The Apple (NASDAQ: AAPL) juggernaut has been rolling for a long time. But if recent events are any indication, it seems the company is finally creeping to a stop. The company's stock value crashed by 6.2% on Tuesday, on the back of weaker than expected third quarter earnings. The fall wiped $50 billion from the company's market capitalization. The fall in Apple's share price is even more surprising, because in the last two weeks, Apple climbed more than 10%.
Two other IT behemoths, Microsoft (NASDAQ: MSFT) and Yahoo! (NASDAQ: YHOO) also reported lower than average growth. They were also punished - Microsoft losing 3.5% and Yahoo losing 2.2%. Microsoft suffered because of a $7.5 billion write-off on account of Nokia (NYSE: NOK), which the company had acquired sometime back in a bid to revive its ailing mobile business.
Apple was not expected to take such a beating
Stifel Nicolaus and Co. market strategist Kevin Caron said that the Apple debacle was not expected at all. The general feeling was that the company's third quarter earnings would lift all boats. Just five days earlier, Google (NASDAQ: GOOG) had reported the largest one-day gain for any stock in history (adding 16% to its stock value in one day, boosting its market capitalization by $65 billion).
Apple's fall can be attributed to lower than expected iPhone shipments. There are indications that there might a drop in iPhone demand from China, one of Apple's biggest markets. This raises questions whether consumer demand for the iPhone is tapering. Apple had suffered a $59.6 billion hit to its market capitalization in January 2014. The company's Asian suppliers have also retreated on the stock market. For example, Japan Display Inc., whose biggest client is Apple saw its share price fall by 3.6% on the Nikkei. Minebea Co., another supplier also fell by 3%.
Apple has done well but not well enough for investors
Actually, Apple did not do too badly. The company's profits have increased by 38% from the same time last year, to $10.7 billion. Sales of the iPhone have also increased by 35%. If it were any other company, this would have been considered massive growth. Apparently, it was not enough for Apple and the market was clearly expecting more. There are also doubts about the viability of the iPad. The device is in the midst of an existential crisis. It is not quite as important as a smartphone. Nor does it have the functionality of a tablet. People who already have an iPad do not see many reasons to upgrade to the new iPad. The Apple watch is another question mark. Will the company be able to make the Apple watch a success? All these questions will be answered in the next few years.