On September 14, 2012 and immediate after the
lackluster reception of the new Apple iPhone 5 by, I wrote:
Although the critical
reception has been moderate, I still expect the iPhone 5 to be an immediate
sales monster that will probably bring a very good Christmas season for Apple.
Apple has wealthly and extremely loyal customers that want to be seen with the
latest products from this powerhouse brand. What could go wrong, you would
ask?!
Nevertheless, it seems
that the true magic in Cupertino has gone. Just like I already predicted in
2011, ‘Apple has become a brand a little bit more ordinary’.
The deadliest remark
on the new iPhone 5 was that of Adam Leach: “the surprise was that there was no
surprise” (see second red quote). Tim Cook’s desperately optimistic words “What
places Apple way out in front of the competition is how they work so well
together[…]", suddenly seem nothing more than cheap marketing babble.
Does this mean that
the iPhone 5 is “just another smartphone” and Apple “just another brand”? In a
sense, yes. People, to start with the critics, expected a miracle from the new
Apple iPhone, but received a beautiful and probably very well-built smartphone
with a number of new features. But a miracle?! No way, sir.
I expect the aura of
magic to slowly disappear from Apple in the coming years. Tim Cook seems definitely
not a magician like Steve Jobs was. The good news is that the brand will
survive, without a doubt. The bad news could be that the shareholders might
have to accept a lower future stock rate for their $669 Apple shares.
The iPhone 5 did become the sales monster that I predicted
in the aforementioned article, but the second half of my prediction – that it
is just another smartphone – seems also to be true.
At the beginning of this week, the aura of untouchability of
Apple started to flake seriously as a consequence of the somewhat disappointing
sales figures of the iPhone 5. These sales figures, although still very good,
have been so much disappointing that large shipments of small HD screens from
Sharp had to be cancelled. The Financial Times wrote on this story:
Is iPhone maker so
large that usual rules of growth and valuation do not apply?
Apple has cut
first-quarter orders for iPhone 5 screens by half from their original levels,
according to “people familiar with the situation”.
Assuming the reports
are true and demand-driven, how much does the stock stand to be hit? Part of
the pitch on Apple is its astonishingly low valuation: its trailing
price/earnings multiple stands at a remarkably cheap 11 times. That may suggest
that a sharp slowdown in growth – sales expanded roughly 25 per cent year on
year in the past two quarters – is priced in. Analysts are more bullish: they
expect 22 and 15 per cent growth in the next two years, without much margin
compression.
Here is a less comforting
thought: Apple is so large, is already such an important part of virtually
every equity portfolio, that the usual rules of growth and valuation do not
apply. In that case, we really are in unfamiliar territory.
I skipped a few lines of this unusually weak article from the
FT, in which the reporter complains that he knows so little about Apple,
because the company spreads so little information about itself. I thought that reporters were there just to find out missing information after all in such cases; not to sulk about not having found it.
However, the conclusion seems to be spot on. I also don’t
believe that the Apple stock will show much growth anymore. To the contrary,
the stock might lose some more of its rating.
I have the following reasons for these conclusions:
- The market for smartphones might become saturated very soon. Especially in the western countries, Japan and Russia, everybody that wants a smartphone and can afford one, has already a smartphone. The current smartphones are already very good and many smartphones are already prepared for 4G reception. Why bother to buy a new one?!
- Apple’s magic has indeed gone in my humble opinion, turning it into a much more ordinary brand.
- The legal battles between Apple and Samsung seem more and more like a catfight between Nicki Minaj and Jennifer Lopez. There is something at stake indeed, but in the end you are bored to death with the useless brawls! By doing so, the brand runs the risk of losing sympathy from its customers, turning wins in these legal battles into pyrrhic victories.
- Apple products are much overpriced, when you compare them with the smartphones and tablets that the (fierce) competition produces. Brands like Samsung, HTC, Sony and Huawei seem to offer phones of equal quality and ergonomics for a much more competitive price. Even the despised Nokias (with Windows 8) and Blackberries could be back with a vengeance very soon. When the customers will use their brains, they will start to look for a good phone for the best price: not the phone of the A-brand for the worst price.
- More and more people who care for the environment and human rights (those are really not only the treehuggers) will look Argus-eyed at the situation at Foxconn, making this infamous Chinese manufacturer a possible liability for Apple. In my opinion: If you must pay $800 for an iPhone, then you will expect that it is created under near-perfect circumstances for the Chinese workers. Regular readers of my blog know that it hasn’t been like that until last year unfortunately.
I will finish with my September, 2012 prediction about the
stock rate: The bad news could be that
the shareholders might have to accept a lower future stock rate for their $669
Apple shares.
If people have been bold or reckless enough to follow this non-advice and short the Apple stock in
September 2012, they would read this article with an emphatic and happy smile,
as you can see in the chart, courtesy of Bloomberg:
 |
| Stock rate development of AAPL during the last 6 months Chart courtesy of Bloomberg Click to enlarge |
This article reflects
my personal opinions and should not be treated as an investment advice!
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