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Apple Enters Its Golden Years as iPhone Refresh Disappoints Street


Yesterday in a comprehensively disappointing special event, Apple (AAPL) announced what amounts to a product refresh for its wildly popular iPhone line. Gone is the iPhone 5, replaced by an iPhone 5c and iPhone 5s. The 5c will sell for $550 retail and $100 with contract, $100 less than the now discontinued 5. The internal specs of the 5c are largely the same as the 5 but the exterior is now plastic and... wait for it... in color! The 5s has a faster processor, fingerprint security scanning and souped up camera capabilities. It sells for $100 more than the c for 16gb of storage with an option to step up to 32gb.

Apple's head of marketing declared the 5s "our most forward-thinking phone yet!" but Wall Street was less convinced. JPMorgan (JPM), Credit Suisse (CS), and Bank of America (BAC) downgraded the stock citing the lack of a long-anticipated deal with China Mobile and a much higher than expected price point. "5c in my book stood for cannibalization," says GVA Research's David Garrity. "People were looking for a price range somewhere in the area of $300 to $350 as what you really needed to do to address the market in developing countries, and it's just not there."

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The breathless announcement of $29 plastic colorful cases didn't help matters. The 5c is plastic. The whole point of plastic and color is that you don't need a case and $29 is more expensive than all but the most bedazzled of aftermarket cases already on the market.

Apple has protected its high-end market positioning. Slightly more encouragingly the new internal architecture of the 5s along with the iOS7 operating system have the potential to make the iPhone more appealing to the enterprise market. It's a nice update in terms of the guts of the phone but there's a striking lack of ambition at work in Cupertino. Offering the iPhone 5 in pink isn't exactly analogous to putting lipstick on a pig, but it's in the same barnyard. Apple painted a classic car. It doesn't make the car bad but it doesn't make it new either. As for offering the 5s in gold, forgive this old timer for saying so but back in my day Apple didn't need to make its new phones garish. Keeping the black or white scheme in the 5 but dropping the price to $250 would have been much more exciting.

No one is selling the stock because they think Apple became a horrible company overnight. They didn't. Apple is still great. The problem is the word "still". Apple has become the Tiger Woods of the corporate world - probably the best in the world but not even close to what it once was.

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As for the stock, well, there's not a lot beyond nostalgia to suggest Apple is going to be able to meaningfully expand its margins or product line in the foreseeable future. The stock is cheap for a fast growing tech company but about fairly priced as a high-margin yield play. Whether or not you want to buy today's dip is up to you, but before you call your broker ask yourself this: would you buy and hold Tiger Woods' stock in the hope that he's going to win 10 more majors?

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