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December 9, 2012

Why is Wall Street losing its appetite for Apple?

(Continued)

SAN FRANCISCO —

Here are three theories that seek to explain the recent downturn in Apple’s stock:

Theory: The Competition Conundrum

Hypothesis: Apple’s grip on the growing mobile computing market is loosening amid a wave of cheaper alternatives to the iPhone and iPad.

The iPhone’s early lead in the smartphone market already has been surrendered to the more than 500 million devices running on the free Android software made by Google Inc. By comparison, as of the end of September, Apple had shipped 271 million iPhones since its 2007 debut.

Nokia phones running on the recently released Windows 8 system from Microsoft Corp. pose a new threat, especially in China, where Nokia has struck a deal with that country’s largest wireless carrier. Meanwhile, struggling Research In Motion Ltd. is pinning its comeback hopes on a revamped operating system for the once-iconic BlackBerry to rekindle demand for that device.

Now, there are signs the competition is putting pressure on Apple in the booming tablet computer industry that it launched in 2010 with the release of the iPad.

In a report that likely contributed to Wednesday’s steep drop in Apple’s stock, research firm IDC predicted the iPad’s share of the worldwide tablet market this year will decline to 54 percent from 56 percent in 2011. IDC said the iPad will dip below 50 percent by 2016.

Meanwhile, the market share of tablets powered by Android, including Google’s Nexus line and Amazon.com Inc.’s Kindle Fire, has climbed from 40 percent last year to 43 percent his year, according to IDC.

Windows 8, which is designed to run on tablets, also is expected to chip at Apple’s lead and latch on to 10 percent of the market by 2016, IDC said.

The popularity of smaller tablets with seven-inch diagonal screens and retail prices below $200 has already forced Apple to make changes. The company responded by introducing the iPad Mini, which features a nearly eight-inch screen. The iPad Mini sells for $329, which helps Apple protect its profit margins and preserve its reputation for selling top-of-the-line products that merit prices a notch above the competition. Nevertheless, the iPad mini is undoubtedly diverting some sales from full-sized iPads, which sell at prices ranging from $399 to $829. That is one of the reasons BGC Financial analyst Colin Gillis expects the iPad’s average selling price to fall by about $50 in the current quarter, which ends this month. That would be a 9 percent decline from the iPad’s average price of $535 during the July through September period.

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