For more than ten years, Apple's
We've seen similar revolutionary companies with successful businesses and stock prices in the past. The one commonality is that they all, eventually, cease to become the darlings they once were. The phenomenon is two-fold. People don't blindly support the top dog for long, and competition takes aim at successful businesses, which limits upside and profit margins. There's a good chance Apple will head the way of many successful companies a decade ago: toward a lost decade.
Questioning Apple's practices
Until now, most people have blindly marveled at Apple's dominance in the smartphone and other markets because the few flaws the company has shown didn't seem to gain traction with the media. That narrative may be changing now that Apple's manufacturing practices are coming under increased scrutiny. The New York Times ran such a damning article last week that CEO Tim Cook felt the need to respond personally.
Whether or not allegedly poor work conditions at Apple supplier Foxconn are true isn't something I can comment on directly. What it does point out is the increased scrutiny on Apple, and which it will continue to come under as an industry giant with such a consumer base. We saw this when Nike rose to sneaker dominance. When people started to investigate the companies Nike used to outsource production around the world, some consumers began to think about sweatshop workers when buying Nike shoes.
Consumers often eventually turn on a brand when it becomes "too popular." These kinds of investigations can be the catalyst that drives consumers to question their allegiance to Apple.
Competition getting fierce
The biggest difference between Apple ten years ago and Apple today is the bull's-eye now on the company's back. A decade ago, the Mac was a computer reserved mostly for graphic designers and K-12 students. The iPod was a cute new music invention that had yet to really show that it would disrupt the entire music industry.
Now, Apple is a dominant player in smartphones, music, tablets, and has a growing presence in the PC market. The copycats and legitimate competitors are seeing the markets Apple has built as areas they can grow into as well.
The bottom line is that competition in Apple's core products will only get stronger. No one can match the quality, ease of use, and interconnection between these devices today, giving Apple a great competitive advantage, but the tech market adapts quickly and the switching costs will be relatively low for consumers in the future.
Law of giant numbers
The biggest thing that keeps me from being overly bullish on Apple's stock is a feeling that I've seen this before. I've seen companies reach such a level of size and success that it appeared no one could challenge them.
But eventually companies that obtain this size and success see their growth slow as they struggle to maintain current product lines and expand into new ones. While it seemed easy to take Apple from a single computer product line to a company with three major product lines (Macs, iPhones, iPads), expanding to six or ten major product lines will be much more difficult.
The same can be said for Dell
|Annual Return Last 10 Years||Annual Return Previous 10 Years|
Source: Yahoo! Finance
As a comparison, in the last ten years Apple has provided shareholders with a 44.1% annual return, tellingly similar to the comparison companies above.
Something to think about
None of this is to suggest that Apple will not be a major tech player in another ten years, or even not a successful stock to own. But history has shown that companies hit a wall at a certain point in their development. After remaking the music business, smartphones, and tablets, I wonder if that time could be now for Apple.
Agree or disagree? Leave your thoughts in our comments section below. Or, if you want to find out who our analysts think will cash while Apple and Google fight for smartphone and tablet market share then check out our free report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution." The report is free -- but only while it lasts.
Fool contributor Travis Hoium manages an account that owns shares of Apple and Microsoft. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
The Motley Fool owns shares of Amazon.com, Apple, Microsoft, EMC, Google, and Best Buy. Motley Fool newsletter services have recommended buying shares of Amazon.com, Microsoft, Google, Nike, and Apple. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Motley Fool newsletter services have recommended creating a diagonal call position in Nike. Motley Fool newsletter services have recommended writing covered calls in Dell. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.
More from The Motley Fool
Apple, Inc. Earnings: Why I'm Watching Guidance
Here's why Apple's guidance for its second quarter is so important.
Will This Be Apple's Biggest Mistake Since the Newton?
The Cupertino giant rarely makes a misstep, but when it does, it's usually dramatic.
3 Top Dividend Stocks to Buy in 2018 With Double-Digit Dividend Growth
Here are three market leaders with meaningful dividends, strong dividend growth potential, and a low-risk profile. Does it get any better than this?