Why Apple Will Never Be Great Again

The market wasn't exactly blown away by Apple's iPhone 4S announcement yesterday.

Where was the NFC chip or 4G LTE connectivity that's already springing to life on Android handsets? Where were the radical redesign and wider screen that some industry watchers were predicting? Where was the "one more thing" zinger that blows the market away?

In the words of Marvin the Martian, "Where's the kaboom?"

There was supposed to be an earth-shattering kaboom!

Shares of Apple fell as much as 5% yesterday during the conference, before making most of that back to close only marginally lower. Apple bucked the trend on a day when the general market rallied.

Instead of gushing over the new iPhone's sweet specs, investors were left scratching their heads. So there's no iPhone 5? So there's no iPad-optimized Facebook app?

Retirement of a Salesman

There's probably no one taking the market's unenthusiastic reaction to the new iPhone as hard as freshly anointed CEO Tim Cook. This was supposed to be his time to shine, letting the world know that Apple could live on without Steve Jobs at the helm. Cook had a big test yesterday, and Mr. Market gave him a failing grade.

"I love Apple," Cook said at the beginning of his presentation.

Judging by yesterday's price movement, the feeling may not be mutual.

As a longtime Apple bull, my biggest fear was that the country's most valuable tech company would miss Jobs the salesman the most. His role at Apple has been largely exaggerated over the years. Cook has been handling the operations. Jonathan Ive is the design genius.

However, most of Apple's consumer successes wouldn't have been possible if Jobs wasn't there to sell the public:

  • Portable media players were dead until Apple rolled out the iPod.

  • Folks were perfectly happy ripping off digital music for free until Jobs convinced them that paying for downloads was the right thing to do through iTunes Music Store.

  • No one needed a tablet until Jobs let everyone know how magical the iPad was last year.

  • Will Apple be able to market televisions next year -- kitchen appliances in five years -- and teleportation tubes in 20 years -- without Jobs?

Apple Picking Season's Coming to an End

There's a solid valuation argument to be made for Apple. The tech bellwether closed yesterday at a mere 11 times what analysts believe it will earn over the next 12 months. According to Apple's recent quarterly reports, the class act of Cupertino is growing a lot faster than its earnings multiple. Apple has also historically landed well ahead of Wall Street's targets, so it's more than likely that the pros are underestimating the company's true earnings power.

There were also plenty of fundamentals-stoking developments during yesterday's "Let's Talk iPhone" event. Having Sprint (S) aboard as the smartphone's third domestic wireless carrier should immediately expand Apple's iPhone reach. There are now 250 million devices out there running Apple's iOS, and its latest refresh -- iOS 5 -- goes live next week.

However, Apple is already a $345 billion company -- and it may not be running on all cylinders in the near future.

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iPod sales have declined over the past few quarters, with Apple selling 20% fewer iPods in its latest quarter than it did a year earlier. This may not be such a big deal given the booming growth with iPhones and iPads that also double as iPods, but it's still a fading category.

Macs and MacBooks may be next. Unit sales inched 15% and 13% higher, respectively, in Apple's latest quarter, but PC sales in general have been slipping in this country lately. What happens if the halo effect that has seen a revival in Mac computers on the strength of Apple's more portable gadgetry goes away?

It can happen.

Where Brown Spots Are Forming

It may seem like heresy to suggest that the iPhone and iPad are vulnerable, but let's start with the smartphone that popularized Apple's iOS.

  • Google's (GOOG) Android smartphones are outselling Apple. Really.

  • Everyone seems to leave Research In Motion (RIMM) for dead, but there were 70 million active BlackBerry accounts -- and growing -- as of its latest quarter.

  • Then we have Microsoft (MSFT). Apple fans may laugh at Steve Ballmer's sweaty antics, but Microsoft earlier this year agreed to pay Nokia (NOK) billions -- yes, billions -- to champion its operating system on its globally popular handsets.

Add it all up, and Apple may be more vulnerable than you think with its iPhone -- particularly when it comes to Google's open-source Android platform.

If Android-flavored smartphones continue to take off, it's really only a matter of time before Android tablets begin eating into the iPad's commanding lead. Maybe it starts next month with Amazon's (AMZN) Android-fueled Kindle Fire with its ridiculously low $199 price point. Maybe it doesn't -- but it's inevitable that the operating system that's outselling Apple's iOS will make a move in the tablet market.

Arrogance, closed ecosystems, and premium pricing burned Apple in the 1980s. History doesn't repeat itself, but it rhymes.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Apple, Research In Motion, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of Google, Amazon.com, Apple, and Microsoft, as well as creating a bull call spread position in Microsoft and Apple.