Has Apple Peaked?

Apple under attack. Aivars Lode Avantce

Has Apple peaked?
The world’s most valuable firm may be past its prime 
Jan 26th 2013 | SAN FRANCISCO

TECH blogs are abuzz. Pundits are busy pumping out predictions. The company that makes the new device that is attracting so much attention is teasing reporters by being coy about its innovative features. Apple’s product launches are always like this. But this time the fuss is not about an Apple product: it is about Samsung’s latest Galaxy smartphone, which is likely to be launched in March.

Stiffer competition in smartphones and tablets from the likes of Samsung has spooked investors in Apple. They got another fright on January 23rd when the firm revealed that its latest quarterly profit of $13 billion was flat because of higher manufacturing costs. That triggered a rout in after-hours trading: at one point some $57 billion was wiped off Apple’s market capitalisation, roughly the equivalent of the entire value of Ford, a carmaker.

First, Steve Jobs, Apple’s founder and creative genius, is dead. The iPhones and iPads he sired still generate gargantuan profits. But his successor, Tim Cook, has yet to prove himself capable of bringing new breakthrough products to market. Second, Apple’s fantastic profit margins—38.6% on sales of $55 billion—attract competitors like sweetshops attract six-year-olds.Apple’s shares have been mauled by bears many times before (see chart 1), but they have always recovered. The big question on many investors’ minds is whether the firm can rebound again. Two things have whetted the bears’ appetites.

The company’s fans pooh-pooh the idea that Apple has peaked. The firm’s price-earnings ratio—11.6 at close of business on January 23rd—is not much different from Microsoft’s (see chart 2). That makes Apple’s shares look relatively sexy. Unlike Microsoft, which depends heavily on the ailing personal-computer business, Apple concentrates on sectors that are growing fast, such as smartphones and tablets. Only one of 60 analysts tracked by Bloomberg had a “sell” recommendation on Apple before this week’s stockmarket fallout.