What makes Apple (NASDAQ:AAPL) an Apple is its innovation. In the past few years Apple came out with cutting edge, sexy products that just blew your mind. There was the iPhone, a touch screen hand held device that combines a mobile phone, an iPod, and internet all in one. There was also the iPad, a multi-purpose mobile device that essentially replaces the old clunky desk top for everyday use. Apple through its sexy and innovative products, packaging, and design was clearly sending out a message to the world that there is only "I". Apple is not in the company of "We".
Because Apple's products are so cutting edge and play to the imagination, Apple's earnings were stellar and easily blew pass many analysts' estimates. In a 5 year period, Apple went from $90 to a high of $700. This represents a return of 777%. A large part of Apple's success comes from its innovations driven by Steve Jobs.
Unfortunately, Steve Jobs is unique and one of a kind. Tim Cook is a very competent and capable leader when it comes to managing a company, however, Apple's stellar growth comes from innovation.
In the past few quarters, Apple's lack of innovation was clearly reflected in its earnings. Apple disappoints with -10%, -0.90%, and 2.50% EPS compared to analysts' consensus. Clearly investors' imagination of what Apple can do ran ahead of what Apple can actually do. As a result of investors lofty expectations versus what Apple can actually deliver (a smaller iPad), Apple's stock lost 17% of its value when its earnings was reported on Jan 23rd, 2013.
Although Apple's overall revenue was strong, its gross margin eroded to 38.6% compared to 44.7% in the year ago quarter. To many investors, the world of "I" created by Apple is clearly coming to an end as competitors like Samsung with more innovative and sexy products is eroding Apple's market share and mystique.
For the time being, Apple can temporary prop up its stock price by increasing dividend payments, share its cash wealth with its investors, split its shares to appeal to a bigger audience of investors, or find new partners to market its products and services. However, these are just temporary fixes that will not address the fundamental need for innovation. It is innovation that makes consumers willing to pay more that contributes to gross margins. It is innovation that drives spectacular growth.
For long term growth, I would recommend that Apple spend its huge cash reserve to clone Steve Jobs, hire some genius with similar skills to Steve Jobs, or develop a think tank with many brilliant minds that can duplicate Steve Job's vision.
Until robust innovation consistently occurs at Apple, you will see Apple's price zig-zaging with no true upward trend. How much zig or zag in Apple's price depends on which analyst you believe.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.