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Apple "Fatigue" Hitting The Street?

A flag showing the Apple Computer logo flies outside the Apple shop in Regent Street, London
Kirsty Wigglesworth
A flag showing the Apple Computer logo flies outside the Apple shop in Regent Street, London

You have to understand the reservations I have in even tiptoeing around this topic, but it bears at least a cursory look: Are investors growing weary of the Apple PR machine?

Seems implausible, I know, but here we are on the eve of another major product unveiling, in the sweet-spot of the company's historic share-price growth, just ahead of the holiday shopping season which is always the company's best performing quarter, and Apple shares are languishing.

What gives?

The day started nicely enough: A report from Gartner seemed to show healthy acceleration of the smartphone market globally, and despite a precipitous decline in iPhone sales as Apple sold down its pre-3G inventories, down from 5.3 percent of the market to a paltry 2.8 percent, the indication is that Apple should pop right back up as 3G begins to spread through the market. The big winner was Research in Motion, seeing second quarter market share double year-over-year to 17.4 percent. Good news for RIM, but the company is still a distant third behind Nokia and its 47.5 percent, which was down slightly from the same period a year ago of 50.8 percent. (RIM also enjoyed a nice upgrade and bullish comments in a note this morning from Morgan Keegan.) Both Apple and RIM have both given back all their early rallies today and gone sharply negative.

But let me focus on Apple: These shares would typically pop on a day like this. Buy on the rumor, say goodbye on the news tomorrow. The rumors are that Apple will unveil new iPod Nanos, more storage on the Shuffle, maybe Bluetooth on some of the models for new Apple wireless headphones, maybe a deal with the Beatles? Yet this time around, it seems to me that Apple is laboring to manufacture the magic. Investor expectations have been ratcheting up at fever pitch for four straight years. It's simply getting more difficult to wow them every time. And it's the nature of Apple's own strategy of trying to whip its fanbase into a frenzy that could be a problem.

I'm talking to a number of Wall Street analysts who all tell me the same thing: Tuesday's event won't be as much about Apple's products as it will be about how Steve Jobs looks. As long as Steve Jobs shows up, they tell me, looks healthy and emcees the event, it doesn't matter what he unveils. All of this following his gaunt appearance in June that spawned rumors of a cancer return, and discussions about a company's fiduciary responsibility to disclose health issues facing its CEO. Many people might think the Steve Jobs health issue is largely behind Apple, but the fact remains: I spoke with one Apple analyst who told me he had 15 meetings last week and Jobs' health dominated every one. "Jobs could unveil the third generation of iPhone and it could be a brick with an antenna coming out of it," an analyst told me this morning. "As long as Jobs himself unveils it, and he looks healthy, the stock will go up."

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Apple's also been plagued recently by some product snafus; The MobileMe fiasco, Apple's new mobile internet service that failed to live up to any of the company's expectations; the transition to iPhone 2.0 software has been less than smooth, and hardly typical of Apple software releases of the past; the controversy surrounding the remote kill switch for applications sold on the Apple App Store.

Individually, none of these issues is a threat. But collectively it seems there's a lack of attention to detail that Apple has always been known for. And the blogs have been rife with Apple fans (*gasp) complaining. That makes it hard to focus on longer term opportunities when Apple seems to be suffering uncharacteristic short term challenges.

Apple will unveil some new iPods Tuesday. That's almost a given. In the past, that's been enough to flame excitement and turbo charge the stock. Trouble is, Apple itself keeps raising the bar on expectations. And investors keep looking for more. I once asked Jobs about the "big hype" that always swirled around the company. "The 'big hype' from Apple Computer," he shot back. "I thought 'hype' was something you say, and then don't deliver," he corrected me. "We like to deliver what we say."

That's fine. It's just that "delivering" is getting harder and harder. It's true that nothing I've seen shakes my longer term outlook that this company is positioned better than any other to take advantage of the digital entertainment revolution. And its four key revenue streams of Macs, iPhones, iPods and Software give this company more sources of growth than any other. I'm not saying Apple won't deliver. I'm just saying it's getting a lot more difficult, and investors have to wonder whether Apple risks becoming a victim of its own success.

What are your thoughts? I know Apple fans won't be happy with this assessment. But it's an honest one. Send in your responses and I'll post some of them in a little while.

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