Apple’s stock slipped below $500 for the first time in 11 months on Monday as investors reacted to reports signaling the company’s latest iPhone is falling further behind a slew of sleek alternatives running Google’s Android software.
The sell-off also hit various Apple (Nasdaq: AAPL) suppliers.
Sharp Corp. and other Apple suppliers declined in Asia trading after media reports Monday that orders for iPhone 5 parts had been cut about 50 percent following lower-than-expected sales.
Apple shares fell as low as$498.51 Monday before rallying to close above $500 at $501.75. The share’s 52-week low is $419.55, its high $705.07.
Sharp, which makes display panels for the iPhone 5, fell 2.7 percent in Tokyo. Samsung Electronics Co., which supplies Apple and makes its own competing phones, declined 2.6 percent in Seoul. Speaker-maker AAC Technologies Holdings Inc. dropped 2.8 percent in Hong Kong.
Ex-Chief Executive Officer John Sculley also said today the Cupertino, California-based company needs to develop cheaper phones to boost sales in emerging markets.
Slower iPhone demand “will inevitably have a negative impact on component suppliers,” added Park Hyun, an analyst at Tong Yang Securities Inc. in Seoul. “The center of growth in the market is moving toward the mid-end segment.”
Apple intended to order parts for about 65 million iPhone 5s this quarter, Nikkei said, citing unidentified executives at parts suppliers. Steve Dowling, a spokesman for Apple, declined to comment.
Upcoming Earnings Report
Apple declined to comment Monday on the orders reports.
Spokeswoman Natalie Kerris said Apple executives would share their views on market conditions Jan. 23 when the company is scheduled to release its financial results for the final three months of 2011. The period covers the first full quarter that the iPhone 5 was on sale.
Although Apple hailed the iPhone 5 as the best version yet of a product that has revolutionized the telecommunications and computing industry, the company’s stock has wilted since the device hit the market.
After peaking at $705.07 on the day of the iPhone 5’s Sept. 21 release, Apple’s stock has plunged nearly 30 percent. The shares fell $18.55, or 3.6 percent, to close Monday’s regular trading at $501.75, dragging the company’s market value nearly $190 billion below where it stood in late September.
The stock’s decline hasn’t been entirely caused by concerns about the iPhone 5’s sales performance. Industry analysts are also worried about the recent introduction of a smaller, less expensive iPad cutting into the company’s profits.
But the biggest fears hover around the iPhone because it has become Apple’s most valuable product since the company’s late CEO, Steve Jobs, unveiled the first model in 2007. Apple has sold more than 271 million of the devices since then, and in the company’s last fiscal year ending in September, the iPhone generated $80 billion in sales to account for more than half of the company’s total revenue.
But Apple’s upgrades of the iPhone in the past two years have disappointed gadget lovers who have been clamoring for Apple to do more to stay in front of device makers relying on the free Android software made by Google Inc. For instance, there were high hopes for a larger iPhone screen with the release of the 2011 model, but Apple waited until last September to take that leap. And when Apple moved to a larger display screen with the iPhone 5, it didn’t include a special chip to enable users to make mobile payments by tapping the handset on another device at the checkout stand. Such a mobile payment feature is available on some Android phones.
Finally, Apple has insisted that wireless carriers subsidize so much of the iPhone’s cost in exchange for customers’ two-year commitments on data plans that the carriers make little or no money by selling the devices. That has prompted more wireless carriers to tout less expensive Android phones in their stores, undercutting the demand for iPhones, said Darren Hayes, who has been studying the shifting market conditions as chairman of the computing systems program at Pace University in New York.
Through the third quarter of last year, Android devices represented 75 percent of smartphone shipments worldwide according to the research firm International Data Corp. That was up from 58 percent at the same point 2011. Meanwhile, Apple’s share of worldwide smartphone shipments has fallen from a peak of 23 percent in the fourth quarter of 2011 to 15 percent in the third quarter of last year.
Samsung Electronics, in particular, has been benefiting from the growing popularity of its Android-powered phones, led by its Galaxy S line. The company said Monday that it sold more than 100 million Galaxy S phones in less than three years. It took the iPhone nearly four years to reach that milestone.
A “Wake-Up Call”
“This is a real wake-up call for Apple,” Hayes said. “They need to be more flexible in how they do things.” Among other things, Hayes thinks Apple may have to reduce the financial burden on wireless carriers selling the iPhone and spend more money advertising the devices, especially with the recent wave of phones running on Microsoft Corp.’s Windows software. Apple’s efforts to sell more iPhones to companies also could be short-circuited if Research in Motion Ltd.’s upcoming release of a revamped BlackBerry proves to be a hit.
The BlackBerry is due out Jan. 30.
In an attempt to regain its competitive edge, Apple already is considering the release of a less expensive version of the iPhone made of cheaper parts to boost sales in less affluent countries, according to a report last week in The Wall Street Journal. The company so far hasn’t commented on that speculation, either. The least expensive iPhone 5 without a wireless contract sells for $649. With the subsidy included with a two-year wireless service contract, the iPhone 5 sells for as little as $199.
Even as it loses ground to Android products, the iPhone remains a solid seller. Some analysts believe Apple sold more than 50 million iPhones in its last quarter ending in December, which would be far the most units that the company has ever shipped during any previous three-month period.
What’s more, the iPhone 5 got off to a torrid start in China, where Apple expects to eventually sell more devices than it does in the U.S. Apple said it sold more than two million iPhone 5s in the three days after its debut in China last month.
The suppliers’ declines today were limited by earlier reports the iPhone 5 was trailing sales targets and that Apple was cutting production, said Keita Wakabayashi, an analyst at Mito Securities Co. in Tokyo. The phone maker cut production about 30 percent last month, USB AG analyst Steven Milunovich wrote in a note yesterday.
“This is not entirely a new story,” Tokyo-based Wakabayashi said. “That’s why stocks aren’t plunging dramatically.”
Apple may have pared iPhone production to rebalance inventory or because of lower consumer demand, according to Milunovich. Order cuts may also be due to suppliers becoming more adept at assembling the latest iPhone, reducing the need for excess inventory, he said.
Milunovich’s projection for 25 million iPhone 5 units to be sold in the quarters ending in December and in March will still be exceeded under the scenario Nikkei reported, he said.
Sculley said in an interview with Bloomberg TV the phone- maker needs to overhaul its supply chain to meet demand for lower-cost smartphones in emerging markets. The U.S. and European markets offer little room for growth because they are saturated, he said.
“Apple needs to adapt to a very different world,” he said. “As we go from $500 smartphones to even as low, for some companies, as $100 for a smartphone, you’ve got to dramatically rethink the supply chain and how you can make these products and do it profitably.”
(Bloomberg and The AP contributed to this report.)