Once the darling of the tech world, investors long on Apple (NASDAQ:AAPL) watched the stock price slide from a Sept. 2012 high of $705.07 to an April 2013 low of $385.10. Earlier this week Apple earnings blew through Wall Street’s estimates and the stock is currently flirting with the $600 price ceiling. But rivals Samsung (SSNLF) and Google (NASDAQ:GOOG) continue to make significant inroads into Apple’s existing markets while carving out new niches for their products. In order for investors to look at Apple as a long term buy, the company must take the lead in developing innovative products and tap markets it has previously shunned.
Release Meaningful Updates
Instead of releasing new products, Apple released iPhones that were too similar to earlier models. Case in point is the differences between the iPhone 5 and the iPhone 5C. The iPhone 5C is basically an iPhone 5 with fluorescent case colors and an A7 processor instead of the iPhone 5 A6 processor. Meanwhile, Samsung’s Galaxy S4 has four processor cores compared to the iPhone 5’s two cores. The Galaxy S4 also has 2GB of RAM compared to the iPhone 5’s 1 GB of RAM. When compared to Samsung’s Galaxy S4, the iPhone 5C upgrades did not justify the fanfare associated with an Apple product release.
- Warning! GuruFocus has detected 7 Warning Signs with AAPL. Click here to check it out.
- AAPL 15-Year Financial Data
- The intrinsic value of AAPL
- Peter Lynch Chart of AAPL
Stop Playing Catch-Up
Instead of leading the smart phone pack, Apple is playing catch up. In April 2013, Samsung released the Galaxy S4 which features a 5” screen. But when Apple released the iPhone 5C and 5S in September that same year, both phones featured 4” screens. Although Apple’s iPhone 6, tentatively scheduled for release sometime this year, is rumored to have a 6” screen, the company has yet to release an iPhone with a larger screen. At a minimum, Apple must keep pace with its competitors to attract new customers and keep current ones.
Tap New Markets
Apple shunned low-end markets in favor of targeting more affluent markets. Samsung, along with HTC, Blackberry (NASDAQ:BBRY) and LG Electronics, were happy to provide consumers with low-cost reliable smartphones in developed and emerging countries. Nokia, which was just bought by Microsoft (NASDAQ:MSFT), remains the top cell phone seller in Africa followed by Samsung. With only 17% of sub-Sahara Africans owning cell phones, Microsoft is ideally positioned to capture this wide open market.
In contrast, Apple pinned its hopes on the Chinese market and obtained mixed results. According to analytical company Umeng, which is based in China, the iPhone 5 is the most popular model with 15% of the market. The iPhone 5S has a 12% market share while the iPhone 5C has a disappointing 2%. When added to China Mobile’s slowing demand, Apple ma.y face new difficulties in developing the Chinese market.
Buy, Sell or Wait?
There is no arguing that Apple, sitting on a cash reserve of over $1billion, is an incredibly successful global corporation. The knack Steve Jobs had for knowing what consumers wanted in personal electronics and answering those needs is currently lacking. Although financial wizards like Carl Icahn (Trades, Portfolio) and Wall Street analysts are screaming “Buy”, Apple must get back to business and solve its internal problems. To avoid getting stung by another 2012-2013 price meltdown, investors may want to wait until after the stock split to purchase Apple stock at a bargain price.