The popularity of smaller tablets with seven-inch diagonal screens and retail prices below $200 has already forced Apple to make changes. The company responded by introducing the iPad Mini, which features a nearly eight-inch screen. The iPad Mini sells for $329, which helps Apple protect its profit margins and preserve its reputation for selling top-of-the-line products that merit prices a notch above the competition. Nevertheless, the iPad mini is undoubtedly diverting some sales from full-sized iPads, which sell at prices ranging from $399 to $829. That is one of the reasons BGC Financial analyst Colin Gillis expects the iPad’s average selling price to fall by about $50 in the current quarter, which ends this month. That would be a 9 percent decline from the iPad’s average price of $535 during the July through September period.
Even if it’s no longer the market leader, the iPhone remains hotter than ever. Based on figures released by wireless carrier AT&T earlier this week, Jefferies analyst Peter Misek predicts Apple will sell 53 million iPhones this quarter, primarily the newest model. That would be a more than 40 percent increase from Apple’s previous one-quarter record of 37 million iPhones set in the period covering last year’s holiday shopping season.
Theory: The Creativity Contraction
Hypothesis: Apple is running out of fresh ideas.
Since Apple co-founder Steve Jobs died 14 months ago after a long battle with cancer, the company has mostly been fine-tuning products that were created under his visionary leadership. The former CEO’s hand-picked successor, Tim Cook, is well-respected, but some investors are starting to wonder if Apple can conjure up another revolutionary product to catapult the company on another multiyear stretch of breakneck sales growth. Can Apple innovate like a hard-charging startup while maintaining its giant company stature?
Smartphones and tablets “are starting to become more like commodities,” Gillis said. “And how much upside is left if you are stuck in a commodities business? The question is: What is going to get Apple going again?”Most analysts believe Apple’s next breakthrough will be a television that shares the same operating system as the iPhone and iPad. An Apple TV would give the company a prized perch on the biggest screen in most households and open up an array of new business opportunities.
Jobs hinted that Apple had figured out how to produce a mesmerizing new TV during interviews he gave with his biographer, Walter Isaacson, before he died. That led many analysts to predict an “iTV” would come this year, only to be disappointed. Cook indicated Apple is still trying to develop the device during an interview that aired on NBC’s “Rock Center” Thursday night.
“When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years,” Cook said. “It’s an area of intense interest. I can’t say more than that.”
Theory: The Fiscal Cliff Factor
Hypothesis: Many long-time Apple shareholders are selling stock to lock in gains at a lower tax rate.
Under laws set to expire Dec. 31, profits on stocks owned for at least a year are taxed at a 15 percent rate _ much less than the rate earned income is taxed at.
The recent drop notwithstanding, Apple’s stock has still enjoyed an incredible run. It has more than quadrupled from about $120 per share since the iPhone’s release in June 2007. Even investors who bought Apple’s stock a year ago are still sitting on a gain of nearly 40 percent.
Gillis, though, points out that savvy investors probably wouldn’t be selling their Apple stock just to save some money on taxes if they truly believed the stock is destined to soar higher and make them even richer a year from now.
“Sometimes, stocks just take a breather,” he said. “And when you get to be as big as Apple, any shift in sentiment can have a material impact on the share price.”
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