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The feeding frenzy over Apple has settled down. After having pushed its shares to the $700 (U.S.) mark last September, investors large and small turned on the gadget maker early this year, selling enough of it to push it below its 52-week low, where it now hovers around $420. Recently, analyst reports have suggested the medium-term outlook for the company could be on the mend. Should you take a bite, or is Apple irretrievably poisoned?
The bearish case for Apple is well known. Margins have started to decline, hedge funds have fled the stock, competition for the iPhone from smartphones running Google's Android is steadily encroaching, and with CEO Tim Cook having been judged a mediocre fit for the late Steve Jobs' Birkenstocks, the company suffers a perceived lack of vision. Recently, however, optimism has re-emerged among observers such as Cowen & Co.'s Matthew Hoffman and Lazard Capital Markets' Edward Parker, both of whom recommended the stock to clients. Perhaps more urgently, research firm Gartner predicted that devices running Apple's iOS software will be neck and neck with, if not outpacing, Microsoft operating systems by 2017.
The criticisms that dogged the launches of both the iPhone 5 and the iPad mini charged that the company had failed to innovate to the degree that it had in creating the iPod, iPhone and iPad, and that said lack of innovation would be a drag on growth. Given that the proposed iWatch and iTV have both reportedly been delayed to 2014, those complaints will likely be resurrected if and when Apple issues the iPhone 5S or a new iPad, and the stock's downward momentum could continue apace.
Whether you think the stock has been unjustly battered or brought back to reality, there's no doubt that some of the air has been let out of Apple's balloon. But in the absence of transformative innovations from other companies – where is Samsung's disruptive innovation, for example? – we can't see threats that would significantly damage Apple's current profitability.
Users who waited to join the smartphone revolution may have chosen low-cost Android phones, eroding Apple's market share, but sales of the iPhone remain strong; it is the dominant smartphone in the United States. There's also the tablet category, where there's far more room for market penetration than in smartphones or PCs. And the company is focused on gaining market share in China, where its international status as a premium brand can only help it attract China's rising middle class to its products and its growing base of Apple stores.
While Apple no longer has the smartphone or tablet markets to itself, its ecosystem is still a huge part of its pitch to consumers; the fact that Apple devices play well with each other – as well as make it easy for non-tech-oriented consumers to buy and enjoy music, video, etc. – won't go away any time soon. Nor will its $137.1-billion cash hoard. And at a price to earnings ratio of 9.59, the stock isn't nearly as expensive as it was. If the company can protect its current customer base, as well as capture a greater share of markets abroad, Apple will stay fresh for a while yet.
Dave Morris is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Dave on Twitter at @morrisdave.