Apple Needs to Change the Narrative

Apple (NASDAQ: AAPL  ) CEO Tim Cook was on Capitol Hill this week, answering questions about how his company has managed to -- legally -- avoid paying taxes on billions of dollars of profits worldwide. It seems like the company has been making headlines for all the wrong reasons lately, a big shift from the media darling Apple used to be. 

The tax debate is important for Apple, especially when you consider that the company has about $100 billion in overseas cash. But the core challenge for investors isn't the tax debate, it's that Apple hasn't introduced new products and is allowing the competition to catch up. 

It's been more than 200 days since Apple's last major product announcement. Since then, Apple's stock has dropped like a rock, which generated a lot of headlines, and now the media focus is on Apple tax strategies instead of its products. If investors are going to buy back into the Apple story, the company is going to have to turn this trend around and return the focus to products. 

Falling behind in the TV market
This week, Microsoft (NASDAQ: MSFT  ) introduced the Xbox One, a gaming console that has the ability to become the entertainment hub of the living room. Microsoft took many of the capabilities Apple offers with AirPlay and through SmartGlass expanded them to allow Windows Phone, Android, and even iOS devices to control the Xbox One. It's basically everything the Apple TV could be. 

My concern is that Apple's long-rumored iTV will be so late to the market that Apple will miss out on a huge opportunity to define the living room and streaming markets before someone else does. 

Losing the lead in smartphones
Since Apple introduced the iPhone 5, Google and Samsung have had over six months to develop the next level of competition in the smartphone market. The Galaxy S4 was recently named Consumer Reports' top-rated smartphone, more validation for competitors to the iPhone. 

It's being reported that Samsung executives expect 10 million Galaxy S4s to be sold in the first month of availability, by far Samsung's best smartphone launch. Samsung may even come within shouting distance of the 27.4 million iPhone 5s Apple sold in the first quarter of availability. 

Tablet pressure from all sides
The tablet space is probably most concerning for Apple right now. Market share in the first quarter dropped to 39.6% from 58.1% a year ago, according to IDC. Samsung's share increased from 11.3% to 17.9% and Microsoft went from off the map to 1.8%. 

Apple's lack of new products has given smartphone makers, tablet makers, and even tablet-PC crossover devices time to develop without an Apple response. To change the narrative from disappointing earnings, competitors' new products, and now the tax debate, Apple needs to bring out some new products. Whether it's an iTV, an iWatch, or something else, the company needs to refresh its line for the sake of consumers and investors, who are afraid Apple is falling behind. 

Apple can still come out on top
The good news for Apple investors is that the company is very quick at launching new products. The Xbox One stole the show this week, but an improved Apple TV or new iTV could still launch before the new console hits stores this fall. It's too late to be ahead of the curve, but Apple could still wow investors with new products this summer. 

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

 


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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 May 23, 2013, at 11:49 AM, EquityBull wrote:

    This is what happens when a great CEO (Steve Jobs) is replaced by a mediocre CEO who should only be running the supply chain.

    Cook is not a visionary nor is he a motivator of his troops. It is solely his fault the narrative was lost and set wildly out of control. It is his fault for Apple maps as well as major product delays of past and I will bet again the near future.

    In Cook's defense he is trying his hardest but that is not good enough. I've seen too many co's go down the tubes in the tech space from a CEO like this. Unfortunately Apple's board will only replace him once it is too late. Think Sculley and Gil Ameilio.

  • Report this Comment On May 23, 2013, at 12:03 PM, Jjkiam wrote:

    I agree Cook has to put up or Apple's stock will take a header that even the buyback won't prevent. I can't fathom how it's going on 10 months by end of June and Apple Maps continues to remain dormant while Google has had announced 2 major Maps refreshes. We've been hearing rumors of an Iradio for over a year and now amazon and google have them and any Iradio is now going to look VERY late to the party.

    Then it is going on 9 months by the end of June between ANY product refreshes or introductions.

    And all TC keeps doing is telling everyone how excited he is about all of Apple's secret products in their "pipeline" while ALL of their competitors keep releasing newer products at a faster pace. What is going on with them? It certainly plays into the narrative that Jobs took all the innovation with him.

    I am an Apple shareholder and it is becoming increasingly hard to keep the faith. The WWDC better show some serious upcoming progress on the product, software, service front or the Bears will feast and the stock will head to 300 and then the major institutional holders might bail

  • Report this Comment On May 25, 2013, at 1:58 PM, Risky88 wrote:

    I wouldnt matter if jobs was still there

    every time a new apple product was about to come out there were lots of rumors what would be in it or what it would do, apple never delivered

    competitors did

    just a matter of time

    just like blackberry, adapt or die

    name of the game.

  • Report this Comment On May 25, 2013, at 3:34 PM, Mega wrote:

    Apple needs to update the products. The narrative will take care of itself.

  • Report this Comment On May 27, 2013, at 5:20 PM, erniemink wrote:

    I knew this was going to happen eventually. Their Safari browser is at the bottom and not very secure or current with standards Microsoft makes and keeps. Their phones and computers just do not cut it. Microsoft will always be king of technology. I use Windows 8 Professional 64-bit, Internet Explorer 10 and Windows 8 Nokia Lumina 925 phone. All beats Apple hands down, even on paper. And the Surface is better than the iPad. Sorry Apple, regardless of your stocks or not, you are poor and since Microsoft came into play many years ago, this has never changed truly.

  • Report this Comment On May 27, 2013, at 5:31 PM, Seanickson wrote:

    Theres only so far that apples same products can take them. Im typing this on my ancient ipad 2 but dont really see the need to upgrade and if so im not sure if id buy from apple or on the used market. Apple needs innovation but its tough to do much innovation when you have to worry about damaging your own cash cow.

  • Report this Comment On May 27, 2013, at 5:53 PM, will1946 wrote:

    They need to change much more than the narrative. They need to change their outrageous prices and their arrogant attitude. I wouldn´t buy stock in their company for anything. Their bad attitude is too engrained. When they change, I will consider it. For now, there are plenty of good companies out there who do not think their behind is made of gold.

  • Report this Comment On May 27, 2013, at 6:24 PM, Tomos1 wrote:

    The innovation vault is empty and there is no one there to rebuild it.

  • Report this Comment On May 27, 2013, at 6:46 PM, gttaylor55 wrote:

    How about a promotion "Buy our phone, pod, pad, laptop, desktop or stock. Receive advice from our accounts how you can save billions in taxes!

  • Report this Comment On May 27, 2013, at 7:13 PM, cash3p wrote:

    I don't see this as being anyone's fault. The public is just tired of paying inflated prices to carry around a "status symbol". I'm not anti Apple by any means, but I think people have wised up. They are switching to other products because they aren't as expensive and they all basically do the same things. It's the same reason I purchased a cheaper mp3 player that held 6 times the data for half the price of iPod Shuffle (years ago). The one I purchased was easier to operate, had more functionality, and I wasn't forced to use iTunes. Apple's whole wave of success has been based on innovation for sure, but some of its success can be attributed to hype as well. Unless they come up with something mind blowing and unique, they will continue to perform poorly.

  • Report this Comment On May 27, 2013, at 7:56 PM, OBXRon wrote:

    It's not the narrative...........it's not the CEO...........It's the arrogance in setting prices at a premium to other similar or better products.........Apple is not a "status symbol" anymore as noted by the previous author............Price your products competitively or DIE............!!! somewhat like what you are doing to the workers in China

  • Report this Comment On May 27, 2013, at 8:06 PM, OBXRon wrote:

    One additional comment:

    With the TVs available today...........who would buy an Apple iTV at a premium price ................TVs now practically serve you dinner while watching...........OK maybe not but What More would you want anyway??? We are already couch potatoes................What a TV that you don't even have to use your fingers for to eliminate even that "exercise"

    Apple will die with hundreds of billions overseas that they will pay off their executives but stockholders you get Naaaaaaaaaaaaaaaaathing

  • Report this Comment On May 28, 2013, at 8:14 AM, Rake80 wrote:

    So much negative sentiment about Apple. The stock must be a buy!

  • Report this Comment On May 28, 2013, at 1:27 PM, CoreAndExplore wrote:

    Better to take several years developing a truly ground-breaking technology to meet a need that isn't currently being met, than to rehash existing technologies and shove them down consumers' collective throats for continually diminishing rates of return and consumer interest. With the corporate culture that Steve Jobs took decades to implement, it would be foolish (not Foolish) to just write off Apple as just another has-been.

    Besides, Apple has bought itself a practically unprecedented amount of time with its enormous cash hoard and shareholder-friendly capital allocation strategy, not to mention timely $17 billion debt issuance (average yield below 2%).

    The supply-chain is slowly but surely being acquired and made completely proprietary, for greater efficiency, not unlike Amazon's continual cap-ex spending. And while margins will continue to contract for possibly another year, the largest hit to those numbers has already been felt. Additionally, Apple has yet to make a meaningful foray into emerging markets, and will likely make a deal with China Mobile in the not-too-distant future, gaining access to its 100+ million current 3g subscriber base (and 1.15 billion total subscriber base). Even if margins contract further, such a boon to revenues would more than offset that.

    Apple has done all of this so that it doesn't have to sacrifice quality for intermediate gains and short-lived stock price inflation - it has the financial and structural wherewithal to meet the consumer needs of the future. The current negative sentiment is not unfounded, it is just a bit narrow in scope. From this point, there are more catalysts for major upside than downside.

  • Report this Comment On May 28, 2013, at 1:30 PM, ddepperman wrote:

    If Apple fails to come out with something revolutionary, fairly soon, which is possible, but seeing the apparent foot-dragging over there, not likely, then apple's price will truly sink and it may become teemporarily a very high dividend paying failure. Temporarily, as it sheds value.

    Stevie Jobs was necessary over there to kick the foot-draggers in the arse. They have reverted to the bad old days, inter Jobs era. Can't someone please bring him back to life???????!!!!!

    They would need to come out with something possibly bionic to stay ahead of the herd, else they make microsfot look revolutionary.

    And Google has Kurzweil up its sleeve, either as a derringer or the ace of hearts. And they are now shuffling the deck.

  • Report this Comment On May 28, 2013, at 1:33 PM, mikecart1 wrote:

    The more negative the news about Apple, the better. I find it hilarious how some things never change.

    Apple is at $700 and everyone waits for $600 to "get in"

    Apple is at $450 and everyone waits for $600 to "get in"

    Simply hilarious. People wonder why they lose money and it is because they always buy at the top, never get in at all, or make things way too complicated.

    The question one must ask, "Is today's price of Apple as HIGH as it EVER will be?" If the answer is no, the answer is obvious....

  • Report this Comment On May 28, 2013, at 1:36 PM, CoreAndExplore wrote:

    Will earnings continue to contract over the next 5 years? Possibly, although I doubt it. Will earnings per share contract over the next 5 years? Definitely not. If you don't understand why this is so then you shouldn't be investing in stocks to begin with.

  • Report this Comment On May 28, 2013, at 1:38 PM, Teo123 wrote:

    The question has to be, "what is Apple?" Is it a technology company? Is it an electronics company? I don't see how it can be a watch company. Honestly. Terrible idea.

    I can understand how its tablets can continue to bury the competition. I can understand how its iMacs will continue to destroy all takers. These are great products. Perhaps they can be even more relevant to today's life. But, what the Street wants isn't earnings. Apple has that conquered. It seems to just want yet another revenue stream.

    And I think that between iPads, iPhones, iPods and iMacs and their related components, looking for this additional (watch, TV, mind) is dumb, not Foolish. It's trading at about 10 times earnings even as it dominates a tech sector that trades at closer to 16 times earnings.

    If I were a new investor, I would not buy Apple today because the large institutional investors are so unhappy with the already-ridiculous profit margin and revenue that Apple generates. And that is killing its stock price. It is a case study in irrational responses in the busines sector.

  • Report this Comment On May 28, 2013, at 6:10 PM, Mega wrote:

    "If I were a new investor, I would not buy Apple today because the large institutional investors are so unhappy with the already-ridiculous profit margin and revenue that Apple generates. And that is killing its stock price. It is a case study in irrational responses in the busines sector."

    The point of value investing is to take advantage of irrationality in market prices.

  • Report this Comment On May 28, 2013, at 7:27 PM, TMFBent wrote:

    Thanks for the larf regarding TV. Apple is a complete nobody in the space, so it isn't falling behind. Its maintaining its nobody position. Only Apple could get credibility and discussion for vaporware like this. Most amusing are the features rumored, which all appear in other places already. Xbox has had voice control and cross-platform search for more than a year now. Smartglass has been around for a long time too. The additions to One are incremental, and its only those who haven't been paying attention who should be surprised.

  • Report this Comment On May 31, 2013, at 4:23 PM, ian3021 wrote:

    apple iPhones are now available the same as Samsung 1€ on a 2 year contract.

  • Report this Comment On May 31, 2013, at 7:00 PM, robinathome wrote:

    It does not matter who is first to the party. You just need to have the right product. Was Ipod, Ipod touch, Iphone, or even Ipad first to market? No, they were all introduced much later in their respective market of MP3, PDA, smartphone, and tablet market. Where are Creative, Palm, Ericsson, HP or Apple Newton now? Apple need to introduce the right product that people want, so simple to use that grandma and grandpa can use. I like to play around with technology, experiment with gadgets. But when I wanted to give my mom and my wife's mom tablets, only the IPAD was considered.

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