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Wednesday, Nov 07, 2012 9:30pm
AAPL hits five-month low on innovation, competition worries
Apple's stocked ended Wednesday at $558 a share, a five-month low despite a slew of recently-announced new products and a strong and popular holiday lineup. While the company's ability to deliver yet another record quarter in fiscal Q1 2013 is not seriously questioned, investors and analysts appear to be nervous that Apple is not doing enough to stay ahead of the competition, and some have voiced concerns that the "next big thing" is not more obviously underway to give Apple another avenue of continued growth.

In addition to these factors, some on Wall Street -- which was seen as being more in favor of Mitt Romney in the election -- are concerned about upcoming fiscal challenges the government faces, including the possibility of a new recession spurred by forces beyond the president's control, such as more financial failures in Europe. Although Apple is currently selling record numbers of iOS and Mac devices, some in the investor community are concerned that the company's margins and popularity may have peaked.

Wall Street has also reacted badly to news that the iPhone 5 is more expensive to build than its predecessors, though over time manufacturing costs should equalize. However, more expenses in the building of the device means lower profit levels -- not to mention that Foxconn's chairman Terry Gou today told business leaders that his company is struggling to meet demand and yet build the devices to Apple's exacting specifications.

In addition, Apple's recent quarterly results -- while very strong -- weren't quite as stellar as expectations had suggested, and a recent survey has suggested that Apple has lost ground to Android in the formerly-bulletproof tablet arena. However the survey was based on units shipped rather than sold to end users, which could suggest that analysts have misread demand for non-iPad tablets, or that the tablet market is expanding thanks in part to alternative options like Microsoft's Surface and Google's Nexus 7.

In recent years, Apple has been seen as a virtually risk-free investment, posting astonishing growth and profitability after a string of hugely-successful hit products, starting with the iPod (which, despite being introduced in 2001, took until the mid-2000s to really take off). It remains to be seen how successful the iPad mini, which has debuted to rave reviews, will be with the gift-buying public.

The market is also watching CEO Tim Cook more carefully now following a major reshuffling of Apple executives that saw some leaving the company, particularly former iOS chief Scott Forstall. Other Apple leaders are taking on more responsibilities, such as Sir Jonathan Ive now adding software interface design to his hardware duties -- a move that many in the Apple community welcome, but the results of which are yet to be seen. Rumors that Apple may stray from long-time partner Intel on Mac processors and other rumblings of future changes may have unsettled investors, who have become used to significant yearly growth in their investments.

There is also, somewhat ironically, the problem of managing Apple's success. Despite the announcement of a quarterly dividend and a three-year stock buyback program, Apple's cash stockpile continues to grow -- now at over $121 billion -- and the companies continues to avoid "re-patriating" foreign earnings to avoid some federal taxes. The company currently manages just a two percent tax rate on the foreign cash, significantly below the 25 percent average it pays on North American income.

Though Cook and many of the executives leading Apple are held in high regard by investors, the loss of visionary co-founder and former CEO Steve Jobs casts a long shadow over the company in terms of its continuing ability to innovate. Looking to the future, investors wonder if Apple will be able to duplicate the success seen by products either currently available or soon to be available that Jobs oversaw. Once Apple runs out of products that he had an interest in, will it still be able to invent and redefine whole industries as it has done in the past?

Once promoted as a company that could become the world's first trillion-dollar-valued business, AAPL has shed about $130 billion off its valuation since September. However, the drop in price may also attract smaller investors who are confident that even without any new innovations in the short term, Apple's existing business will continue to grow and prosper over the next few years.

The high and rising price of the stock has discouraged smaller or casual investors from getting in, and despite some fears that the company's growth may have plateaued at least temporarily, there is an equally strong chance that Apple will report another record-breaking quarter in the face of a worldwide PC slump, and that any new products could upend the market in Apple's favor even more.