Apple Inc. Stock

Decision/Justification

        We decided to invest the $100,000 in Certificate of Deposit at Fifth Third Bank instead of investing in Apple Inc. stock. Our decision not to invest in Apple Inc. was based on a thorough analysis of the company’s financial position.

        Apple released its financial statement on January 23 for the first quarter of FY 2013, ending on December 31, 2012. The gross margin percentage was 38.6% compared to 44.7% in the first quarter of FY 2012. The company anticipates gross margin to be between 37.5% and 38.5% during the second quarter of 2013. Also, Apple missed analysts’ estimates the past two quarters with sales showing their smallest gain since 2009.

        Samsung Electronics Co. and others have become more competitive in price and technology allowing them to acquire more market share than previous years. In three months, Samsung was able to capture 27% of the U.S. mobile market by November. Apple, by comparison only had 18.5% market share in November.

        The iPhone represents the majority of Apple’s revenue and its rate is only at the growth rate of the rest of the market. According to IDC, in year 2012 Samsung was the world’s number 1 smartphone vendor, with 63.7 million shipments. Apple followed with 47.8 million shipments. Apple also has many other competitors in the computer manufacturing industry, among some of their biggest competitors are Google, Microsoft Corp, Oracle Corp, Dell Inc, Hewlett-Packard Company, Super Micro Computer Inc, Cray Inc, Concurrent Computer Corp, Diebold Inc, and IBM. The computer systems industry is a highly competitive industry in the sense that products can become quickly outdated and they usually only have a lifespan of less than 18 months.

        Apple’s stock is currently relatively cheap. From a high of more than $700 a share in September, its stock price dropped to $448.37 as of January 28, 2013 1:53 p.m..

Some investors are looking at the drop-off as a buying opportunity, but we believe that right now it is not a wise decision to make a short-term investment in their stock.

A Bit About Apple

Apple Inc. takes part in several areas including designing, manufacturing, and marketing mobile phones, personal computers, portable digital music players, related software, and other applications.  

The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and Mac OS X operating systems, iCloud, and a variety of accessory, service and support offerings.

The company was founded on April 1, 1976, in a residential garage by college dropouts Steve Jobs and Steve Wozniak in Santa Clara Valley, California. It was incorporated as Apple Computer, Inc. on January 3, 1977.  In 1980 the company went public and the sales jumped from $7.8 million in 1978 to $117 million in 1980. For more than two decades, Apple Computer was predominantly a manufacturer of personal computers, including the Apple II, Macintosh and Power Mac. The word "Computer" was removed from its name on January 9, 2007, reflecting its shifted focus towards consumer electronics after the introduction of the iPhone.

Apple Inc. Key Success Factors

Key success factors are the product attributes, competencies, competitive capabilities, and market achievements with the greatest impact on future competitive success in the marketplace.

Apple is less cost effective than its competitors due to its research-intensive nature and high R&D costs. Samsung Electronics Co. become more competitive in price and acquired more market share in the first quarter of FY 2013.

Over the years customers kept paying a high price just to get their hands on the Apple product but buyers’ needs are shifting and they care more about the price than the product design and Apple was not quick enough to respond shifting customer needs.

Apple is losing its position as the world’s biggest public company to the oil company Exxon Mobil. Investors are worried that after the loss of co-founder Steve Jobs it may never again create a product as pioneering as the iPhone or iPad.

On the other hand Apple has unique ability to keep its product plans secret. It is not like Google or Samsung when they tell in advance that a product is coming. In Apple’s case we will probably get an invitation for its new iPhone 5S a week before its launch which is likely to be a sub $400 iPhone to address the customers’’ need. Other possible innovations include a digital wallet. Apple spent 1.9% of net sales for R & D in the first quarter of FT 2013 compared to 1.6% in the first quarter of FY 2012  and a lot of new products are coming and we believe stock prices will move in the right direction but investors are looking at the negative in Apple and not in the future.