The share price of Apple Inc. (NASDAQ/AAPL) has been on a steady decline since trading at $705.07 on September 21, 2012. There are questions swirling around regarding the ability of Apple CEO Timothy Cook to deliver the superlative revenue growth traders have been accustomed to in the past. But with the rise of Samsung Electronics Co. Ltd. and “Android”-based phones and tablets, the competitive environment has tightened; Apple will need a “Plan B,” according to my stock analysis.
The declining revenue growth is an indication that Apple may be in trouble. According to analysts polled by Thomson Financial, Apple is estimated to grow its revenues by 22.2% in fiscal 2013 and fall to a mere 15.1% in fiscal 2014. My stock analysis shows that these are not growth metrics investors are paying for; rather, they pale in comparison to the 70.0% and 80.0% growth seen in 2011. The same goes for the chipmakers that need to shift their focus to the mobile market. (Read “Why Chipmakers Need to Focus on the Mobile Market.”)
My stock analysis suggests that Apple needs to do something other than just launching new “iPhones” and “iPads” to drive revenue growth. CEO Cook has visited China on numerous occasions—and trust me; he is not there to visit the Great Wall or Tiananmen Square. With about a billion mobile phones in the country, my stock analysis suggests that Apple wants a piece of the action, and the company realizes that selling $600.00 iPhones won’t cut it. Heck, even a $300.00 iPhone would likely be too high for the masses, based on my stock analysis. Of course, this is if Cook wants to dominate the Chinese market, which I believe he does, based on my stock analysis.
Now there is speculation that Apple is developing a cheaper iPhone to be launched later in the year, according to the Wall Street Journal. (Source: “Apple Said to Develop Cheaper IPhone Model for Late 2013,” Bloomberg Businessweek,January 9, 2013.) If true, my stock analysis says that this strategy would make sense, as Apple needs to sell much cheaper phones in the emerging economies, and then hope that these buyers eventually upgrade to the company’s more expensive products.
Samsung and Nokia Corporation are already selling cheaper smartphones in China, so my stock analysis shows that it’s not rocket science to surmise that Apple would follow suit. The problem I see is the price point for the cheaper iPhones. According to my stock analysis, the cheaper iPhone would need to have a major haircut in price. Of course, Apple also needs to consider the margins for the selling price. Too low and margin erosion occurs; too high, and no one buys it.
What I sense is that Apple will likely do venture deals with China’s major mobile operators and try to sell the phones in a way similar to what we see in the U.S. If a customer opts in for a two- or three-year plan, the price of the phone falls, and Apple makes money on recurring revenues.
The bottom line is: Apple needs to do something new to drive new streams of revenues and help foster growth towards what it used to be.