The Bearish Case on Apple

With Apple’s stock down more than 20% it isn’t difficult to find lots of analysts willing to make the case the shares have further to drop. Regardless of whether you are an Apple bull or bear it is worth pointing out the company’s challenges. Wim Lewi has some in-depth analysis of Apple’s past and forward-looking sales and the piece is worth a read for investors.

Perhaps the most compelling argument he makes is the replacement sales of devices will lengthen from 2 to 2.8 years. While it is difficult to ascertain just how much longer people will wait to upgrade, it seems clear that there seem to be less ways to improve a phone or tablet. Yes, they become faster, thinner and pack more pixels but we are literally splitting hairs at this point. And this phrase makes me wonder if I will be alive when the first tablet boasting the thinness of a human hair hits the market.

Another point made by Lewi is the Lightning connector represents a barrier to iPhone 5 adoption. While this may be the case, the incremental revenue gained via new customers buying Lightning adapters and connectors which upgrade those of the 30-pin variety to Lightning could be huge.
iPad Mini

Many analysts, including Lewi explain the lower margins of the iPad Mini will hurt the stock and while this could be the case, there is also an arguement for defending the lower-end of the market and ensuring the Apple ecosystem of music, apps and games is as large as possible. After all, there is a recurring revenue story here which isn’t lost on Microsoft, Google or Amazon.

In the end, the iPad Mini is a product which had to be made to defend against the onslaught of seven-inch tablets. Analysts can argue all they want about Apple becoming less innovative but this move was very logical and showed there are millions of buyers who wanted a smaller tablet but wouldn’t buy one unless it had an Apple logo on it.


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