updated 10:00 pm EST, Fri December 28, 2012
Genuine fears for future, or just profit-taking ahead of cap-gains rise?
As AAPL shares lost another percentage point on Friday to close the week at a 10-month low, investors point to a number of factors behind the sell-off, which has seen the stock lose 27 percent of its value since an all-time peak price of $705.07 in September. While the stock is still up for the year (about 25 percent), factors ranging from worries about the so-called "fiscal cliff" to fears that the company's popularity is cooling off may be spooking investors.
Two of the biggest factors outside of Apple's control that may be playing a role in the drop are the anticipation of a capital-gains tax increase early in the new year, and market nervousness about the alleged "fiscal cliff" set of cuts scheduled to take effect at the end of the year. Regardless of whether the two political parties can work out a deal, capital gains taxes -- which have been at historic lows for years now -- are almost dead certain to rise, and for the most wealthy investors the rise could be substantive (from 15 percent to over 28 percent). Short-term investors will also see a rise, but much more modest in scope.
The default cuts that might come into effect if the parties cannot reach an agreement would have a severe effect on the military and federal sector, but is not intended to be quite as melodramatic as often portrayed for the majority of private citizens and businessmen. However, combined with the likely rise in cap-gains taxes, many long-time investors are taking the opportunity to cash out their holdings before any new legislation appears. Indeed, a number of Apple executives have done exactly that for the same reasons.
Rumors that the iPhone 5 -- which has recently achieved a sales-to-inventory parity much faster than its predecessors -- is not as popular as the previous models have also hurt the stock, though these reports have been largely discredited -- and demand for the iPad mini is seen to be on a huge upswing. The iPad and the iPad mini were the clear big winners in this year's holiday gifting, as indicated by having managed the unprecedented feat of topping -- for one day only, December 25 -- the number of activations of smartphones (the tablet activations include all tablets, not just Apple, but the company hugely dominates that segment).
There are very few willing to predict that Apple won't have yet another record-breaking balance sheet once the fiscal Q1 2013 figures are reported in January, but the slow pace of any truly new products (apart from the iPad mini, most upgrades in the second half of 2012 were relatively minor updates rather than revolutionary changes) may also be a cause for concern among long-term investors. Rumored products such as the so-called "Apple HDTV" and the reinvented Mac Pro -- both "delayed" from when analysts originally expected them -- have not yet materialized, even while some markets such as Apple's iPod line have peaked in maturity and, while still outperforming expectations, are in overall decline.
Having built its enormous growth mainly on innovation, the normal cycle of polishing and perfecting the existing lines has some speculators worried that the company's best days may be behind it, or that it will repeat history by slowly losing share in various segments to rapidly-gaining competitors such as Google, RIM, Amazon and Microsoft. While too soon to tell, early indicators on sales of Google's flagship tablet (the Nexus 7) and Microsoft's foray into the space have thus far failed to live up to expectations. Meanwhile, Amazon's Kindle Fire HD also looks to be a distant second in both the small-form and full-form tablet arena, and it remains to be seen if the BlackBerry smartphone platform can stage a comeback in 2013.
In the near-term, investor worries about AAPL seem misplaced -- but when combined with tax and economic factors outside the company's control, they could signal some future concerns that Apple's more stellar growth percentages won't be repeated to the same extent in 2013, though the company is still expected to have a very healthy year. The current price of the stock is a clear buying opportunity, and trading at less than 12x of EPS, an attractive multiple. In the longer term, the company -- ironically like RIM, which Android and iOS have all but forced out of the market -- will have to prove that it can still create completely new products and sales categories, and find an audience to sustain its growth.