How Apple Didn't Get Its Groove Back

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Apple Introduces Two New iPhone Models At Product Launch
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Legendary rocker Elvis Costello capped off Apple's (AAPL) iPhone event on Tuesday with a brief performance.

"What's so funny about peace, love, and understanding," he belted out.

He was singing to those in attendance, but he may as well be singing to a very jaded market that began selling off the stock the moment that the presentation failed to live up to expectations.

Wall Street showed the world's largest consumer tech company no peace, love, or understanding, and Apple shares fell 2 percent on Tuesday while the market averages rallied higher.

Why? Well, there was no smart watch nor was there a smart television. Fans hoping for refreshed iPads will have to hold tight, and the wait will be even longer for those craving iPhones with screens large enough to compete with Android's most popular handsets.

The market got iPhones -- plenty of iPhones -- but that apparently wasn't enough.

To C or Not to C

First, Apple unveiled the iPhone 5c. Available in five different colors, this is the device that will replace the now discontinued iPhone 5 in the company's pricing strategy. Apple has historically kept the prior year's model on sale for $100 less than the new iPhone, but this time it's hoping to offer more updated features in the iPhone 5c.

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This was hyped up as Apple's "cheap" iPhone in the weeks leading up to Tuesday's introduction, and the market was surprised that it only wound up being $100 cheaper than the new iPhone 5s.

Many attribute the sell off of Apple's shares to the surprisingly stiff price of the supposedly more accessible smartphone. $100 with a two-year contract through leading carriers here may not seem like such a big deal, but the off-contract unlocked price of $549 makes it unlikely to succeed with prepaid carriers and in markets overseas where carriers don't offer subsidies.

The iPhone 5c may eventually sell well. Its pastel hues stand out after years of black and white devices. However, it won't be the savior that many investors were hoping that it would be.

After seeing its share of the smartphone market shrink from 17 percent to 13 percent over the past year and watching Android continue to build on its dominant position, this doesn't seem like the device that will help Apple gain on Android.

Raising the Stakes

Apple will likely gain more traction from the iPhone 5s. Offered up in three metallic tones, Apple is making things interesting with a more powerful processor, an improved camera, and a fingerprint-based security feature.

During the presentation, Apple pointed out that just half of iPhone owners bother to passcode protect their devices. The Cupertino giant feels that the inconvenience of punching in four numbers every time someone wants to unlock the device is forcing owners to forgo security. That could change with the redesigned new home button, which doubles as a fingerprint reader.

The camera's major upgrade brings improved specs and new software features that include a self-adjusting flash and the ability to shoot in slow motion.

But pricing will remain the same as last year's iPhone 5. The handsets begin at $199 in this country tethered to two year contracts. The phones will be available for pre-order this Friday. They hit stores a week later.

Great Expectations

Apple stock had rallied in the months leading up to Tuesday's media event, so it's easy to imagine the share price had already baked in many of the event's positive developments.

It won't be just new iPhone buyers looking forward to Apple's near-term moves. The tech giant is also updating its mobile operating system -- iOS 7 -- which will offer enhanced software and new ways to make its Siri voice-activated assistant more useful.

There will be peace, love, and understanding in time. Costello wasn't lying.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our newsletter services free for 30 days.
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