Why Apple Will Never Be Great Again

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This should have been a great week for Apple (AAPL).

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.

As a mobile operating system, Android isn't necessarily better or worse than the iPhone's iOS. It's more flexible, and that's a draw to many users.

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.

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14 Comments

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freeze1617

Apple is not going be great again, if they just keep making a different version of the same product over and over again. The market has caught up and in some cases past them. I am not a Apple guy because I never want to enter the Apple web. Once you buy a apple product it is all things apple and that is not for me. Like it was said before Apple never learn from their mistakes, that almost crushed them. Apple was a $10 stock in the early 2000's and nobody wanted to own it. The reason it was because it closed off it's customers to other companies. And here we go again

September 19 2013 at 1:53 PM Report abuse rate up rate down Reply
ELIHU

history repeats itself. Having a closed system is the same reason that IBM took 95 percent of the pc market while apple only had 5 percent. You would think they would have learned the 2nd time around.Santayana was right

September 19 2013 at 1:31 PM Report abuse +1 rate up rate down Reply
duanephipps

Ive been an apple user for 15 years or so and i think apple has stop listening to its users and started dictating to its users. They had totally gotten away from professional products and why wouldnt you make a larger smartphone. just doesnt make sense to me. Still love my macbook pro but even having a non removable battery and less usb, firewire ports are a real issue for a $3000 computer.

September 19 2013 at 1:23 PM Report abuse rate up rate down Reply
Harleygent

No business will survive long only living with three major products, slowing overall technical innovations, and the loss of it's non-technical but probably one of the greatest marketing gurus ever. Steve did not create the technologies, he drove manufactures to build his ideas them then he marketed them. Apple is not in the research business but should have been when they squandered their hundreds of billions overseas. Now being forced to pay out dividends and margin squeezes by the competition they made just fade out like so many other technical businesses. So as in the past, the Japanese and the Chinese will rule because they both have the cheap manufacturing, technically innovating minds and most of all, the consumers wanting to buy. Only a miraculous innovation that they will own exclusively will bring them back but where or what is their formula today? It is an industry that has matured and a company must make radical changes to stay in the game when the competition overwhelms. Best we can say is good luck or good research!

September 19 2013 at 12:59 PM Report abuse rate up rate down Reply
analyst0042

I tend to disregard stories that have the word never. Never is for all time...which is a ridiculous position on anything. If he said it will be very difficult for Apple to reach greatness again then I feel he might have a more valid argument.

September 19 2013 at 11:35 AM Report abuse rate up rate down Reply
ipdhome

That is the writer's opinion. We'll just have to wait and see what happens. I'll bet on Apple

September 19 2013 at 11:35 AM Report abuse +1 rate up rate down Reply
dadsophie

Before you listen to this writer it would do you good to understand he is the same person who wrote yesterday that McDonalds should pay its burger flippers $15.00 per hour. Enough said!

September 19 2013 at 10:36 AM Report abuse +3 rate up rate down Reply
1 reply to dadsophie's comment
Saad

Good one Dad. I just googled that article and it's a bunch of bull. 15 dollars, for burger flipping? Nuts!

September 19 2013 at 12:30 PM Report abuse rate up rate down Reply
1 reply to Saad's comment
stonewt

Totally crazy. It should be at least $25 per hour. :-D

September 19 2013 at 1:59 PM Report abuse rate up rate down
wla2000

Actually, Apple IS still great.

September 19 2013 at 10:16 AM Report abuse rate up rate down Reply
dreamweavr

Yea, I noticed Apple did this little "mediocre" update to their iOS system yesterday...and simply caused network outages on several major college campuses. And, of course, that literally happens every time MS releases a new product. I also happened to notice yesterday that Blackberry is going to axe 40% of their workforce. Obviously, they're a big up-and-comer. I also noticed that Samsung and Acer's shipment of their 8" tablets were falling well short of expectations.
And finally, there were numerous reviews of the iPhone 5S released yesterday. "The Best Smartphone on the Market" pretty much sums it up.

September 19 2013 at 8:05 AM Report abuse rate up rate down Reply
2 replies to dreamweavr's comment
Vadim A.

what's good about it?

September 19 2013 at 8:31 AM Report abuse rate up rate down Reply
minorgates

you sure are excited about second place... well, enjoy it while it lasts

September 19 2013 at 9:56 AM Report abuse rate up rate down Reply
gustavoike

How helpful is a commentary like this? The only way to play Apple or any stock for that matter is to look into a crystal ball and know its future. I wish. Apple has made its fortune not on catering to what people are clamoring for in the present but by knowing the tech people would fall in love with before they were aware they wanted/needed it. Perhaps this was the genius of Jobs and that has gone away. Time will tell..hence the crystal ball. A stock like Apple will be rocked with the fear/greed of Wall Street for the forseeable future. On one thing I agree with Rick, for it to survive Apple will have to continue to innovate. I am in the camp that says Apple shouldve come out with a less expensive 5C based on the "its not the razor but the blades" business model. The Apple ecosystem is robust. To remain so the number of people in it must be continually added to so yeah lets make a cheap radio and invite them in. They may love it so much, they will next time opt for the classier model. Then again, I think selling an iphone 4 for almost nothing might fit that bill too.

September 19 2013 at 7:23 AM Report abuse rate up rate down Reply