Apple: Losing Its Sweetness Gradually?

Apple (NASDAQ:AAPL), the word itself denotes the three significant milestones in the history of mankind. Firstly, the apple that formed the basis of evolution with Adam & Eve; secondly, Newton’s apple that was the focal point of the discovery of gravity and lastly, the Apple that Steve Jobs offered to the au courant world. The implications of these ‘awesome threesome’ apples will always continue to be noteworthy and monopolize the good old days of our society.

The avant-grade Apple phones have been instrumental in shaping the way how we apprehend technology and, is often perceived as a real urban renaissance. Apple Inc. has been an epitome of development in the past decade but the performance of the company has been far from satisfactory of late. This questions the integrity of Apple to maintain its status quo in the future.

Present Scenario
Already trading at 33% lower than its 52-week high, Apple has been falling steadily in the past one year. Competition has been stiff of late with competitors forming strategic alliances to topple down the power of Apple. Google has teamed up with Samsung while Microsoft has purchased the smart phone business of Nokia.

While Apple commands a market share of 45% in the personal computer(PC) industry, its performance in the Tablet segment has been under some steep pressure from Samsung. Amidst such a competitive business environment, there has been skepticism surrounding Apple and with the demise of its founder Steve Jobs, many people no longer have the resounding faith they once held high for this company.

Apple continues to fight the competition and in a bid to stay ahead of the pack it continues to work on its core competency, viz. Innovation. Apple continues to deliver advanced and contemporary products with the latest cutting-edge technology but of late, these have not made significant impact.

The company recently launched two new phones – the iPhone 5S, an upgraded version of the existing iPhone 5 and the much talked about iPhone 5C, a cheaper iPhone set to compete with Samsung and others in developing yet huge markets like those of China and India. While the features of these smart phones present a more than tempting proposition, the fact that Apple has decided to compete with Samsung on pricing is a unique phenomenon.

With 5C, Apple clearly eyes on the margins and certainly, not the market-share, thus, it is not meant for the consumers in India. Moreover, the unlocked versions might create a negative impact initially considering the Indian scenario. But, the freshly-introduced ‘Touch-ID’ biometric Fingerprint scanner might turn out to be a breather for Apple since people always look for what new Apple has to offer.

Unfortunately for Apple, the foreign currency movement in India may prove to be a deterrent in realizing the targeted amount of sales. Even in China, the price range offered by Samsung is wide and the lack of flexibility in pricing of Apple may just not work out well for the company. A strong brand presence in the region and an efficient marketing strategy may turn the table around but unfortunately for Apple, the recent introductions have not been able to draw positive sentiments from investors. It is believed that the lack of response from the equity markets was on account of the investors expecting more competitive prices for both the products.

Apple is a product-based company and the opinions of investors have swayed on account of the lack of innovative products of late. While there has been a bid to seek an alternative route by competing on price levels, Apple needs to expand its price range through its product offerings. The recent trends show that people are content with purchasing the older versions of Apple products like iPhone 4 and iPhone 4S models, which are less expensive and less profitable for Apple than the iPhone 5 released last September. On account of this, gross margin for the last quarter was 36.9% compared to 42.8% in the year-ago quarter. Earnings fell consecutively for two quarters successively as revenues from the second largest market China continues to wobble. Whether Apple will be willing to sacrifice its margins to boost market share continues to remain unanswered.

There is a popular belief that Apple is merely another participant in the industry that has fallen prey to the product life-cycle. It is expected that Apple might land up in conjunction with Nokia and Blackberry- two companies with a tremendous growth story in the past. It should be noted that participants in this industry are just one product away from revival. A single product has the hidden potential to reverse the fortunes of a company and, hence, it would be too early to write off the ability of Apple. Every now and then, it has managed to surprise us with its offerings and there is no reason why it cannot repeat it especially when the back-end work continues to be operational even in the absence of Steve Jobs. That’s the brand of Apple that he visualized always.

The Possible Solution
There is one aspect that needs to be addressed right away though. While the focus remains on China, it should be noted that sales of Apple in the Asia-Pacific region excluding China fell 35% quarter by quarter. Apple can no longer rely completely on its capabilities of delivering new products in these regions.

As Samsung has illustrated, success in these markets are characterized by low margin and high volume and it is on this front that Apple can compete with companies like Samsung and Lenovo if it still wants to be a dominant player in the ongoing race. Products that have been a hit in the US have not borne similar results in areas like China and India suggesting that the emphasis should be more on pricing strategies. Policies adopted in markets like the US and other developed regions should be different from those in developing markets like India where the ability of Apple to capture the market through premium products remains questionable till date.

The tablet and PC segments are certainly getting overcrowded with new players and history has proved time and again that there is no full proof strategy that can sustain a company for long. Of late, the range of products have not been remarkably different and every time these products were launched, the ripples created furors on the share prices. Apple should continue to invest heavily on R&D in order to attain the “Eureka” moment it once attained so frequently. The current situation does not present any opportunities for investors and margins are likely to remain low due to fierce competition. Prices may stabilize after the steep fall this year but if competitors continue to bite off its market share the half-eaten apple could cease to exist in the future.

Posted in Business & Finance, Featured