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By Adam Levine-Weinberg, The Motley Fool

Last September, Apple released its latest smartphone, the iPhone 5, to great fanfare. Nevertheless, many pundits claimed that the new iPhone was a disappointment; it didn’t seem innovative compared with its predecessors. The iPhone 5 is thinner and lighter than the iPhone 4S, has a bigger screen (4 inches, as opposed to 3.5 inches), provides LTE support, and offers an upgraded camera and processor. However, to many observers, these features seemed like minor tweaks. The result was hysteria about whether innovation at Apple had died along with Steve Jobs. Apple’s stock subsequently dropped 40% in less than six months.

Apple Price Chart: 9/21/12-3/21/13; data by YCharts.

Strictly speaking, Apple critics may be right that the company’s smartphone designs won’t be as innovative in the future as they were in the past. However, that’s primarily because Apple began with a great concept, so that the iPhone quickly became the gold standard among smartphones. By the time the iPhone 4 was released in June 2010, there wasn’t much left for Apple to improve on. (And that explains why the iPhone 4 remains so popular; demand outstripped supply in the fall quarter.)

Since 2010, Samsung and other vendors of Google Android phones have made significant progress to catch up with the iPhone. Recently, BlackBerry has taken a great leap forward as well. However, a look at the most recent product launches on rival platforms — Samsung’s Galaxy S4 and BlackBerry’s Z10 — suggests that Apple isn’t the only smartphone maker for which innovation is reaching a dead end. Smartphones are all converging toward a common look and feel, with similar capabilities.

From left to right: Samsung Galaxy S4, iPhone 5, and BlackBerry Z10. Images from the manufacturers.

That doesn’t necessarily spell doom for smartphone makers. There are plenty of people who still don’t own a smartphone, or who have a low-end smartphone but will eventually want a better one. And as Henry Blodget recently argued, significant improvements to battery life could persuade many smartphone users to upgrade. Finally, smartphones don’t last forever. Manufacturers should see strong replacement cycles over time, because of the recent increase in smartphone penetration.

An iPhone clone?
When the BlackBerry Z10 was introduced in January, many observers quickly noted its visual similarity to the iPhone. Its 4.2-inch screen makes it just slightly bigger than the iPhone 5, and the Z10 is an all-touch device, differentiating it from most previous BlackBerry phones. While the user interface is significantly different from iOS and Android, the general experience is similar: It’s all about apps.

BlackBerry has talked up the differentiating features of its BB10 OS, such as the Hub (a collection point for emails, texts, social media messages, and so on) and BlackBerry Balance (a feature to separate personal data from work data). Still, most observers agree that there aren’t enough differences to persuade iOS or Android users to switch in significant numbers. In other words, it’s different, …read more

Source: FULL ARTICLE at DailyFinance

By Adam Levine-Weinberg, The Motley Fool

Filed under: Investing

In the course of 2012, shares of Apple rocketed from a little above $400 to a peak just above $700 in September. The stock price has proceeded to fall even faster, plunging to a new trading range in the low $400s recently.

Apple Price Chart by YCharts.

In trying to keep up with the latest moves in Apple’s stock price, analysts have had to make some rather embarrassing changes to their price targets. Long-term investors should more or less ignore these frequent price target revisions. There are plenty of reasons to believe that Apple is still a long-term winner, and that the hiccups that have caused Apple’s 40% fall are just a bump in the road.

How much has really changed?
Peter Misek of Jefferies cut his Apple price target to $420 this week, citing numerous challenges for the company. These include: 1. the mythical “iTV” being delayed to 2014, 2. the iPhone 5S being pushed back until later in 2013, and 3. a shift in consumer preferences toward larger screen sizes, particularly “phablets”. Misek’s recent bearishness is all the more odd because as recently as December he had a $900 price target on the stock. Since then he has cut his price target to $800, then $500, and now $420, as he has become more progressively more bearish.

What really seems to be happening is that Misek — like many other Wall Street analysts — is chasing the Apple price chart, which is ultimately a measure of current investor sentiment. It is very reasonable for Apple investors to be worried about Samsung, and other Google Android smartphone vendors. However, the outlook has not changed that much over the past year (let alone the past three months). There is no plausible long-term logic to back up the significant drops in Wall Street price targets recently.

The bigger picture
To better understand the problem with Wall Street‘s short-term mentality, let’s take a look at Misek’s phablet thesis. He has argued on several recent occasions that “Apple is losing the screen-size war.” There are at least two major flaws in that statement. First, true phablets like the Galaxy Note are still niche products compared to the iPhone. It took two months for Galaxy Note II sales to hit 5 million, something that the iPhone 5 accomplished in less than a week. Moreover, Samsung has estimated the Galaxy Note II’s lifetime sales at around 20 million, less than half of the number of iPhones sold last quarter! Clearly, the Galaxy Note is not popular enough (at least for now) to be a major drag on iPhone sales.

Second, while some users clearly want a larger phone, whether it is a full-blown phablet or a phone with a 4.7-inch to 5-inch screen, there is no moat protecting the producers of these phones. If Tim Cook and his team decide that they are losing sales by not having a larger phone, you can be sure that …read more
Source: FULL ARTICLE at DailyFinance

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