Apple’s Shocking Drop in Market Share; What It Means for the Stock

Apple’s Shocking Drop in Market ShareOf the most often discussed technology stocks, Apple Inc. (NASDAQ/AAPL) is usually the biggest topic of conversation. While many have done well looking at technology stocks as a core investment strategy, one must be aware that shifts in the consumer market appear quite rapidly. This means that technology stocks as an investment strategy are not simply buy-and-hold; some adjustments need to be made periodically.

As I mentioned several times, it appears that Apple is now playing catch-up with competing technology stocks. For a long time, Apple had a strong investment strategy built on the fact that it was introducing revolutionary products to the market. Over the last year, its products have actually been playing catch-up with the products of other technology stocks that have introduced new leaps in innovation.

One of the areas of Apple’s strength was in the tablet market. However, Apple is now losing significant market share to competing technology stocks. International Data Corporation recently came out with a third-quarter report, stating that Apple’s share was only 50.4%, versus just under 65.5% during the second quarter of 2012. (Source: “Android Tablets Gain Momentum in the Third Quarter, Expectations Remain High for the Holiday Quarter, According to IDC,” International Data Corporation, November 5, 2012.)

The report also states that it believes the high price for the “iPad mini” will open the door for other technology stocks to continue building on their market share gains. With the investment strategy of premium pricing to maintain high margins, Apple is making a risky bet that consumers are willing to be locked into its ecosystem and pay a premium to do so. With other technology stocks creating products that are comparable to Apple’s at lower price points, this is becoming an increasingly risky bet. For Apple to maintain its share price, it would need to turn this negative trend around. With technology stocks coming out with even better products over the next couple of years, I see the landscape becoming far more commoditized, with more choice for consumers and lower profit margins for all technology stocks in this sector.

Apple Inc Chart

Chart courtesy of www.StockCharts.com

As I warned my readers in the article “Don’t Trade Apple Until You Read This,” if the stock were to break support, which at that time was $625.00, the stock would fall to its 200-day moving average (MA), which was $579.00. With that move completed, the quick and easy money is over.

At this point, we need to see some basing occur before any uptrend is to resume. With the lackluster reviews for the iPad mini and its steep price, along with the current report showing the dramatic decline in tablet market share for Apple, I think it will be extremely difficult for the stock to regain its highs anytime soon.

Note that the end of the year is usually a strong period for sales for Apple. However, if other technology stocks have been able to make inroads in the consumer market and Apple misses its guidance levels, the stock could be in for additional decline. At this point, following my recommendation to sell on a break below $625.00, I would take my profit and step away from the stock, waiting for a clear picture to emerge.