I’ve never been shy about sharing my admittedly unpopular opinion of Apple (NASDAQ:AAPL). I like the company’s products, and I respect how well the organization has grown the top and bottom line. However, I don’t think the company walks on water, and that has made me something of the minority voice.
Apparently I’m a glutton, though, because I’m getting ready to repeat myself … only this time, I’ve got some clearer support for my thesis.
Apple Deified, Then Crucified
Just to get this question out of the way: No, I don’t have a short position in AAPL. I just have a low tolerance for hyperbole, and Apple has been surrounded by it — most of it bullish — since the beginning of 2012.
It’s not hard to understand why. iPhone mania was in full swing following the introduction of the iPhone 4S in October 2011, and the third-generation iPad was introduced in March 2012. Soon, Apple-branded products were everywhere and dominated their respective markets. AAPL’s earnings began to soar, too, from fiscal 2011’s per-share profit of $27.68 to the recently-ended fiscal 2012’s bottom line of $44.15 per share — a 59% improvement. Accordingly, AAPL shares gained nearly 80% in just the first nine months of last year.
Year-over-year earnings were growing like crazy, and the leadership transition from Steve Jobs to Tim Cook appeared to be happening flawlessly. It didn’t look like it would ever end. By all accounts, it was a perfect situation for investors. Investors — and the media — ate it up.
As is all too often the case, however, the story and hype became bigger than the company itself. Apple was deemed perfect — and that perfection should have scared the daylights out of everyone.
Reality: No company can dominate any market indefinitely. Some lead longer than others, and there’s no arguing that Apple has set the standard when it comes to smartphones and tablets. But when there’s enough money on the table (as there is here), competition eventually sneaks in. Eventually, fads and trends become passé. Eventually, investors just get bored with the story.
All three began happening a few months ago, and shareholders have paid the price.
Just Your Average Apple
Yeah, it’s easy to kick Apple while it’s down following recent reports that it halved its orders for LCD screens from Sharp (PINK:SHCAY) and LG (NYSE:LPL), perhaps pointing to waning demand for the iPhone 5 (or perhaps not). I’m not jumping on that bandwagon, though.
Heck, I’ll even come to the company’s defense and point out that Apple likely shipped 35 million iPhone 5’s in the fourth quarter — give the company a break already.
That’s not my point. My point is bigger than that.
Apple has become just another consumer technology company.
(Cue the cursing and throwing of cabbage.)
Just to be clear, Apple’s not a bad consumer technology company … the thrill is just gone. Apple still is a solid investment. Apple still has a great product base. But there are only so many iterations of a product that you can unveil until the next one becomes ho-hum.
The iPhone 5 was and is an engineering marvel, but the difference between the iPhone 4S and the iPhone 5 wasn’t nearly as big as the difference between the iPhone 4S and the iPhone 4, which wasn’t as dramatic as the different between it and the iPhone 3 … you get the idea. The iPhone 6 (which is an inevitability) might well be the one that people consider too much like its predecessor to bother with an upgrade.
The iPad is following in the same footsteps. When the first one was introduced in April 2010, consumers were blown away. The second-gen iPad was unveiled in March 2011, and was warmly received, too. The third iteration was introduced by Tim Cook in March 2012; the market was modestly interested. The fourth-gen version was introduced in October 2012, and many consumers didn’t even realize Apple had updated the tablet.
See, consumers care about innovative leaps more than the technological ones.
To give credit where it’s due, the iPad Mini stirred the pot relatively well when it debuted in October. But with the Kindle Fire from Amazon (NASDAQ:AMZN) and the Nexus 7 from Google (NASDAQ:GOOG) already well entrenched in that lower-end market, consumers were increasingly less impressed by that new Apple product.
The Boring Reality
Consumers fell in love with Apple because Apple gave them something they’d never seen before, and did so with style — twice. Without any other game-changing products on the horizon, though, it’s tough to see the company continuing to “wow” consumers (Apple TV sure isn’t going to do it).
Thing is, it was Apple’s popularity with consumers that made it such a hit with investors. Now that iPad and iPhone euphoria is fading, it’s becoming just another tech name.
You could do worse, but you could do better, too.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.