6 Reasons Apple Won't Rally in 2012

There's never a shortage of Apple (NAS: AAPL) bulls.

The world's most valuable tech company is percolating globally and cheap by most historical measuring sticks.

There isn't a lot of suspense here. A whopping 50 of the 55 analysts following the company have the stock rated as a buy or strong buy. Does that worry you? It certainly concerns me.

Barclays Capital analyst Ben Reitzes isn't leaving the herd, issuing a note yesterday detailing the six reasons that the class act of Cupertino will rally next year. I'm not entirely sold on the proposition, so let me go over what can go wrong with each of his six catalysts for big gains in 2012.

New iPad is coming
The original iPad came out in April of last year. The iPad 2 followed 10 months later in February of this year. It would be a shock if Apple doesn't hit the market with an updated tablet early next year.

Yes, the iPad 3 is going to up the ante. Reitzes sees a stronger processor, better cameras, and Siri voice recognition. It will sell well, but is the iPad 3 going to be strong enough to provide the kind of material gains that the iPad 2 had over the initial spurt of Apple's first tablet?

This won't be a slam dunk. Keep in mind that Apple didn't have Amazon.com (NAS: AMZN) selling millions of Kindle Fires at $199 when earlier iPads hit the market. Analysts have actually been in the rare position of scaling back iPad 2 sales projections this holiday quarter.

Apple is likely to respond with a calculated price cut. Reitzes and I agree on the front. Introducing the iPad 3 starting at the historical $499 price point -- but keeping the entry-level iPad 2 model around at $399 -- makes sense. However, what if it's not low enough to encourage the buyers of much cheaper tablets? What if the market for tablets will follow the trend of Android outgunning Apple in smartphone market penetration?

The iPhone reach is growing
A year ago, only AT&T (NYS: T) customers had access to the iPhone in this country. Today, smartphone buyers have actual choices.

However, Apple's real growth here will come from overseas growth. China has embraced the device for its high-end consumers, and other companies have been bitten by the bug.

This sounds like a rosy scenario, but let me revisit data from sales tracker Gartner that details worldwide smartphone sales during this past quarter.

Q3 Handsets

Q3 2011 Share

Q3 2010 Share


60.5 million




19.5 million




17.3 million




12.7 million




2.5 million




1.7 million



Source: Gartner.

Ouch! Did Apple's iOS actually lose global market share? Yes, it's a growing pie. Apple handset estimates actually rose by 28% over the past year. The overall smartphone market simply grew faster. Perhaps more important, some will argue that the third quarter was a fluke. Apple stunned investors with weaker-than-expected iPhone sales, largely because everyone knew that the iPhone 4S was coming during this quarter. Apple should bounce back, but for now it's hard to argue that the iPhone is the platform of choice when Google's (NAS: GOOG) Android is eating its lunch.

The iPhone 5 is coming
Were folks disappointed with the iPhone 4S, or simply disillusioned that Steve Jobs wasn't there to tell them that they wanted it?

We know that next year's shiny new iPhone will be better. It will feature a new design, be more powerful, and likely come with several features already found in Android phones, including 4G LTE connectivity and NFC chips for mobile transactions.

However, Apple doesn't get better in a vacuum. Everyone else doesn't stand still. Android's already working on a rival to Siri's digital assistant. Microsoft (NAS: MSFT) is paying handset leader Nokia (NYS: NOK) billions to back the software giant's fledgling mobile operating system. Apple's iconic smartphone will get better, but clearly so will everyone else.

New Macs are on the way
Global PC sales have been stagnant all year.

We're seeing a different scenario play out in this realm. Apple's actually gaining market share here, but the pie isn't growing much.

Apple's Mac and MacBook renaissance can be traced a decade back to the introduction of the iPod. The company experienced the halo effect, where success in one category influenced the buying decision in others.

Well, iPod sales have been shrinking for several quarters. The real halo here has been the iPhone and to a lesser extent the iPad. And some will even argue that the success of tablets and smartphones as "good enough" computing devices is what is actually eating into PC sales.

Well, where does the halo go now that Apple is losing market share in the tablet space to Android gadgetry and Android has overtaken iOS on smartphones? If Microsoft paying Nokia billions to champion Windows pays off, does this mean that even Microsoft has a halo waiting?

Rumors of a full-blown Apple television by the end of 2012 keep inching toward reality.

A new category will clearly be incremental to Apple's model. If we consider that iPhones and iPads may double as slick remote controllers, a successful iTV may don a halo effect of its own.

Apple can make this work, but it won't be easy. Folks won't upgrade their TVs every year or two the way they do with iPhones and iPads. Logistically speaking, Apple stores will have to sacrifice some selling space of other gadgets -- and a lot more warehousing space in the back -- to make room for larger TV displays. It's also hard to picture folks carrying out heavy and gargantuan television boxes from the stores.

I'm on record as liking this move, but PC makers and tech companies have bombed in earlier efforts to cash in on the bigger screens. It will pay off for Apple, but at a much slower adoption clip and with thinner margins than the rest of its lines.

Dividends make sense
There's too much cash snoozing on Apple's balance sheet, but what else is new.

Even if Apple comes through with a dividend announcement, will this really help the stock? If anything, it may signal to the market that the Cupertino giant needs to appeal to income investors because the past few years of heady growth are over.

Yield chasers may have applauded when Microsoft initiated a dividend policy nearly nine years ago, but the stock has been a dud since then. Do you really want that to be Apple? The meatier the yield, the more concerned investors will be about Apple's internal growth projections.

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At the time thisarticle was published The Motley Fool owns shares of Microsoft, Google, Amazon.com, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Microsoft, Amazon.com, Google, and Apple.Motley Fool newsletter serviceshave recommended creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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