Fool owns shares of Microsoft, Google, Amazon.com, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Amazon.com, Google, and Apple. Motley Fool newsletter services have recommended creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (23) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 21, 2011, at 10:10 AM, spacebased wrote:

    I think this analysis is a bit behind the times. I always cast a critical idea to big growth stories and have learned with Apple what's important. At present, the iPhone is the main driver of revenue (and earnings). No mention of current 4Q estimates nearly doubling 3Q's? Also, Macs seem to stand on their own. Why would you tie their sales to the iPod at this point in time? There are other perspectives against all of the points but suffice it to say, it's not a balanced assessment against the potential disruptions that Apple is famous for, e.g. Siri might be such a product that is driving sales in 4Q.

    I think just playing with some numbers to reach a headline conclusion is not an analysis worthy of the Fool.

  • Report this Comment On December 21, 2011, at 10:11 AM, MagicNEAL wrote:

    I heard you digging last night before you wrote this story. Dig, dig, dig, dig.... Oh, man, all the effort that goes in making up facts that don't exist to make up totally foolish assertions!

  • Report this Comment On December 21, 2011, at 10:20 AM, RipRagge wrote:

    Wow. Almost all the cliched, previously debunked memes in one convenient location.

    Except you forgot to mention that Apple is a religion with cult-like followers.

    Nothing to see here, folks. Move along.

  • Report this Comment On December 21, 2011, at 10:24 AM, bugnuts wrote:

    RipRagge nailed it.

    This piece is warmed-over FUD.

    It's noted in iCal that Rick is officially on record predicting that AAPL will not break $400 by December 21, 2012. See you in 12 months.

  • Report this Comment On December 21, 2011, at 10:25 AM, artlaz wrote:

    All sizzle, no steak, just a bunch of unlikely what-ifs.

  • Report this Comment On December 21, 2011, at 10:38 AM, fafner2 wrote:

    Wow..time will obviously tell but i think Rick is way off the mark. The stock hit $397.00 this am. Try buying a iphone 4S. You can't get them without ordering/waiting. That should tell you all you need to know.

    Apple is so undervalued at its current price. Wait till they split it 2-1, 3-1 or 4-1. Then u you will see it take off with or without a divedend.

  • Report this Comment On December 21, 2011, at 10:43 AM, applebull wrote:

    The Android totals count everything using that operating system. The IOS numbers are for IPhone alone. It doesn't count IPads, IPod Touch, or Apple TV. Same old story. Figures don't lie, but liars can figure. It seems everyone is praying that Android can somehow stop the Apple growth and momentum. I wouldn't count on it. Apple will be the winner in this war.

  • Report this Comment On December 21, 2011, at 10:53 AM, RipRagge wrote:

    I forgot to ask, Rick: Please give us the model number of a product selling more units than the equivalent Apple model number. No?

    How about a manufacturer that makes more profit per unit? No, again?

    If Apple's losing, that's the way I hope they always lose.

    FD: Bought my first shares of AAPL in 1999. Every once in a while I sell a few to buy a new Mac.

  • Report this Comment On December 21, 2011, at 11:04 AM, TMFBreakerRick wrote:

    The first eight comments here are feverishly bullish. They are ALL well-reasoned arguments. I love you guys for that. However, isn't THAT enough of a reason to be concerned? If EVERYBODY loves Apple, where does it go from here?

    There is no individual company that can do what Apple has done -- and will do -- but maybe it's time to wake up and smell the market share. Apple's evolution from niche premium player to mainstream premium player is showing signs of maturing. That worries me, and if you look back all the way to the 1990s I have been consistently bullish on Apple all the way up to the market cap crown.

    Think different.

  • Report this Comment On December 21, 2011, at 11:21 AM, Emperor2 wrote:

    If Apple is doing so badly, and will continue to do badly, why are they making more money than almost all of their competitors COMBINED? Sales are important but PROFIT is what really counts. When competitors start making as much profit as Apple, I'll buy into your negativity. Until then, I'll stick with the guys that make the money.

  • Report this Comment On December 21, 2011, at 11:26 AM, FutureMonkey wrote:

    To me the biggest risk for AAPL is if China's economy falters (see Krugman's Dec 17th editorial in NYTimes). China represents a huge consumer base for all things AAPL. If real-estate and shadow credit bubble crashes China's economy AAPL's growth rate will be seriously impacted....of course so would a wide swath of the stocks in the SP500.

    It is good for the Bull's to be cognizant of the bearish memes around any stock they own. Personally, I'd worry more if AAPL were premium priced instead of priced for terminal growth. If valuation was in Amazon or summer Netflix territory I'd be selling out today, AAPL keeps coming up with ways to extend and maintain their revenue growth and margins. I don't think we have hit the top of the S-curve in growth yet as Rick implies in the article.

    FM

  • Report this Comment On December 21, 2011, at 11:45 AM, pk22901 wrote:

    "It's hard to argue that the iPhone is the platform of choice when Google's (Nasdaq: GOOG ) Android is eating its lunch."

    Easy, actually! (unless you ignore the obvious)

    Compare:

    - Customer and developer preference and loyalty

    - Fragmentation

    - 500,000 apps that run on ALL iPhones

    - Privacy protections

    - Maintenance and Support Quality

    - One point support for the Whole enchilada

    Sorry, Rick. This is real trash. Be complete next time and forget your link bait opinions.

  • Report this Comment On December 21, 2011, at 11:51 AM, RipRagge wrote:

    Rick,

    I object to my comments being called bullish. Your original post cites fallacious reasoning. Have whatever opinions you want to have, but at least keep the facts straight.

    There are more iOS devices (include tablets and iPod Touch) sold than Android devices.

    Apple sells more units of iPhone 4S than any competing handset.

    Apple sells more iPad2s than any other manufacturer sells tablets.

    Mac growth has exceeded PC industry growth for several years.

    Apple has been reporting increased YoY earnings

    for more than 20 consecutive quarters.

    Apple has not shown any sign of slowing down on innovation and growth. They just bought a Flash memory company in Israel.

    Those are facts. Be bearish if you want to, but don't spin positive facts negative to do it.

  • Report this Comment On December 21, 2011, at 1:17 PM, herbapou wrote:

    Amazon may be selling millions of kindle, but they have to because the stock is trading at 100 P/E. They must produce growth because its already in the stock price. If they dont, it will fall just like Netflix did.

    Apple on the other hand is extremely undervalue because of "apperance". The market cap is too big and profits are throught the roof. Its time for them to start paying dividends and do a 10x split. They need to attract income funds.

    MS had 95% market share when it started paying dividends, dont make the mistake of thinking Apple will do the same has microsoft. Apple is in markets that are still growing and still has room to growth in terms of market shares.

  • Report this Comment On December 21, 2011, at 1:37 PM, CraigNotGreg wrote:

    "Apple should bounce back, but for now it's hard to argue that the iPhone is the platform of choice when Google's (Nasdaq: GOOG ) Android is eating its lunch."

    If you had listed revenue in that chart you would have seen that Apple took in 11 billion dollars selling iPhones in that "off" quarter. I'm sure the company doesn't mind having its lunch eaten in this manner.

    Please stop recycling the same irrelevant comments to get clicks. Your last five articles on Apple have been the same.

  • Report this Comment On December 21, 2011, at 5:19 PM, marcinz wrote:

    better arguments can be found on http://www.bnn.ca/ and look for Making the bear call on Apple (12/21/11).

    I`m more of a RIM guy but I have to swtich phones it`s going to be an Iphone, don`t like andriod at this stage.

  • Report this Comment On December 21, 2011, at 5:40 PM, reprobate4k wrote:

    Apple fanboys take things so personally lol

    "I forgot to ask, Rick: Please give us the model number of a product selling more units than the equivalent Apple model number. No?"

    Did ya ask that in the early 80's about which specific PC was outselling the mac? That didnt turn out too well for apple.

    IMHO the iphone was the thing to have and is still coveted. But people move on. People are also used to the idea of a different operating system now (android).

    I think we will see a shift towards people buying different phones to be different. buying because of the hardware over the software.

    I can see 4-5 long term operating systems all going ok.

    Apple will still do ok but it wont dominate. Android will fall back too.

    If Microsoft get windows 8 for tablets right then its all on.

    The Microsoft model beats the Apple model long term I think.

  • Report this Comment On December 21, 2011, at 5:49 PM, mountain8 wrote:

    If the positives were as iffy as your negatives I would worry. But it seems your "ifs" are a bit out there.

    You must be short.

  • Report this Comment On December 21, 2011, at 6:20 PM, drfool21 wrote:

    Gotta agree with marcinz

    Excellent point made in this article

    http://www.bnn.ca/News/2011/12/21/Making-the-bear-call-on-Ap...

  • Report this Comment On December 21, 2011, at 9:05 PM, armadaink85 wrote:

    haha another apple hater. You either hate them or love them. My kids and there friends love them they are the future apple will grow with them. Apple would be higher if more investors trusted they could keep up there numbers trading at a lousy 14xP/E are you kidding thats a steal go ask your kid to pick any phone they want see what they choose. Then ask them what computer is cool and you will see thats why apple gets to charge a premium its the in product.

  • Report this Comment On January 25, 2012, at 5:27 PM, bazaarsoft wrote:

    LOL.

    I'm not sure how you could have been more wrong. Must kinda sting...

  • Report this Comment On January 25, 2012, at 5:54 PM, beetlebug62 wrote:

    Well, I guess you should start thinking different as well!

  • Report this Comment On January 25, 2012, at 8:46 PM, hiddenflem wrote:

    Today felt good. Real good. A month of reading all the negative articles here made it that much more sweet.

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