Shares of Apple, formerly the world’s most valuable company, have lost more than a third of their value since September, tumbling from a high of US$705 to below US$450. Investors are concerned that Apple has suddenly lost its mojo just as competition facing its flagship product—the iPhone—mounts. Last week’s quarterly results, though not shabby by any stretch ($13.1 billion in profit on $54.5 billion in sales), did little to change anybody’s mind. Analysts were hoping to have their expectations surpassed. Instead they were barely met.
But just because Wall Street is experiencing a crisis of confidence doesn’t mean Apple should, too. The runaway success of the iPhone, which accounts for nearly half of Apple’s sales, has spawned a host of imitators. Korea’s Samsung, in particular, has managed to capture 30 per cent of the global smartphone market (compared to Apple’s 21 per cent), thanks to an impressive lineup of iPhone-like devices—several of which sell for less than the iPhone’s $700 price tag. In China, the iPhone is even being outsold by devices made by a local company called Coolpad.
Many observers are now suggesting Apple should respond with a cheaper iPhone. But such a strategy is far from foolproof. Apple’s business is based on building better products, not cheaper ones—hence its industry-leading profit margins. The famously secretive company is offering few clues as to its intentions. A recent report in a Chinese newspaper quoted Apple marketing head Phil Schiller saying the company would not make a cheaper phone just to boost market share. It was later revised to say that Apple’s goal is to make “the best products” and would “never blindly pursue market share.”
Either way, the market’s concerns about Apple’s future seem overwrought. RBC analysts Amit Daryanani and Mark Sue argued in a recent report that Apple, far from being in dire straits, is simply making the “shift to a more normal growth company.” Then again, Apple might just keep doing what it’s best at: developing game-changing new products like the iPod, iPhone and iPad.