Earlier this week Apple (NASDAQ: AAPL.US) revealed record revenues with 26 million iPads sold for the quarter ended 28 December. The release of Apple’s new range of iPhones also helped drive revenue up.
Despite this shares, in Apple fell almost 9% after the firm reported flat profits of nearly £8 billion. Investors were further discouraged by Apple lowering its 2014 sales outlook.
Is this the beginning of a lasting slide? In all likelihood that’s hard to fathom.
Turning things around
It’s not easy to make predictions about the tech industry. If you think back to when the iPad first launched people — myself included — bemoaned its apparent lack of functionality. “It’s like a laptop, but can’t multitask? Seems pointless.” It’s done quite well since.
More recently, Apple Maps has been an intriguing case. Its error-strewn unveiling saw the service behave freakishly, with London teleported to Ontario, a train station turned into a park while a small farm was designated an airport (somewhat precariously).
A year on from its disastrous launch, for which chief executive Tim Cook was forced to apologise, Apple Maps now has a user base of 35 million. Significantly, its competitor Google lost nearly 25 million mobile users in the US as a result.
As you can see, turnarounds aren’t without precedent.
How it’ll bounce back
Sales figures for the iPhone 5C were a disappointment. Launched in September last year, the phone offered consumers cheaper entry into the iPhone market, and received strong reviews.
Apple’s problem was that while it was the cheapest of the new iPhones, it wasn’t actually cheap, retailing for £469. The unwillingness of Apple to produce a genuinely low-priced offering for emerging markets was befuddling.
Speculation is that the company plans to release two new large-screen iPhones in 2014, while the iPhone 5C will be discontinued.
So what else for the future? Apple’s spending on research and development has nearly doubled over the last two years.
We’re likely to see new product categories as a necessity to keep investors on side. These may include an Apple TV, in a push from Apple into people’s living rooms, to counter the likes of the Xbox One from Microsoft.
Or perhaps 2014 could belong to the iWatch, which would be Apple’s first stab at wearable tech.
A new product could act as a catalyst to send Apple’s stock up again. This is an approach that has worked historically for the company. Based on track record, perhaps investors should give Apple the benefit of the doubt here.
Is Apple a buy?
The competition faced by Apple today is significant. Google is consistently increasing its market cap, which currently sits at $375 billion, and has come a long way in catching up to Apple.
It’s a possibility that Apple’s new products, the iWatch or a larger tablet, could be the next big thing. The problem is Samsung is already doing much the same in the wearables market.
Google, on the other hand, is pushing the envelope further, exploring ideas such as a self-driving car, while its giant cache of information is a commodity that could be more valuable than oil.
The disappointment on Wall Street might prove a good opportunity for someone canny. After six years of negotiations Apple finally struck a deal with China Mobile. This deal means that the iPhone is now available in 16 cities in China, rising to 300 by the end of the year.
You could use the 9% drop in price to pick up an undervalued share with growth potential. If you’re a contrarian investor, even better — no one likes Apple right now.
