Time to take profits in Apple
Unless the company starts to serve third-party resellers better, it will begin to lose market share.
By Thomas Kee, guest columnist
In all industries, across all demographics and within every business segment, one thing remains crystal clear. Businesses must serve their customers or their customers will go elsewhere.
In the case of Apple (AAPL), the demise of the growth rate of what was once one of the best on the planet is happening in front of our eyes. Unless Apple starts to serve its customers better, it will begin to materially lose market share and revenue and earnings projections will come down aggressively.
Until now, the focus has been on the end user. But because Apple relies so heavily on third-party resellers like Verizon (VZ) and Sprint (S), both of which are feeling margin contraction and negative effects on earnings because of the extremely high cost of iPhones, the real customers are third-party resellers. As long as margins and earnings are negatively affected by sales of Apple's products, those resellers will look for alternatives and eventually find them. Nothing could be clearer.
Apple’s products were revolutionary. They have changed the way most of us communicate, and we will never forget Steve Jobs for being the innovator that he was. But nothing in Apple's arsenal is compelling enough to command multiples as high as recent growth rates. Wall Street already sees this coming.
In addition, Apple is starting to look for recurring revenue streams in the cloud, which has characteristics similar to the service model that has kept IBM (IBM) in good standing throughout all recent market turmoil. But everyone knows IBM is just a slow-growing giant now.
Notwithstanding a complete failure on the part of Apple executives to continue to offer top-level products, I am not suggesting that Apple is going to fall into peril. But the easy money has already been made. The company's high-growth phase is behind it, and the struggles of the retail market are starting to come home to even this once seemingly unbreakable retail giant. Apple's confident attitude may be getting it into trouble, because it is asking too much from enterprise-level clients.
After a while, selling a $500 slight upgrade to consumers who are strapped for cash will not produce the same results. That is just the beginning. With stiff competition from all other handset makers, the wireless carriers of the world will also favor other options. They will offer incentives to customers to buy phones that add to their bottom lines instead of impairing them. The iPhones may bring customers in the door, so the carriers won’t ever stop selling them, but once customers are attentive, they will push other, sometimes even more innovative products.
It you own AAPL and you are expecting the company to grow like it has in the past, you are sorely mistaken. Apple is not what it was. The competitive landscape has already caught up with the company, which is not respecting clients' needs. Until such time as this changes, Apple is a sell. Look for single digit P/E multiples in 2012.
Thomas Kee is the president and CEO of Stock Traders Daily, the founder of The Investment Rate and the author of "Buy and Hold is Dead." He has never owned Apple shares.
It is hard to believe your lack of understanding of Apple, its products, and the nature of its market segment. I hope you will revisit your "conclusions" and opinions after the next couple of earnings. Apple's story is just beginning. As part of on organization that has over $50million invested in Apple, we certainly would never turn to your organization for advice. You are so wrong, it is almost laughable. Actually it is laughable, but don't believe me, wait 6-months or longer and then revisit your article.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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