There is no shortage of geniuses on Wall Street. If you don’t believe me, just tap anyone on the shoulder and ask them. They will gladly share their opinion on the ups and downs of any stock. However, there is no company on the market today that draws more interest than Apple.
With the stock having dropped as much as 30% recently from its all-time high of $705, the company is suddenly perceived unable to innovate and being “left behind” by Google and Amazon. Even more remarkable is to hear the word “cannibalization” being screamed from the rooftops of every money manager on the heels of Apple having announced the release of the iPad mini. But this was one of the most anticipated launches this year. Yet somehow it was still considered a surprise. The fact is, these experts continue to look at this from the wrong point of view.
Here’s What Apple’s Thinking
The only guarantee in the world of business is that a market leader does not remain a market leader forever. Research in Motion, Nokia and Motorola are perfect examples of this. Apple, by its own recent history understands this all too well when at the height of the PC industry it suffered brutal punishment at the hands of Microsoft. The company does not want to relive this and to some extent its recent sales numbers hinted at lost share – particularly in tablets.
Consider this, at one point in 2011 Apple’s iPads enjoyed a market share of over 81%. It was a relatively new market for which many rivals had not prepared. That iPads took off with such enormous success, this forced the competition to pour in billions in R&D in an attempt to steal some of that luster – with varying degrees of triumph. Although RIM’s PlayBook and HP’s TouchPad fell flat on their faces, Samsung’s Galaxy Tab as well as Amazon’s Kindle Fire were ranging successes. All of which served to undercut the iPad, which by most accounts is priced at a premium. Essentially, Samsumg and Amazon entered and created the low-end tablet market.
As a consequence, today Apple’s tablet lead has shrunk to just 52%. And seeing as both Google’s Nexus 7 tablet and Microsoft’s Surface have entered the market, Apple had no choice but to release the iPad Mini. What this means is that even though Apple still enjoys much success in the higher-end tablet market, the company does not plan to surrender any portion of mobility – regardless of the risk to cannibalization, one of the most overused terms in marketing by those who don’t truly understand business.
Bottom line
Early indicators suggest that the iPad Mini is already a smashing success, which has already been reflected in Apple’s stock price. Since hitting a low of $505 a week ago, the stock is now up over 12% to $568 in early trading on Friday – albeit an abbreviated session due to the holiday. The long term narrative in Apple has not changed and the company’s prospects have never looked brighter. With sales of the iPad Mini expected to exceed 5 million units during this quarter, this will serve as the new catalyst to propel the stock back over the $600 range and send shares to higher highs in Q1 2013.
