What is going on? Because of its great success in recent years, many investors have come to expect nothing short of perfection from Apple. And while it is still widely considered the most innovative company in the technology world, a maker of products that its devoted customers cannot live without, Apple is facing a range of challenges.
It is dealing with increased competition from big rivals like Samsung and Google, and with so many people already using smartphones, the market is not quite as untapped as it once was. Apple is forging into cheaper product categories, meaning lower profit margins. And given that Apple has grown so big, with sales of more than 120.09€ billion in the last 12 months, keeping up its heady growth rate is becoming harder and harder.
Once-euphoric investors, who pushed Apple's stock to a record high of 526.98€ last September, have become nervous, and in after-hours trading on Wednesday, the stock traded at 346.24€ down 34 percent from its peak.
Apple has reinvented itself several times over the last decade with groundbreaking new products, and could do so again. Television and electronic payments are among the markets where analysts believe the company could make a push, leading it to new heights.
"Apple has really been able to invent whole new markets," said John Gallaugher, an associate professor at Boston College's Carroll School of Management. "That's where it differs from companies like Microsoft. I don't think the mojo of this team has evaporated."
In a conference call with analysts, Timothy D. Cook, Apple's chief executive, said the company's pipeline of new products was "chock-full."
"We feel great about what we have in store," he said, without adding details.
In the meantime, though, the love affair that investors once had with Apple is clearly waning.
"There's nothing that can help the stock from sliding now," said Mark Moskowitz, an analyst at J. P. Morgan Securities, who said Apple's holiday sales met his own forecasts, even though they missed others' predictions.
For years, Apple has offered an unusual alchemy: it was not only a large, highly profitable tech company, but one with the rapid growth rate of a start-up. It pulled this off under the leadership of Steven P Jobs, its former chief executive, who died in late 2011. He had a startling knack for finding new multibillion-dollar opportunities for Apple with the iPod, iPhone and iPad, but his death has accentuated concerns about the company's prospects.
A big part of Apple's challenge is that it is now so large that it seems unrealistic, mathematically, for the company to continue finding new pots of gold big enough to maintain its growth. In a recent research report, AM Sacconaghi, an analyst at Bernstein Research, calculated that were Apple to grow for the next five years at the same rate as the last five years, its revenue would be 0.9€ trillion, or about the size of Australia's gross domestic product.
One continuing concern is that the iPhone, which accounts for over half of Apple's revenue, could be smothered by smartphones running Google's Android operating system, which accounts for three out of every four handsets shipped globally.
But Apple continues to take an outsize portion of the profits in the smartphone business, and in the United States the company actually increased its share of the smartphone market over the holiday quarter, rising to 51.2 percent from 44.9 percent a year earlier, according to a study released this week by Kantar Worldpanel ComTech.
On Wednesday, Apple did not appear to provide a strong enough reason for investors to warm to it again. It said its profits were flat because of higher manufacturing costs, even as revenue rose 18 percent.
Apple's net income for its fiscal first quarter ending Dec. 29 was 9.83€ billion, or 10.37€ a share, flat compared with 9.83€ billion, or 10.41€ a share, in the same period a year earlier. Revenue was 40.91€ billion, up from 34.77€ billion a year ago. Those results compared to the average estimates of 10.09€ a share earnings and revenue of 41.08€ billion from analysts surveyed by Thomson Reuters.
Apple's growth in the quarter looked anemic compared with the huge numbers it used to deliver. For the holiday quarter of 2011, in contrast, its revenue jumped 73 percent and its profit soared 118 percent.
In its financial forecasts for the current quarter, Apple provided numbers that suggest a decline of roughly 20 percent in earnings a share, according to Sacconaghi's calculations.
A number of analysts say they still believe the company's good times are not over. "Sentiment has turned super-pessimistic on Apple, where they've gone from being able to do no wrong to suddenly being able to do no right," said Rob Cihra, an analyst at Evercore Partners. "I tend to think the company's momentum is a heck of a lot more solid than people are concerned about."
One factor that hurt comparisons between Apple's most recent holiday quarter and the previous one was that its 2012 quarter was a week shorter.
Headed into the holiday quarter, analysts were worried about Apple's profit margins, which the company had warned would decline as a result of a near total overhaul of the company's product line.
While new products are routine for a company like Apple, it said the number of devices it released around the holidays, like the iPhone 5, iPad Mini and new Mac computers, was unusual.
But negative sentiment has further hardened amid reports that Apple had cut orders for components with a supplier, potentially suggesting weak demand for the iPhone.
Cook cautioned that investors shouldn't place too much significance on such reports because Apple often gets its parts from multiple sources.
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