This Wednesday at 12:45 p.m. ET (9:45 a.m. PT), The Motley Fool's top analysts will be hosting a live blog breaking down what Apple's iPad 3 press conference means for investors. The best part? They'll also be taking any questions you have about the tablet and Apple as an investment. Make sure to set a reminder to come back to Fool.com this Wednesday for all your iPad 3 news and analysis!

Apple (NAS: AAPL) bears are a dying breed. The iPhone, iPad, and Mac designer is the most valuable company in the world and shows no signs of slowing down. Shares have gained 30% in 2012 -- an astonishing feat for a stock that started the year with an already-huge $380 billion market cap. And even now, smart investors like fellow Fool Eric Bleeker feel that Apple is a solid buy as the next iPad idles on the launch pad.

So the choir of praise is nearly unanimous. But I don't feel like singing along.

The warning signs keep piling up around this supposedly unending success story. That momentum is one red flag in and of itself, but there's lots more. Let me point out four ways that Apple will disappoint investors before too long:

The illusion of hypergrowth
While Apple really is growing at a legitimately exciting clip, investors read way too much into the latest earnings report.

iPhone sales in the first quarter more than doubled YOY. If you see that as the run rate going forward, I've got news for you: The iPhone refresh was unusually late this year and tons of would-be buyers held off on buying one until the holiday quarter. Did you forget the miss in the previous quarter already?

It's okay. I understand. Denial is a perfectly healthy coping mechanism. But that fourth-quarter disappointment set the stage for a tremendous upsurge of iPhone sales over the holidays, and also dragged shares prices down to prime this year's impressive run.

It really happened: iPhone sales in the fourth quarter missed analyst targets by a country mile, jumping a mere 21% YOY. The real growth rate lies in between these two extremes. So should your realistic expectations for future growth.

The iPhone as a commodity
Right now, Apple holds a unique spot in the smartphone market. No matter how hard Google (NAS: GOOG) tries, the next Android version or top-of-the-line flagship phone never quite gets the attention that Apple's latest iteration does.

I'm sure this won't last forever. It's always tough to pin an end date on recent fads. When American Idol was new and fresh, I though the show would keep its novelty appeal for four seasons or maybe five, but it took 11 years before viewers started switching the channel on that particular show. So although my timing may be off a little bit, but consumers will eventually turn their attention elsewhere.

That's really all Apple's iStuff is -- an enormous and very profitable fad. It's the Pet Rock of the new millennium.

And that leads straight into...

The "cool factor" is fading fast
You heard me. Apple is getting too popular for its own good.

"All of a sudden, every teenage girl has an iPhone," says Canaccord Genuity analyst Michael Walkley. "The real danger is that Apple becomes so mainstream that there is a breakaway by consumers to something new."

Do you really think that these superior growth rates can continue when the young ones start treating Apple's products like a McPhone? Big sales will linger for a while even after the trendsetters turn their back on Cupertino, but the shark will have been jumped and the only way is down.

Think it can't happen? Think again.

There was a time when Research In Motion (NAS: RIMM) and Palm set the standards for mobile computing. RIM's text-machines gained the endearing nickname "Crackberry" as you could pry those gadgets only from their users' cold, dead hands.

That was then, this is now. iPhones and iPads are the new iCrack products. You'll notice that nobody cares much for the BlackBerry anymore as RIM circles the drain. Palm is already dead, snapped up by Hewlett-Packard (NYS: HPQ) for pennies and then demolished, piece by piece.

Neither Palm nor RIM ever quite reached the lofty heights that Apple inhibits today, but you know what they say: the bigger they are ...

The final straw
And that brings me to the real deal breaker. The iPhone is too expensive. The networks that already hate the low margins it brings them can't be expected to pay huge subsidies for much longer.

Right now, carriers fall over themselves to sell the iPhone -- but they do it through gritted teeth. Sprint Nextel (NYS: S) sacrificed profit margins to boost iPhone-powered sales. Ma Bell and Big Red dutifully slog through their iPhone inventories too, trying to ignore the pain.

"A logical conclusion is that the iPhone is not good for wireless carriers," concludes Mike McCormack, wireless analyst for Nomura. "The carrier-level value destruction is quite evident."

In Europe, where the networks don't do as much of Apple's heavy lifting, iPhone market shares often linger in single-digit territory. Sprint and friends must eventually run out of patience with Apple's profit-sapping pricing strategy. At that point, one of two things will happen:

  • Apple will lower its direct prices to the carrier.
  • iPhone sales will drop through the floor as consumers balk at the sticker shock.

Either way, Apple's salad days will be over. If the iPhone becomes expensive, there's no shortage of Android alternatives to choose from. The barriers to entry in the mobile market have also turned out to be surprisingly low; maybe the next big thing will come straight out of left field, like the original iPhone did.

By then, the company had better have its next market-breaking invention ready and it had better be an unqualified hit. If not, well, look out below.

None of this will materialize this week, of course. The worst that can happen here is that the iPad 3 leaves consumers cold, in which case phone sales will smooth things over for another quarter or two. Just remember these big, unavoidable issues when the big drop finally happens. I have a bearish CAPScall riding on that thesis and expect it to pay off in the next year or two. Check up on my all-star CAPS profile any time you like. That's the best way to hold me accountable for my market calls.

If you're looking for a way to play Apple without exposing yourself too directly to the risks above, you could invest in the components inside Apple's biggest sellers instead. We've got a free report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution," which details three great stocks that are riding Apple's growth. To get your own copy of the report, just click here now -- it's totally free!

At the time this article was published Fool contributor Anders Bylund owns shares of Google but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+.The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Google and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. We have a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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8 Comments

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PaulB

I agree with most of what you say, but your timing is way off....as it was with your American Idol prediction. You predicted 5 years and it was really 11 years. Wow! Companies come, and companies go. Apples not even close to reaching it's zenith.

March 28 2012 at 11:56 PM Report abuse rate up rate down Reply
Manzoor

How do live with yourself? Really. You writing makes me wonder what it takes to be a "top analyst" these days. BTW, the word for "d*ck" in Hindi is "Lund". Go figure.

March 14 2012 at 2:37 PM Report abuse rate up rate down Reply
Manzoor

How do live with yourself? Really. You writing makes me wonder what it takes to be a "top analyst" these days. BTW, the word for "d*ck" in Hindi is "Lund". Go figure.

March 14 2012 at 2:30 PM Report abuse rate up rate down Reply
Manzoor

How do live with yourself? Really. You writing makes me wonder what it takes to be a "top analyst" these days. BTW, the word for "dick" in Hindi is "Lund". Go figure.

March 14 2012 at 2:29 PM Report abuse rate up rate down Reply
Scott Woelfel

Good call. 3/14/12: $581.62.

March 14 2012 at 10:15 AM Report abuse rate up rate down Reply
Chookalana

You obviously have no idea what you are talking about

March 13 2012 at 11:31 PM Report abuse rate up rate down Reply
fballou757

Mr. Bylund is playing it safe. "I have a bearish CAPScall riding on that thesis and expect it to pay off in the next year or two." This conclusion offers little upon which an investor can decide whether or not Apple at current levels is a promising entity for new gains.

Certainly, Apple will correct from time to time. But the long term trend is still up. Apple has less than a third of the smart phone market. Rather than drop the price on their top of the line products, does it not make sense that Apple will introduce a less expensive to make, functionally less adept, lower-priced entry product that will encourage later transition to the top of the line? Apple is beginning to take over the enterprise market segment, having less than 10% of the world's desktop market for PCs. The growth rate of the Mac OSX product line is positive and above 20% year over year with a large addressable market. The iPod still dominates the MP3 market, although sales are shrinking, partly because the iPod Touch (a top of the line product) is taking share from lower priced alternatives. Apple has higher net margins than any of its Android competitors, HPQ, Dell, Research in Motion or Asus. I infer Apple has ability to reduce selling prices, causing some competitors' profits to go negative. Further, Apple's cash hoard allows it to offer terms to its supply chain that encourage reduced component costs compared to its competitors. And that is just part of the story. Apple's North Carolina facility will begin to acquire new revenues as iCloud becomes a dominant force in a new market segment; we can expect new developments in software and in new mediia such as television. Yes, Apple may find a bumpy road at some time in the next two years. And, then, it may double its revenues, profits and enterprise value within the same time frame. But there is no other enterprise in the world having Apple's current scale and rate of growth. I will continue to add to my positions for at least the next year and probably for two to three years after that.

March 06 2012 at 8:50 PM Report abuse rate up rate down Reply
Gregg DeBartolo

Bull spittle

March 06 2012 at 8:15 PM Report abuse rate up rate down Reply