Apple's profit-gushing iPhone came into question again Monday, briefly sending shares below $500 on concerns of a sales slowdown, as Wall Street's gizmo darling is in danger of becoming yesterday's glamour stock.
Shares of Apple skidded 3.6%, to $501.75, amid growing uncertainty about whether Apple can continue its pace of trendsetting innovation. The stock's latest fizzle was attributed to a report in The Wall Street Journal that says Apple decreased parts orders for its iPhone 5.
That came after Citi analyst Glen Yeung last month said that cuts to Apple's orders from its suppliers, while inconclusive, "bring into question the strength of iPhone 5 and refocus investors onto risks in the Apple story."
Under intense Wall Street scrutiny, Apple needs to dazzle consumers again with the next must-have thing to buoy its stock.
This month marks three years since Apple launched an industry-changing invention. Its iPad tablet was brought out by a beaming Steve Jobs, who introduced it as a "magical and revolutionary device." Now, that magic act is in question under CEO Tim Cook at a pivotal moment for the world's most valuable company.
"Investors are aware of how difficult it is for a technology company to continue to come up with products that are going to wow consumers," says Jay Ritter, a finance professor at the University of Florida.
Apple has failed so far to deliver an encore to its iPod, iPhone and iPad. This is critical for new growth, because the iPhone makes up the bulk of Apple profits -- trailed by iPad -- as competitors gain. U.S. markets have become saturated with iPhones.
Now, the battleground is shifting to Asia and emerging markets, where price-sensitive consumers are buying cheaper Android-based devices. "China is currently our second-largest market; I believe it will become our first," Cook told the Xinhua News Agency during a trip to Beijing last week.
Still, television makers and content owners are on notice that next in line is a game-changing TV. Rumors are rampant Apple will do just that, to be followed by years of fat sales, burgeoning market share and investment by Apple. But some signs point in another direction.
Studios and cable providers have made it clear they don't want to work with Apple and would prefer to create their own business models, says Keith Bachman of BMO Capital Markets. "We remain skeptical on Apple's eventual foray into TVs," he wrote to clients. "We think this will be a niche market opportunity for Apple."
Needham & Co. analyst Charles Wolf concurred. "I frankly would be surprised if they launched a TV," he says. "The economics of a TV are so difficult. It's low-margin; the upgrade cycle is really slow."
That's bad news for Apple. It's under siege by rivals, and it's far from a sure bet that iPhones and iPads can continue to produce monster profit multiples.
Under attack from Google's Android, with 72% of the worldwide smartphone market, vs. 14% for Apple's iOS, Apple is stepping toward price competition rather than pulling off another rabbit trick.
Apple's innovation mojo -- in question since Steve Jobs died in October 2011 (Forbes dropped Apple to No. 5-ranked innovator for 2012 in the Cook era from No. 1 in 2011) -- has Wall Street on high alert.
Apple's prospects will be no clearer than when it reports first-quarter earnings on Jan. 23. It's expected to report selling 45 million to 50 million iPhones for the all-important holiday quarter ending in December.
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