That Apple (NASDAQ:AAPL) sparks headlines is a given. Once the world’s biggest publicly traded company by market capitalization, AAPL levers unprecedented influence on benchmark indices. However, with Apple stock down a shocking 35% since the beginning of October, it finds itself in unfamiliar territory: addressing a deeply-worrisome crisis.
And make no mistake about it: AAPL finds itself in a game-changing dilemma. To use a football analogy, it’s third-and-long deep into the second half. In the years after founder Steve Jobs’ death, the company has adeptly pushed the product narrative forward. Fan favorites, such as the Apple iPhone, witnessed compelling upgrades and strong demand.
But now, the smartphone’s latest iteration, the iPhone XR, represents everything that’s wrong with AAPL. In prior product rollouts, the company could depend upon rabid enthusiasm to drive up Apple stock. When that momentum stalled, it turned to its other businesses, such as the burgeoning services division.
Still, the reality is that the Apple iPhone is the organization’s bread and butter. Unfortunately, the iPhone XR has failed to do its job: provide budget-minded consumers with an attractive “fighter” model. With premium smartphones and digital devices becoming increasingly competitive, AAPL is stuck spinning its wheels.
If I were on the leadership team of either Microsoft (NASDAQ:MSFT) or Sony (NYSE:SNE), I’d be licking my lips. Here are three reasons why it’s time to hit the panic button on Apple stock:
U.S.-China Trade War is a Major Headache for AAPL
Obviously, the economic standoff between the U.S. and China presents the most worrisome headwind for Apple stock. China holds the biggest smartphone market in the world. When the Apple iPhone represents roughly two-thirds of total corporate revenue, geopolitical tensions in Asia is not what you need.
Even more problematic, the trade war now shows signs of worsening to fresh depths. Like a cornered animal, the Chinese government recently threatened to take Taiwan by force. Although such threats are not rare, the matter has taken on increased urgency due to the economic context. Moreover, the U.S. has an unofficial, but important, relationship with Taiwan.
For China, the aggressive posturing makes sense. It deflects attention away from the sanctions, which have hurt and angered Chinese citizens. Instead, the focus shifts towards sensitive nationalistic issues. Additionally, the move calls out the Trump administration during its vulnerable period.
This dynamic sets up a prolonged, nasty dispute between the top two economies of the world. Obviously, such a direction would impede the iPhone XR even further. It also risks the damage that we saw in Apple stock being only the beginning.
The iPhone XR Is a Mess
When discussing the current woes surrounding AAPL, a temptation exists to only focus on China. As I’ve mentioned above, the geopolitical tensions represent an extreme headwind. Nevertheless, even without the China troubles, Apple stock would likely face pressure.
That’s because the iPhone XR is itself a hot mess. When the company launched the fighter model, it was supposed to bridge the pricing gaps in the Apple iPhone. Apparently, management spent more time marketing the product than manufacturing it.
According to various consumer reviews, the iPhone XR suffers from a litany of performance and connectivity issues. In addition, frustrated customers have reported numerous electronic gremlins. The kicker is that AAPL is still working on solutions. Therefore, if you come across an issue, you must hope a third-party resource has your answer.
But just picking on this latest gaffe is myopic. Rather, if you own a significant position in Apple stock, you should consider longer-term risks. Although the XR is currently Apple’s lowest-priced smartphone, this is a relative statement. Priced between $749 to $899, I can’t call this product cheap.
When consumers are paying that much money, they expect a seamless, quality experience. Instead, they’re getting the exact opposite. Bad news often travels faster than good news. A rare, but critical miss for AAPL opens the door for Samsung, Sony, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and others.
Without the Apple iPhone, AAPL Is Lost
Prior to the October meltdown, Apple stock was the undisputed king of the markets. Currently, AAPL is ranked fourth behind GOOGL. I can understand the steep losses on a percentage basis. But why did the electronics firm slip so badly against its competitors? After all, almost every tech name has suffered in this corrective phase.
In my opinion, Wall Street knows that without their flagship smartphones, management doesn’t have great ideas. Of course, we can talk about the company’s other endeavors, but they don’t generate the same traction. For example, Apple’s venture into smart speakers has only impressed engineers. But in market-share terms, Amazon (NASDAQ:AMZN) and Alphabet have dominated.
As well, formerly vanquished rivals now smell blood in the water. Sony will soon launch its highly anticipated Xperia XZ4 smartphone. Every indication suggests that it will blow the doors off anything this world currently offers. With the iPhone XR reeling from an ignominious start, AAPL stakeholders have every reason to worry.
As of this writing, Josh Enomoto was long SNE.
