Apple (NASDAQ:AAPL) has been giving bulls fits in recent months, and everyone seems to have the secret recipe of what will get the world's most valuable consumer tech company back on track.
ISI Group analyst Brian Marshall was on CNBC, boiling down what Apple needs to do regain its swagger to three simple points:
- Apple needs to put out a 5-inch iPhone to compete against Samsung's Galaxy S4 and other Android handsets that make the iPhone 5 seem puny in comparison.
- There has to be a low-cost iPhone so Apple can compete in overseas markets where the company's market share is much lower than it is here.
- Apple needs to become more aggressive in returning cash to its shareholders.
Putting three bullet points on the firing line
The latest reports out of Asian suppliers aren't very encouraging in tackling the first point. Sources are telling The Wall Street Journal that production on the next iPhone will begin this quarter for a summertime launch, but the new device is the same size as the iPhone 5.
Marshall warns that every manufacturer outside of Apple at the Mobile World Congress earlier this year had a 5-inch smartphone to show off. Apple may be a year away with a response if it lets this window slip away.
The low-cost iPhone is more likely to happen this year. The chatter is growing, and countries where wireless carriers aren't willing to fork over more than $300 in subsidies need a cheaper solution badly. The big challenge for Apple is to get the balance right.
When the market wanted a cheaper iPad, the iPad Mini wound up cannibalizing sales of the larger tablet at a price point 34% lower than the full-sized iPad.
At a time when even the latest iPhone lacks features found in the latest Android devices, it's not as if Apple can afford to scale back on the spec sheet.
As for returning more money to its shareholders, everyone outside of Cupertino is stumped why Apple hasn't come through with a dividend increase. It has the money. It's not spending it on acquisitions. The aggressive buybacks and dividend-hike announcement can't come soon enough.
That might be enough to settle Apple bulls down, but is that enough? Apple could really be doing so much more.
Missing from Marshall's three points is the need for innovation.
Marshall is bullish on Apple. He has a "Strong Buy" rating and a $600 price target. In order for Apple to get there it's going to need more than a larger iPhone, a cheaper iPhone, and a fatter yield.
Apple needs to start delivering on the chatter. The iWatch, Apple HDTV, and even the iRing may amount to little more than wishful thinking, but it's now been three years since Apple's last bar-raising introduction when the first iPad hit the market.
Why stop there? Why not start invading the turf of others?
Google (NASDAQ:GOOGL) has championed Android as the open-source platform of choice to make sure that it doesn't lose market share in mobile search. Who is Google going to lose it to? As the world's second most popular mobile operating system, isn't it time for Apple to enter the paid search market?
Microsoft (NASDAQ:MSFT) has been butting heads with Apple longer than either company has been trading blows with Google. There's no point in going after Windows. Macs only partially benefited from the halo effect of Apple's iPod, iPhone, and iPad successes. It would be going after the wrong enemy, since Google's Android or Chrome will probably be the operating system of choice a decade from now. The one area where Microsoft is leading is in video gaming, where its Xbox 360 has been the best-selling console in this country for more than two years. Apple has ushered in the era of social and casual gaming, but isn't there a play to be made for diehard gamers at a time when there's a lull between console generations?
There is so much that Apple can do to win back its mojo. The only thing it can't do is stand still.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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.