1 Silly Reason Why Apple Sold Off Today

The unrelenting negativity plaguing Apple (NASDAQ: AAPL  ) these days continues on unabated. The latest bear food making the rounds today was a forecast out of researcher IDC on where the broader tablet market may be heading over the next few years -- and there's potentially some bad news in store for the iPad maker.

The big picture
As expected, the tablet market is set to post a big surge in units in 2013. IDC has raised its 2013 forecast from 172.4 million units worldwide to 190.9 million units worldwide, based in large part on strong demand for smaller form factors available at lower price points. By the time 2017 rolls around, investors could be looking at a market with annual volumes of 350 million or more.

Remember all the times that Tim Cook predicted that the tablet market would become larger than the PC market? That day may not be too far off, as there were 352 million PCs shipped last year and that market is in a slow and steady decline.

IDC's analyst Jitesh Ubrani said that half of all tablets during the last quarter had 8-inch displays or smaller, and smaller devices should continue to put up healthy growth in the foreseeable future. It's becoming painfully obvious that consumers highly prefer smaller tablets that are better suited for "daily consumption habits."

Get to the point
So how does all of this translate into bad news for Apple? Google (NASDAQ: GOOGL  ) Android is expected to overtake iOS this year in market share. Talk about a scary headline: "Apple's iPads to fall behind Android tablets this year."

Microsoft (NASDAQ: MSFT  ) is also expected to see some market share gains, although the software giant won't come anywhere close to toppling Apple. IDC says that Microsoft's choice to go with two distinct platforms hasn't worked out well thus far. Consumers aren't interested in what Windows RT has to offer, and everyone should have been focusing on Windows 8 from the beginning.

Tablet Operating System

2013 Market Share Forecast

2017 Market Share Forecast

Android

48.8%

46%

iOS

46%

43.5%

Windows

2.8%

7.4%

Windows RT

1.9%

2.7%

Source: IDC (March 2013).

Ever since Apple jump-started the tablet market in 2010, it has enjoyed complete domination as rivals scrambled to catch up. Only when Amazon.com released its 7-inch Kindle Fire did any competitor see success, which was soon followed by Google's own Nexus 7.

Of course, the prospect of giving up the tablet crown to the Android army this year would certainly be a negative development, but here's why it's just silly for shares to be selling off because of it.

Forecasting is just plain hard
The accuracy of IDC's long-term forecasts is easily a point of debate in itself, since they tend to be wildly inaccurate at times. For example, even after the iPad was launched in 2010 -- which was a clear death knell for the netbook -- IDC still expected netbooks to continue growing and reach 42.4 million units in 2014. That prediction has exactly a 0% chance of occurring, since Acer and Asus both officially axed netbooks late last year, and those two companies were the only netbook OEMs left.

You could reasonably argue that Google's Chromebook is the new netbook, but don't expect over 40 million Chromebooks to be shipped next year. That being said, I do trust IDC's historical data more, but forecasting is incredibly hard to do accurately, especially when you're talking about years in advance. A lot can happen in between.

Still, let's go with IDC's figures for a moment.

Oh, no! 34% unit growth!
At 46% market share on 190.9 million units, that's nearly 88 million iPads. That'd still be a very respectable 34% growth in iPad units from the 65.7 million iPads sold last year.

Sources: SEC filings and IDC. Calendar years shown.

At a very conservative average selling price of $400 (actual last quarter was $467), that's over $35 billion in sales -- hardly anything to be upset about for a product category that didn't exist three years ago.

We're still talking about one highly profitable company gobbling up nearly half of the market, while the Android OEMs divvy up most of the rest and eat each other alive. The Android army will inevitably run into slim margins at best and substantial operating losses at worst amid commoditized competition, while also trying to compete with Google itself.

Ultimately, Apple's tablet domination is kind of an anomaly. The company is frequently the underdog in unit share terms, but almost always top dog in profit share terms, and that's what investors are overlooking right now.

Fretting about Apple?
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Read/Post Comments (12) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On March 12, 2013, at 6:38 PM, techy46 wrote:

    It's becoming painfully obvious that consumers highly prefer smaller tablets that are better suited for "daily consumption habits."

    Umm, what's always been clear is consumers highly prefer cheaper and that's why smaller tablets are in. So if Android's in 49% of the 2013 tablets and which generate only 40% of the gross profits while Apple's 45% of the tablets generate 60% of the gross profits who's winning? Wouldn't it be amusing if MS decided to drop a 7" Surface on the market for $279 and lower 10" to $399 w/o Office apps but a 1 year Office 365 subscription.

  • Report this Comment On March 12, 2013, at 6:49 PM, susanai wrote:

    Wouldn't it be amusing if MS decided to drop a 7" Surface on the market for $279 and lower 10" to $399 w/o Office apps but a 1 year Office 365 subscription?

    No.

  • Report this Comment On March 12, 2013, at 6:59 PM, spencerdr wrote:

    And Apple's iPad CAGR for 2012-2017 would be 18.3%/year unit growth.

  • Report this Comment On March 12, 2013, at 7:08 PM, pravina wrote:

    The reason is that the insiders are selling. So as you individual investors buy on dips, driving the market higher, the insiders are selling at enormous amounts, so the stock drops.

    This is happening all over. Gee, do you think they know something we don't?

  • Report this Comment On March 12, 2013, at 7:31 PM, JKramarz321 wrote:

    "Wouldn't it be amusing if MS decided to drop a 7" Surface on the market"

    MS should be worried about their Office Cash cow.

    Office isn't available for iOS or Android.

    And these forecasts are calling for 190 million tablets, NONE of them with Office.

    Will people not buy these tablets because Office isn't available for them? Obviously, they don't care, and have bought them anyway. They're finding alternatives, many of them free.

    The exclusivity of Office on the Surface doesn't seem to be driving sales of Surface.

    The irony is that MS is pursuing the kind of Closed Environment that Apple used to be accused of creating. Remember the early days of the iPod, and when it started getting very popular? At first, it was only available to work on macs, and people thought that apple would hold it hostage to force Mac sales. Then "Hell Froze Over", and Apple released iTunes for PC and changed the connection to USB, and eventually dropped the Firewire connection. Looking back, it probably made all the difference in the world.

    MS is at that point, and they can use Office as a hostage to force Surface sales.

    This is like an IQ test for Balmer.

    Remember too, at the time, the iPod was very hot, and way ahead of the pack.

    The surface comes years after everyone else has a tablet on the market.

  • Report this Comment On March 12, 2013, at 7:37 PM, Oril wrote:

    The only thing you conveniently forgot to mention is the recent surge in blackberry as it rolls out its new operating system an phones in the US market.

    It's recent successes are obviously having an effect on apples decline.

    You fools are normally quite vocal in bashing blackberry.

  • Report this Comment On March 12, 2013, at 7:41 PM, JKramarz321 wrote:

    "The reason is that the insiders are selling."

    That's silly! I remember people bringing this up when some Apple "Insiders" sold at $150, $200, $250.....

    Obviously they didn't know much!

    "do you think they know something we don't?"

    I'm sure they do, but if they trade stocks based on that knowledge, they risk losing everything to fines and penalties, along with jail time. I know people this happened to.

  • Report this Comment On March 12, 2013, at 7:45 PM, thunderboltnova wrote:

    Aw come on with the selling. I'm losing my shirt with this one. My margin calls will come in soon if this keeps up.

  • Report this Comment On March 12, 2013, at 8:00 PM, daveandrae wrote:

    Pravina wrote-

    "The reason is that the insiders are selling. So as you individual investors buy on dips, driving the market higher, the insiders are selling at enormous amounts, so the stock drops. This is happening all over. Gee, do you think they know something we don't?"

    -----------------

    Every reasonable intelligent investor knows that such rhetoric is, of course, complete and utter horse manure. This stock is going to down because, wait for it.......its EARNINGS are going down!

    2013 earnings estimates have slashed from a high of 62 bucks a share to what is now a (rather optimistic) estimate of 38 bucks a share.

    People seem to forget that Kodak, Polaroid, Motorola, Microsoft, and Intel were once all high flying specialized technology companies too.

    It still did not immune them from the life cycle. Which is success leads to increased competition, which leads to product commoditization which leads to margin erosion, which leads to holding a zombie stock.....Apple included.

    I will say that Apple has a unique eco-system. Thus, they are far more salubrious then their aforementioned predecessors. Yet, the stock is still grossly overpriced.

    In my opinion, you will see a 300 handle on this thing, or perhaps worse before the latest decline is said and done.

    Good day.

  • Report this Comment On March 12, 2013, at 8:30 PM, thunderboltnova wrote:

    Aw come on with the 300 figure. We can't take that kind of loss.

  • Report this Comment On March 12, 2013, at 8:39 PM, thunderboltnova wrote:

    So basically, if you are a long term investor, don't do it with a technology stock. There's always the chance Apple could re-invent itself like IBM did and keep growing in the future.

  • Report this Comment On March 12, 2013, at 9:03 PM, daveandrae wrote:

    Thundernova-

    1. You can't take a 300 handle kind of loss because you didn't make an investment. You made a BET.

    Been there. Done that.

    Thus, I can tell you from years and years of experience that a stock like this won't even begin to stop going down until, of course, all of the margin buyers get squeezed out.

    This is one of axioms of the stock market. It doesn't matter who you are or how much you have. It can, and will, remain irrational far longer than you can remain solvent.

    2. As to your second point, "hope" is not part of the equation. At the end of the day, a stock is either a better investment than cash, or it is not. And at 430 dollars a share, I'd rather have cash than apple stock. Why? Because the stock is only going to get cheaper.

    Once again, good day.

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