This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Growth Fears Biting Apple

To some analysts, Apple (AAPL - Get Report) is so last year.

The computer company was the "in" thing in 2004, thanks to the megahit iPod line of music players. But some analysts are wondering whether Apple may be a one-hit wonder. The iPod's ability to drive Apple's stock is already fading, and unless the company finds another chart-topper, it could be yesterday's news.

"It's just a different ballgame this year than last year," says Shaw Wu, who covers the company for American Technology Research. Wu doesn't have a position in Apple's stock, and AmTech does not do investment banking.

Apple continues to post strong iPod sales, of course, and is the leading vendor of digital music devices. But Wu and other analysts see signs of trouble. Among them:

  • The sharp decline in iPod average sales prices. Unit sales were up 16% in the second quarter over the first quarter, but the company's iPod revenue was down 16% sequentially. That means Apple saw about a whopping 28% drop from the second to the third quarter in the average price it got for each iPod. Some of that can be explained by new budget-priced flash-memory-based players, but some analysts worry that it also indicates slowing sales of Apple's higher-priced hard-drive players.

    Adding to this worry is the disappointing guidance issued by Synaptics(SYNA - Get Report) last week due to "softness" in the music-player market. Because Synaptics provides the click-wheel interface for the hard drive-based iPod, its outlook could indicate slowing demand. More clarity may appear Thursday, when iPod supplier PortalPlayer(PLAY) releases results.
  • Apple's slowing overall growth rate. Revenue grew 70% in the second quarter from a year earlier. While that's a phenomenal rate of growth for the computer industry, it was down from the first quarter, when the company's sales grew at a 74% annual pace. And the company says future growth rates may come in closer to 15%.
  • Growing competition . Asian device makers are coming out with low-priced rivals to Apple's shuffle. Rio, Creative (CREAF) and other companies have dropped prices on their competing music players, analysts note. And Sony (SNE) is making a strong push to attract Apple's potential customers through both its new digital music players and its PlayStation Portable, a video-game device that also plays movies and music.
  • Meanwhile, some think that Napster (NAPS) or Real Networks (REAL) will see strong demand for their subscription-based music services. Both compete with Apple's iTunes store but have a format that is incompatible with Apple's iPods. And devices compatible with their services generally won't play songs sold through iTunes.

    On top of all this is the little matter of Apple's history . The company has had great success in the past with its original computers, with the Macintosh and with its first iMac line, only to see its market share and sales slip away because of missteps and fierce competition. Add up all those factors, and Apple could go from rock star to has-been in a short time frame, analysts worry.

    "You have to wonder when the music's going to end, in which quarter," says Rod Bare, an analyst who covers Apple for Morningstar. Morningstar doesn't do investment banking, and Bare has no position in the stock.
    1 of 3

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Only $9.95
    14-Days Free
    Dividend Stock Advisor

    David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Updates with exact steps to take - BUY, HOLD, SELL
    Trifecta Stocks

    Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

    Product Features:
    • Model Portfolio
    • Intra Day Trade alerts
    • Access to Quant Ratings
    Options Profits

    Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • Actionable options commentary and news
    • Real-time trading community
    SYM TRADE IT LAST %CHG
    PLAY $35.92 1.47%
    DELL $0.00 0.00%
    AAPL $125.69 -0.25%
    MSFT $44.30 -0.20%
    SYNA $82.90 -0.04%

    Markets

    DOW 17,776.91 +93.33 0.53%
    S&P 500 2,081.34 +12.58 0.61%
    NASDAQ 4,997.4590 +5.5190 0.11%

    Free Reports

    Top Rated Stocks Top Rated Funds Top Rated ETFs