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Apple’s stock continued its descent on Monday morning, dipping below $500 for the second time in the last three months, trading close to 30 percent below its all-time highs of $705.
Monday’s correction in Apple’s stock has been fueled by a Nikkei report claiming that Liquid-Chrystal Display Panel makers Japan Display Inc. and Sharp Corp have cut their shipments to Apple. Cited are a slower than expected global demand for iPhone 5; continuing concerns over the Apple’s product pipeline; prospects for iPhone 5 in China; and increasing competition that has fueled analyst downgrades.
Margin calls, perhaps, have contributed to this decline.
While Apple’s stock continued its descent, Research in Motion’s (NASDAQ:RIMM) stock was sharply higher, while Nokia’s (NYSE:NOK) stock was trading slightly lower. This means that investors continue to stay with the smartphone industry stocks.
As I have written in previous pieces, the game in the smartphone market is changing. Smartphone devices and tablets are becoming mainstream gadgets, replacing PCs -- as evidenced by a 4.9 percent decline in PC sales.
At the same time, the market is becoming increasing fractionalized. Consumers on the “top of the income pyramid” look for more sophisticated devices, while consumers in the “bottom of the pyramid” look for a lower price.
The transformation of the smartphone market is changing the game from a winner take all to one in which winners take all, as different players tailor their products to different segments of the market. That transformation reiterates my previous position that investors should create an equally weighted portfolio of all major players: Apple, Nokia, Research in Motion, Samsung, Microsoft and Google; and indirect players like Qualcomm and Cirrus Logic.
This strategy makes a lot of sense, at the moment, for two reasons: First, Apple, Nokia and Research in Motion have corrected sharply, though Nokia and Research in Motion more than Apple. Second, the smartphone industry has become increasingly fractionalized, with major players churning out devices that bundle together different product characteristics, and cater to different market segments.
In fact, investors who have purchased all three stocks since I first suggested this strategy have experienced an average of 9.3 percent gain!
| Company | Change Since 1/10/13 |
| Apple | -4% |
| RIMM | 20 |
| NOK | 12 |
| Average | 9.3 |
In buying shares in all major players, the only trend the investor has to watch is growth in smartphone sales.
A few words of caution: As in every other market, the smartphone market is facing two major threats, saturation and competition from alternative products. Besides, each company has its own financial situation, which determine the risk/reward of the committed funds. Hype should never be a substitute for due diligence.
Also read:
I, the Consumer: An Open Letter To Capitalist Enterprise
Why Microsoft Looks Risky In 2013
Disclosure: Long on AAPL, NOK, CRUS, and QCOM
