Good Artists copy, great artists steal. We have always been shameless about stealing good ideas. That is Apple (NASDAQ: AAPL) founder Steve Jobs in a 1996 interview fusing the mantra of Pablo Picasso with his own company's somewhat questionable stance on intellectual property. All the way back to Apple's infamous IP spat with Xerox in the 80's, Apple has a history of hijacking technological innovations. Apple's decision to sue HTC and eventually Samsung over patent infringements was a bigger indicator of the state of affairs at Apple than anyone would have been able to predict.
In the summer of 2010, after growing increasingly frustrated with Verizon's inability to secure an iPhone deal, I jumped ship and signed a contract with AT&T to finally get my grubby hands on an iPhone 4. I can say sans hyperbole that the phone changed my life and left me with extremely high expectations for the 5. My barber really nailed the iPhone 5 review at my last haircut; she had jumped from the 3GS to the 5. When I asked her how she liked the phone she said with some hesitation, it's really light! Her upgrade was a 3 generation improvement and to her it was nothing more than 3 years of crossfit and a paleo diet for her 3GS. My barber's response exposes the biggest problem facing Apple today: the inevitable slide of its flagship lines down the product life cycle (PLC) curve to the Maturity and Decline phases.
With the launch of the iPod in 2001 Apple created a major disruption in both the music industry and the portable audio player industry officially shifting its business solely from computer manufacturer to a much broader technology platform. Mobile devices, broadly categorized as iOS devices due to the operating system they run on, now account for the overwhelming majority of Apple's sales. As shown in the chart, iPods have slipped all the way down the lifecycle curve with much of the consumer necessity of its functionality being gobbled up by the iPhone and iPad. Last quarter Apple sold 19% less iPod units than a year prior and accounted for around 5% of total revenue. Growth of the iPad line continues to be strong with most recent filings showing a 58% increase from a year prior but was still lower than Wall Street's ever stiffening expectations. Further emphasizing the iPad's ascent of the PLC is the time between upgrade releases. The iPad 2 and 3 averaged 352 days between releases while the iPad 4 and Mini simultaneously launched only 230 days after the release of the 3rd generation model. Apple also shamelessly withheld product iPad Mini specs, namely the processor from the iPhone 4S and a non-retinal display screen, to take advantage of holiday shoppers that yearned for a smaller device while leaving room for a no-brainer product upgrade in early 2013.
Upgrades to the iPhone line have been more or less a year apart most likely due to the nature of 1 and 2-year cellular contracts (customers are most likely to upgrade when contract is up). This chart from Business Insider shows the sales weakness of the 5's release weekend. Also, Apple stock slumped in early December following reports that the phones Chinese release was weaker than expected.
The deceleration of flagship products is only one of the worries stealing from the retail investor at night. Apple has become the favorite stock of Hedge Fund managers, with as many as 230 hedgies parking money in the company. Their presence makes momentum trading a huge factor and day-to-day movements will have the retail investor pulling his hair out. The overall trend of the stock is not good. Almost exactly $200 has been shaved off the stock since its high earlier this year and itâ€™s trading at a 6 month low. On December 7th Apple's chart engaged the dreaded death cross, the technical trend in which the 50 Day Moving Average falls below the 200 Day Moving Average and it has been free falling below it ever since. See the chart courtesy of Yahoo! Finance.
Albeit it unquantifiable, Apple has seemed to have loss its coolness factor as well. Consumers aren't pursuing its products with the same ravenous lust they were previously. This was underlined by the well-documented Apple maps fiasco that required an apology from Apple CEO Tim Cook and rolled out the red carpet for Google to ride in on a white horse to save the day with its Google Maps. Google's map application had been a staple of previous iterations of iPhone and iOS but was kicked off the device for iOS 6.
With all this said, the Apple is bruised not rotten. The company holds a $60BB war chest abroad in revenue that could be collected and invested at any time. Further, international revenue accounts for 60% of total. Murmurs of an Apple TV grow ever more ubiquitous as Apple has met with its suppliers and held closed-door meetings with cable companies. To be sure, the cable companies have learned from the music industry and will not sign away their profits to strike a deal the same way music did with the arrival of iTunes. Despite its first Wall Street miss since 2006 Apple continues to rake in the cash. Its next product innovation, be it a TV or otherwise, will define the long-term valuation of the company. In order for the shares to return anywhere close to $700 it will have to unveil this new product. I have lost a lot of confidence that the idea of an Apple television has legs and think the company is more likely to settle for a set top box that builds on its current AppleTV product (not to be confused with a physical television, this product is a portal to iTunes content as well as YouTube and other websites). The lawsuits against Samsung and HTC in recent history of shown that Apple is very aware of their weakened market position and the impending necessity to innovate. In the next 6 to 12 months Apple will either announce an amazing new product and reclaim its spot as the greatest company on earth, or it will settle in as just another blue chip tech company like the Microsofts of the world riding profits from its iOS devices.