Apple Shares Fall on Disappointing Prices

Apple Inc. shares fell sharply Wednesday, on investor disappointment in the company’s two new iPhones. Apple fell $26.93, or 5.4 percent, to $467.71.

THE SPARK: Apple unveiled two new phones Tuesday: a cheaper 5C model made of colorful plastic, and a luxury 5S model that adds a faster processor, fancier camera and fingerprint scanner.

THE BIG PICTURE: The unveiling of the iPhones came as Apple tries to regain some of the market share that it has lost over the past two years to Samsung Electronics and competitors who rely on Google Inc.’s free Android operating system.

Apple is credited with revolutionizing the cellphone market with the iPhone, but competitors have succeeded by selling devices that cost less and boast features, such as larger screens, missing from Apple’s best-selling product.

Samsung is now the top of the smartphone heap, with a 32 percent share of the market in the most recent quarter, compared to 14 percent for Apple, according to the research firm Gartner Inc. The intensifying competition has slowed Apple’s financial growth and pushed the company’s stock price down sharply.

The new phones are set to go on sale Sept. 20.

Analysts said they were disappointed in Apple’s failure to debut a lower-priced product. The 5C will start at $99 for a 16-gigabyte model with a two-year wireless contract. Without a contract, the 5C will start at $549, which is not as low as analysts thought Apple might go to make a bigger splash in the lower end of the market.

The 5C is Apple’s least-expensive iPhone ever, and represents an effort to boost sales in China and other areas where people don’t have as much money to spend on new gadgets as they do in the U.S. and Europe.

THE ANALYSIS: Credit Suisse analysts downgraded their rating on Apple to “Neutral” from “Outperform.” The analysts said that the company’s new carrier relationships and rapid rollout of new products could help the company grow. But they said that the pricing was a disappointment. They said that Apple’s strategy of focusing on the $400-and-over smartphone segment is a poor one, as this niche is not likely to grow meaningfully in the long term.

They said it could prove good for its profitability but not the company’s growth, and leaves the middle and lower-tier markets free for Android to dominate. The analysts expect the company’s smartphone share will shrink from 18.1 percent last year to 15.5 percent this year and 13.1 percent the next.

UBS analyst Steven Milunovich lowered his rating on Apple’s stock to “Neutral” from “Buy,” on concerns that the company’s pricing strategy will hamper its ability to compete, particularly in China. The analyst said the pricing strategy is a “head scratcher.” He also said that he is concerned the company’s brand perception may be at risk, given its failure to be more accommodating in prices.

SHARE ACTION: Shares fell $28.23, almost 6 percent, to $466.41 by Wednesday afternoon. Apple’s stock has fallen nearly 30 percent since peaking at $705.07 when the last iPhone came out.

This article appeared in print in the September 12th, 2013 edition of Hamodia.