Books written by Ray Sullivan

Thursday, 24 January 2013

Why Apple Shares Fell

Four months ago, Apple shares stood at over $700.  Today they sit at about $460, one heck of a drop. Given they've sold more iPhones in the last quarter than in any previous quarter that seems a little mean.  It's affecting their suppliers, too, including Samsung who spend half their time defending themselves in court against Apple.  Perhaps Apple have found the way to wipe the smile of Samsung's face?

Related stories - How many lawyers does it take to design a phone?,  Apple Samsung battle reconmences,     Apple case weakens

But all of this is unlikely to be the reason the shares fell.  Litigation aside, Apple have been extremely industrious the last quarter in introducing the new iPhone and the iPad mini.  Both have sold well, unfortunately not well enough to satisfy the money merchants but better than most normal people might expect in such a tough economy.

What won't have helped would have been the problems associated with the latest incarnation of their iOS, especially the mapping app that didn't work.

Related stories: Apple told to get lost, Apple to buy Tom Tom

However it's market expectations that they have fallen foul of, something I suggested semi-mockingly in a couple of posts (OK, I was actually taking the p*ss about the obsession with queues forming for new Apple products that actually became accurate, but mainly because Apple decided to market the iPad mini on the internet so aggressively that it likely affected their Apple Store sales).

Related Stories: Apple queues 'disappointing' say analysts, Apple and Gap to merge

And no, I don't think bloggers taking the micky out of Apple influenced the market.  Not much, anyway.

The real reason the share price is now a third lower than it was four months ago is twofold.

First, the price four months ago was too high.  I said that when it started falling - see Apple shares dive south

Second, Apple products are too expensive.  Sure they're selling, even breaking records, but the rate of increase in sales is slowing to a point that the money people recognise as a change in direction.  In calculus we call this the point of inflexion, where a curve changes direction on an axis.  Next quarter they will sell less than before.  Their competitors are catching up rapidly, the tablet computer is no longer a unique offering and the Apple customer base is starting to look static compared to Android.

The share price will sort itself out, so no offers of advice needed there (apart from think carefully before buying, but probably they are close to the right number now).  Apple need to look at dropping the price of its premium products if it wants to attract more new customers to the fold, otherwise Android based products will mop up new customers instead.  Selling the iPad Mini was a brave move as it allowed access to Apple for less than the standard iPad, but it is still a significantly more expensive item than its Android competitors.

My guess is that the rumoured cheaper iPhones will arrive this quarter along with cheaper full sized iPads by summer.  Let's wait and see.


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