Saturday, December 8, 2012

Why Apple is Down in the Stock Market

Wall Street thinks differently than normal people.  Currently, Apple is the highest valued company in the world.  From a profit standpoint it only makes two products, a smartphone and a tablet computer.  First of all, can this possibly make sense?  Neither product is something that someone MUST have.  The reason the valuation of the company is so high is that Apple makes enormous profits from these two items. The recent drop in value simply reflects the fact that Apple's profitability is set to decline.

Apple's most profitable item is the iPhone and it's world wide market share has leveled off with Android still growing fast.  For a time it was unchallenged in the tablet market, but that too is no longer true.  As prices of phones and tablets go down, Apple will be unable to maintain its (ridiculously) high profit margins.

With both products threatened, why would investors stick around when the company has no other lines of potentially high profit to offer? There are few signs that other products Apple has can take up the slack, for example laptop sales are flat.

A final problem is that Apple serves an elite market and such markets are fickle. When they perceive something as no longer cool, the sales stop. There are already signs Apple is no longer cool.

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