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Apple's (NASDAQ: AAPL) Stock Crash: A Buying Opportunity or a Value Trap?

Written by Jason Stutman
Posted December 15, 2018 at 7:00PM

Since October of this year, Apple, Inc. (NASDAQ: AAPL) — once the largest publicly traded company in the world — has suffered an alarming decline. Shares have plummeted from $232 apiece to $169 in just over two months’ time, a difference that works out to a quarter of the firm’s peak value.

Looking at the total numbers, Apple’s shareholders have lost $300 billion in less than 50 days of trading. That averages out to roughly $6 billion lost every day on the market, a rate of decline that even the world’s most profitable smartphone maker cannot afford to keep up.

With Apple’s share price in the dumps, many investors are wondering whether or not this is a buying opportunity. That’s a question that can ultimately only be answered in time, but investors would be wise to sit on the sidelines heading into 2019.

As compelling as it may be to take the contrarian stance here, Apple’s recent share price decline may very well be shaping up to be what we in the industry call a value trap. The company may look cheap by historical measures, but there are real factors at work that justify the decline.

The most obvious near-term factor is the signal of weaker-than-expected iPhone sales. Chinese suppliers first began reporting order cutbacks of up to 25% by their “largest customer” in November. At the same time, Apple is already reducing the cost of its iPhone XR, either through direct cuts (as seen in Japan) or increased trade-in payouts (as seen in the U.S.).

Add in the fact that Apple recently decided it will no longer be telling investors how many iPhones it sells each quarter, and the conclusion is clear: The age of iPhone sales growth is finally at an end.

Exactly what this means for Apple over the long run is unclear, but needless to say, none of this bodes well for the company’s next 10-Q or for fiscal 2019.

As it stands, Microsoft (NASDAQ: MSFT), not Apple, is now positioned to end the year as the world’s most valuable company. This may come as a shock to some (Microsoft hasn’t held that position since 2002), but we first noted signs of this flip in 2016:

For those of you who’ve kept up with our market commentary lately, these numbers should be of little to no surprise. Sure, I’m had my fun with hyperbole, touting my “Death of the iPhone” thesis, but you can’t say it hasn’t been turning out. The handset industry has clearly hit a plateau, both in terms of sales and innovation, and leading firms like Apple are now losing market share to other OEMs that have reached technological parity.

Apple’s inability to innovate has slowly but surely caught up to the firm, as I’ve been arguing would inevitably happen as far back as 2013. Not only is the company experiencing underwhelming demand for its monotonous iPhone 7, but competing firms such as Microsoft and Google are compounding the problem, releasing a slew of new and innovative products that paint a dreary future for what was once considered the authoritative avant-garde company of tech.

Apple’s gradual decline into technological parity is a trend we have been talking about for years now. The company was late to the party on wireless charging, OLED, and a slew of other premium features spearheaded by its competitors. Barring any behind the scenes tech (fingers are still crossed for AR glasses by 2020), investors can expect this trend to continue for at least another fiscal year.

More recently, Apple is falling behind on another critical piece of development set to become the new standard for smartphones next year. As Forbes noted earlier this week, in a piece titled “Apple’s New iPhones Have Serious Design Problem,” Apple is unlikely to have a 5G phone ready until 2020.

While not a guarantee, this prediction has been echoed by both Bloomberg and Barron’sadding weight to the possibility. Meanwhile, Verizon and Samsung have already announced the launch of a 5G phone in the first half of 2019, along with a number of other smartphone OEMs.

While 5G networks won’t be working at full capacity quite that soon, this isn’t as much a matter of immediate application as it is of future-proofing. Given that the average consumer holds onto their phone for two years, the allure of buying a 4G iPhone next year would be seriously diminished. After all, 5G networks, which are aggressively being deployed this very moment, are going to be standard come 2020.

Notably, Apple’s 5G woes are intrinsically linked to its ongoing spat with Qualcomm Inc. (NASDAQ: QCOM), which is currently dominating in the race to roll out a 5G chipset. Virtually every smartphone company we can think of (sans Huawei) has sided with Qualcomm’s Snapdragon 855 for 5G.

Apple, on the other hand, has been forced to settle with Intel, as it stubbornly cuts Qualcomm out of its business. This move, which initially burned Qualcomm investors, is now coming back to bite Apple right on the rear.

If the performance differences weren’t apparent enough already, Apple has made it entirely clear that it is, in fact, settling. In April, reports first surfaced that the company is planning to produce its own chips to replace processors in its Macbooks from Intel. This tells us Intel is a temporary solution.

Earlier this week, this fact became even more apparent when it was revealed that Apple is planning to replace Intel not just in its Macbooks but in its iPhones as well. Specifically, job openings have surfaced for a “Cellular Modem Systems Architect” at Apple. In other words, the company wants to build its own 5G chipsets.

Since this application still has not been filled, we can reasonably assume that Apple is way behind the ball. We’re talking several years before it can become self-sufficient, if ever.

The takeaway for investors is that Apple has some serious headwinds to face over the next year at the very least. Right now, the stock looks cheap, but the risk factors are enough to turn us away.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

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