Apple Needs More Than Just A Hardware Upgrade

Image via CrunchBase

bits of information they can as it pertains to their holdings, both existing and potential. It also means that people are looking for the latest on companies they love and or those they hate. Perhaps the one company that fits into both categories given the combination of its products and its stock price performance since September is Apple.
Apple shares tumbled once again this week following comments by supplier Cirrus Logic, which makes analog and audio chips for the iPhone and iPad. Not only did the company pre-announce weaker than expected March quarter results, Cirrus also shared that revenue for the current quarter between $150-$170 million would fall short of Wall Street consensus expectation of $195.4 million for the June quarter. This weak forecast followed a 19% decline in March quarters sales at Hon Hai Precision, one of Apple’s main contract manufacturing partners for the iPhone and iPad.
While Apple will report its quarterly results on Tuesday, April 23, the company is famously tight lipped. That means reading the tea leaves at key suppliers like  Qualcomm, Skyworks Solutions, Avago Technologies and others to get a better handle on the situation and what lies ahead.
As I see it there are several problems ahead Apple.
First, is the maturing of the smartphone market in general, which means incremental growth will come at lower price points. We’ve seen this movie before in a number of consumer electronic markets over the years -- PCs, DVD players, VCRs and even the basic mobile phone. Generally speaking the shift in these markets resulted in not only pricing pressure but in margin pressure as well - not good for earnings and not good for stock prices.
The big question is how will Apple respond? To date, when its introduced the latest and greatest iPhone model Apple has cut the pricing on older models. While there is rampant speculation that Apple will not bring a cheap phone to market, it does need to address the strategic hole in its product portfolio that can be filled by a value offering. At the same time, Apple needs to re-establish its leadership position in the cool, cutting edge, I need to have that product category. Now I live my iPhone 5 but the larger screen  and LTE aside, was it such a big step forward compared to the iPhone 4s?
Apple also needs to come up with some new products and or new features that will redefine its existing ones. As tends to be the case with Apple, there are a number of new product rumors floating about -- from a new iPhone, new iPad and even the much discussed iWatch. Of course Apple won’t comment on new products, but we’ve already seen companies like Samsung and Microsoft tout smart watch related products. More recent chatter suggests the Microsoft smart watch will be coming from the team behind the Xbox, Kinect and related accessories.
It’s not just hardware but also the look and feel of its iOS software that needs a refresh. While Apple has done a good to great job of adding incremental features along the way, iOS is now on its 6th version. One ray of hope is that last October, Tim Cook added the responsibility of Apple’s Human Interface to Jony Ive’s existing role as head of Industrial Design. Hopefully this will not only lead to even tighter integration between Mac and iOS software, but an overhaul in the iOS interface. With new iteration of Google Android not to mention Blackberry’s new BB10, it would be a disappointment for Apple to trot out the same old, same old.
Several weeks back I wrote that Apple is likely to use the Authentec business it acquired in 2012 to differentiate its products from a security and mobile payment perspective. While I still think that, the competition continues to catch up and that means Apple will need to do more to raise the bar. If it doesn’t, investors could start to view Apple as the next Microsoft - in other words a rangebound stock well below its share price associated with its heyday.

Disclosure. Chris Versace has no position in Apple. Subscribers to PowerTrend Profits were alerted to the long-term opportunity in Qualcomm (QCOM) shares at $65.96. 

JEEUTIKA SINHA

PGDM 2nd sem