Fallen King?

Jan 25 2013, 00:54 IST
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SummaryOn Wednesday, Apple declared its Q4 2012 results, and its stock price tumbled by over 10%.

Apple’s failure to meet analysts’ expectations was inevitable. Does it still remain a stellar company?

On Wednesday, Apple declared its Q4 2012 results, and its stock price tumbled by over 10%. Why? Because, for the first time since 2003, the profits remained stagnant and revenue failed to meet analysts’ expectation. Sales set a record of $54.5 billion, which while an 18% gain since Q4 2011, failed to reach the average analyst estimate (calculated by Bloomberg) of $54.9 billion. But its total net income at $13.1 billion, $13.81 a share, remained stagnant when compared to the $13.1 billion in Q4 2011, while the profit margin between the two periods declined by 4% to 24%. The internet is rife with stories of investors speculating whether Apple has become a “market-share player” from a “market maker”. Yes, iPhone 5 and iPad Mini were barely revolutionary; yes, Android—now present in 72% of all the smartphones—has rapidly begun to chip away at smartphone/tablet iOS market share; yes, save for China, Cook has given little thought to enhancing Apple’s appeal in price-conscious markets like India; and yes, Chinese workers are demanding higher wages. But, what part of this was not inevitable? With or without Jobs, it was virtually impossible for Apple to continue to razzle-dazzle the world—every company runs out of breathtaking ideas. Chasing King Apple, meanwhile, became tantamount to survival for Samsung, Google and everyone else Apple left in the dust with its revolutionary iPhone, and hence a catch-up had to occur someday. Moreover, Apple’s aesthetic sense and drive for perfection necessarily confines it to the well-off. And finally, a rise in Chinese wages is a by-product of rapid industrialisation and incurring labour shortage.

The truth is that the stock tumble represents the same euphoric strain of investor behaviour that considered Apple to be God-like invincible and pushed its share price to $702 last September. Apple remains a fundamentally strong company—a profit margin of 24% coupled with a sales growth of 18% is every competitor’s envy. Decline in profit margins or failure to meet outsized expectations essentially means that Apple, like other companies, is run by humans and is susceptible to the contingencies of the market.

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