I have tried to maintain a mildly bearish/neutral stance on Apple (AAPL) as it has become clearer that the smartphone is destined to be a commodity product at much lower ASPs than what Apple commands today (~$600). However, the fundamental thesis that Apple bulls have maintained is that Apple still keeps the lion's share of the profits in the smartphone business looks as though it is about to crater. If I were an Apple shareholder, I would pay very close attention to the threat from Samsung.
The Samsung Galaxy S IV Launch Eclipses The iPhone 5 Launch
The Samsung Galaxy S IV was launched on 3/14, and when it comes to "innovation", Samsung brought it to the table in spades. While Apple tried to pass off a buggy maps app, a slightly longer screen, and a faster processor as the "next big thing", Samsung goes well above these attempts as it updates its already solid Galaxy S III baseline with the following:
- "Airview" which allows the user to interact with the phone without actually touching the screen
- Gesture controls
- Micro-SD removable storage (not really "new", but Apple still doesn't have it)
- 1920x1080 resolution (Apple's iPhone 5 sports a 1136x640 display)
- 13 megapixel camera (and both the front and back cameras can be used at the same time)
- Built in pedometer
- Humidity/temperature sensor
- Lots of other interesting, if slightly gimmicky, features
Could Apple implement all of these features? Sure, and I suspect that the iPhone 5S or 6 will incorporate a lot of these features. But the point is that Apple wasn't leading the charge here. Samsung's launch was flashy, filled with excitement and pizzazz, and made it abundantly clear that this particular phone is going to be marketed quite heavily as the phone to get. Given that the Samsung Galaxy S III was such a solid success, selling about 40 million units since its launch even during the height of the Apple-mania, I would expect the Galaxy S IV to be an even bigger success.
So, a big worry is that Samsung will accelerate the pace at which it is eating into the higher end smartphone market with the Galaxy S IV. However, the flashiness and "aura" of the Galaxy S IV will probably also drive demand for the last-generation Galaxy S III for more cost-conscious buyers, which could eat into market share and/or drive down margins for Apple on the lower end products as well. In short, Samsung is sure trying to make it seem like it's got the "next big thing", and when it comes to technology stocks, perception is everything.
The Floodgates Have Begun To Open From Other Vendors
It's not all just Samsung, although they are the current non-Apple smartphone vendor with any real credibility with the consumer. HTC recently released, to quite high praise, its "HTC One" phone. Then there's the added pressure from Nokia's (NOK) Lumia 920, BlackBerry's (BBRY) Z10, and the Google (GOOG)/LG Nexus 4 phone. That's not even counting Lenovo's (LNVGY.PK) K900 (but Apple gets a break as that's not available in the US), and whatever ZTE and Huawei have cooking up as they gain international popularity.
In some sense, I'm almost in agreement with Apple's apparent strategy to avoid the low end in order to concentrate on defending its higher margin, high end phone business -- it can't afford to blink here. But this is ultimately a losing strategy as the growth in phones appears to be at the $100 - $300 price range, well below Apple's iPhones for sale today.
Margins will likely continue to compress, ASPs are likely to come down, and market share will almost certainly continue to erode.
It's not fun to be bearish on Apple because the company is wonderfully run and very well capitalized; there's not much Apple itself could do to stop this natural commoditization of the phone business. Don't whine about Tim Cook, or blame him for not inventing the next big thing, but instead blame the realities of the market and the strength of the competition. It had to happen that Apple would start to lose its sheen, but perhaps the "end" of the Apple era came a bit sooner than expected.
I wouldn't short the stock, since I think most of the near-term downside has been achieved, but going long expecting a $300B+ market capitalization hike upwards is likely a highly misplaced bet. That being said, if Apple gets its dividend policy right and ups the payout to give a yield of >3%, then the stock could become very attractive to value investors. The potential for this to happen is reason to stay far away from shorting the stock, but I'm not sure that in this raging bull market, that it would be reason enough to buy.
Disclosure: I am long BBRY.