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By LongHook
September 29, 2003

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Apple's market share is in long term decline

For the sake of argument, let's say that this is true. Does anyone feel that a company that is effectively treading water or sinking slowly is a good investment (as opposed to a trading vehicle)?

If that's the case, would an AAPL bear be "wise" to invest in long term puts on the assumption that Apple is destined to die? Or, with a less bearish outlook, what about a strategy of purchasing a long-term collar on the assumption that Apple is basically going to be treading water for a long time?

Part of me feels like Apple is dying a slow death, and no one is noticing because Apple still manages to stay relevant in terms of mind share and profitability through hype and clever manipulation of the numbers -- but at some point that has to catch up to them, right?

So you could buy, say, Jan 06 PUTS @ 20 and expect to do well even if Apple just hits, say, 14 between then and now (and then-now is a pretty long time). I've known people that adopted similar strategies for SUNW and INTC and made a huge amount of money on the bear market, and they were relatively conservative in their estimates.

Another part of me thinks that Apple isn't going anywhere, and that it has carved out a significant niche for itself similar to the (too often repeated) analogy of Apple to a luxury carmaker.

The things that scare me the most about Apple are:

* a slow migration of key Mac apps to the Windows

* slow but steady user migration to Windows (this isn't done in waves, but very slowly as former Mac users are forced to upgrade and decide to switch to PC one at a time)

* another big transition point (to G5) that will slow adoption as developers struggle to keep up

* discontent of System 8/9 users that won't upgrade because they feel OS X is inferior (this is anecdotal, but a lot of the designers I've talked to refuse to move to OS X until ALL their Photoshop and Illustrator plugins are available)

* a lack of new interesting products from outside of Apple

* Apple's inability to maintain a constant relative price differential compared to PCs. It's okay to cost more than PCs, but the price gap needs to stay relatively constant, and it doesn't seem to be.

Here's maybe a more succinct way of looking at it: is Apple more likely to grow or shrink in sales and expenditures in the next three years? If Apple doesn't look like it will be growing, will they be able to contain costs and remain competitive in the PC environment, even though Apple must assume the costs for myriad tasks that PC vendors do not?

-Hook


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