A number of articles have been published recently talking about Apple and their 25 percent decline in stock value. That’s certainly a significant drop, causing many people to predict this could mean the end of Apple’s high stock prices.
According to many of the articles, Apple has seen their day, will no longer be a leader, is past their prime, and has stopped innovating.
I say they’re all wrong. Here’s why.
#1. Some people are saying there has been a big decline in Apple’s stock value because of the possible tax changes that could be coming at the first of the year. In other words, because there is a risk that capital gains taxes will increase for investors, many people are locking in profits and selling their stocks now.
While that might help to explain what is happening now, using this to predict the fall of Apple is very short-range thinking. Higher capital gains taxes will not be the demise of innovation or profits for Apple after the first of the year. In reality, if people are selling their stocks now to avoid higher taxes when they sell in the future, that simply means there will be a buying opportunity when the stock price goes down in the present.
Remember, the stock market runs on emotion even more than logic and history has shown that you can’t rely on what’s happening in the present to be a good predictor of 6, 8, 12, 24, or even 36 months out.
#2. Other people claim that because Apple lost its visionary leader, Steve Jobs, the company will never be the same. It’s no secret that Jobs loved Apple. He devoted his life to the company. Fortunately, Jobs didn’t have a fast-occurring medical problem. Instead, he had time to think about the future and make his final plans. You can be sure he made plans to ensure that his baby, Apple, would thrive. As such, the leaders he picked to succeed him were well-groomed. And under their new leadership, they are sticking to the core of Apple, which is, of course, not competing on price, but competing on design, on the experience, and on delivering leading edge breakthroughs.
Even though the latest iPad mini and the new iPad don’t have breakthrough technology, Apple is using those products to expand their market segment. It’s actually a smart move, even though it might seem that they aren’t pushing the envelope on innovation. But if you take a look at the patents they’ve been granted including 3D displays for tablets and phones, as well as the many other types of patents, and if you look at their entire ecosystem, the trajectory that is foreseeable for Apple is very positive, despite any inevitable bumps in the road.
So while it’s sad that we lost a visionary like Steve Jobs, he put good people in place to keep Apple true to its innovative core. He simply loved the company too much to let it fail after he passed away.
#3. Another issue people are talking about is profit compression. Again, I don’t think there’s a long-term demise here. As with any business, when competitors come in and start copying what you do, you naturally get a compression of profit and you end up with thinner margins. But that’s only if you don’t continue to innovate. Apple has always been great at innovating. If you really look at all of their technology and history, you’ll see that they’ve always been an innovator with items like the mouse, the laser printer, the use of WiFi, and much more.
The key to avoiding profit compression is learning how to create game changing, must-have products for both business and consumers, and how to create an integrated ecosystem. And that’s what Apple has done amazingly well. They’ve created not just a product, but an amazing ecosystem. And it’s not just a product ecosystem; it’s also a software ecosystem, a supply-and-demand ecosystem, a manufacturing ecosystem, and a logistics ecosystem. No other company has that kind of a system in place.
I would say that profit compression can happen if they stop innovating, but I don’t think that will happen. Apple has always been a great innovator, and they now have an ecosystem platform that is unrivalled. So they can easily continue to innovate in a way that is difficult for anyone else to copy. .
#4. Finally, some people say that Apple will never be the leader again because there’s a softening macro-economy. Realize, though, that even at the height of the economy’s downturn, Apple did quite well. In fact, compared to other companies, Apple has fared well during the recession. Why? Because they’re creating must-have technology products that give customers the “wow” factor.
Additionally, as the prices have come down, Apple has hit the soft spots of many global buyers and customers. Any time a technology enables you to enhance communication, collaboration, and innovation, to name just a few, they will sell well and they will dominate the market. Even if we have a further economic decline, even if we have a longer recession, and even if we fall off the fiscal cliff, we will see Apple continue to do what they do best.
Of course, they aren’t immune from being affected by economic, political, and disruptive changes, but they will continue to lead because they have a history of understanding how to use the exponential growth of processing power, storage and bandwidth to create those innovative, must-have products. In addition, the millions of people who are Apple evangelists will continue to buy those new products because they’re part of the ecosystem now. They are no longer just buying a product; they’re buying a piece of the Apple ecosystem.
So don’t worry. Apple isn’t going anywhere. In fact, my prediction is that the best is yet to come.