Writing at my blog, SaintsSense, John Mylant said it best:
"The cold hard facts are this: Gross margins are being challenged because cell phone and tablets are made by lots of people and the competition continues to get fierce. It is highly unlikely that Apple can continue to bully the market and demand large subsidies from the telecom giants. I believe it won't be long before the company is going to have to take a margin hit and give a better deal simply because competition is very strong."
While John is right, management has been too stubborn to do what most economists believe is in Apple's best interest. This brings up another issue. Whose interest is the company serving? I'm no longer convinced that shareholders are the top priority.
Aside from stating "We feel your pain," Tim Cook has not responded in a way to convince long-term investors that Apple still deserves their support. The stock price has cratered 40% over the past six months, and the bleeding has yet to stop. David Einhorn believes iPrefs is the answer.Unfortunately, here too, Tim Cook made a mistake in suggesting that Einhorn's idea "is a silly sideshow." How then, can you say, "We feel your pain"? Still, as I wrote at my blog, analysts are predicting that Apple will raise the dividend by 50% this year. That's all well and good. But it's not as if analysts have had a great track record of predicting what this company will/should do. And even if the company does address the dividend, Apple still must prove that it can get out of this innovative rut. The dominant profit streams that Apple once enjoyed, which prompted analysts to play "the price is right," are on the decline. And the leverage is going with it. The company that was once known for creating game-changing devices that no one knew they needed doesn't realize that perhaps Einhorn is right -- Apple does need iPrefs. Today, given the unfortunate PR gaffes with China, investors are wondering whether management still deserves the benefit of the doubt. You can't screw with China and get away with it, especially since China is seen as Apple's next opportunity to respond to Samsung.
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