The consumer tech giant starts selling its iPhone 5s and iPhone 5c on Friday. Last year, Apple's stock hit an all-time high the morning that its iPhone 5 became available. This time around, things aren't exactly playing out the way that Apple would have liked.
Its share of the global smartphone market has shrunk from 17 percent to 13 percent. The tablet market in general is growing, but Apple is selling fewer iPads than it did a year ago. Don't even bother to check on the Mac or iPod markets. Apple's been fading on both fronts for several quarters.
An Apple a Day
At least in part, the problem is that Wall Street was expecting too much this time around.
The market was holding out for a cheaper iPhone, but the more economical iPhone 5c will be selling at an off-contract price of $550 here and as much as $733 in China. Analysts were also expecting to see bigger phones to compete with the five-inch Android devices that Samsung and others have been succeeding with these days. But the iPhone 5s is the same size as last year's iPhone 5.
There were no smart watches, no high-def smart televisions, no refreshed iPads.
Apple obviously doesn't have to cater to the whims of its fans or market trends. However, missing out on the hot crazes or watching its market share shrivel isn't going to do its shareholders any favors. Apple didn't deliver what the market wanted, and that's why a few analysts downgraded the tech company that once could do no wrong.
Life After Jobs Hasn't Been Easy
Apple was never about just one person, so the market didn't dump its shares when Steve Jobs passed away two years ago. In fact, the stock rallied for the first year under CEO Tim Cook, peaking at just above $705 last September. That's when its momentum began to melt away.
The Apple Maps fiasco at the time of the iPhone 5 launch was embarrassing, but the real problem was that Google (GOOG) was eating Apple's lunch with Android.
At the end of the day, developers generally support both platforms. But what has made Android such a thorn in Apple's side is that it's open source. It's freely available. Only Apple is making iOS phones, but any manufacturer can crank out Android devices. This has created a competitive climate among handset makers in which they are perpetually driven to best one another as rapidly as possible, unlike Apple, which has historically updated its iPhone just once a year.
It's not just the constant bar-raising by Android phones. Working on an open source platform makes it possible to price devices aggressively. That may not seem to be such a big deal in this country where even Apple keeps a two-year-old model that carriers offer for free tethered to a two-year contract. However, it is a big deal in overseas markets.
Mind the Gap
Overseas wireless carriers are either not subsidizing the cost of hardware or not offering the more than $300 that wireless companies pay Apple for every phone they sell at discounted prices.
The disparity in pricing has created a huge gap between Android's rising popularity and Apple's fade. In China -- once a booming market for Apple -- it's now all the way down to being the seventh largest smartphone company.
Apple is still selling more iPhones than it was a year ago, but consumers are opting for the older models that Apple sells for $100 to $200 less than the current generation.
The scene is even scarier in the tablet game. Nobody even wanted a tablet until Apple introduced the iPad a couple of years ago. But now even the iPad is fading in popularity. Apple's market share in tablets has plunged from 60 percent to 32 percent over the past year, and just as consumers have been turning to cheaper iPhones they're also taking comfort in the cheaper iPad mini that was introduced last year.
It's not a pretty picture, even with the new slick camera features of the iPhone 5s. Profitability is declining. Sales have been flat. Things could also get even worse if the iPhone 5s and the iPhone 5c fail to match the sales generated by the iPhone 5 and iPhone 4S last year.
It's not over for Apple. The company has enough money to coast through this lull. However, sooner or later it's going to have to channel Jobs and find a way to innovate its way out of this rut.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our newsletter services free for 30 days.