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BERKO: Apple is losing its luster

Dear Mr. Berko: I bought 300 shares of Apple in late 2014 at $121 a share. It hasn’t given me the growth I thought it would. Apple is up a disappointing 29 points plus dividends. Is the bloom off the rose? I thought the new Apple phones paired with the iWatch would sell like hotcakes. Should I continue to hold and wait until iPhone 8 comes out, or should I sell? Or do you think Apple’s self-driving car could be a big hit and push the stock higher? — SM, Ft. Walton Beach, Fla.
Dear SM: I can read an income statement and balance sheet as well as most accountants. And I can dissect a prospectus with the skill of a neurosurgeon performing a Retro-Sigmoid “keyhole” craniotomy. But I can’t figure out those new iPhone features, nor will I ever possess the skillsets to change the date on an iWatch. I’ve got a grandson with an IQ high enough to boil water who is considering a Ph.D. in astrophysics. He is a math genius and can also make any laptop dance an Irish jig! But he tells me that Apple’s innovations have become so convoluted, and the learning curves so tortuous, that he and others of his ilk are losing enthusiasm for Apple’s “new stuff.” Certainly, sales of the iWatch have been hampered by a creative and innovating complexity that crams more and more in less and less space. Great googly moogly, if Steve Jobs were alive today, he’d turn over in his grave. Even Steve couldn’t master the turning, twisting, tapping and pressing functions of various parts of the iWatch to tell time or coordinate it with the iPhone.
I don’t think Apple (AAPL-$150) will be selling many iWatches this year. AAPL’s iPad sales are down 19 percent year over year, and iPhone sales have begun retreating. AAPL’s premium pricing strategy helps the company maintain strong margins but it limits sales growth. While first quarter revenues are up 4 percent from the same quarter last year — higher prices helped — the dip in iPhone sales is considered a red flag by the Street. AAPL has definitely lost some of its mojo. Meanwhile iPhones 6 and 7 have almost everything one would want or imagine. So devotees would have to be pixilated to buy the new “8” for $1,200, and then attend night classes at a community college to learn how to operate the thing so you can call home. However AAPL’s services segment, iTunes, iCloud, Apple Pay and the App store are hot items and will produce more than $30 billion in revenues this year. (AAPL should spin off this division to improve shareholder value.) Management believes these revenues can double to $60 billion by 2021.
AAPL is still a fine company but it’s a fine, maturing company, certainly not as exciting as it was several years ago. AAPL has $250 billion cash, pays a stingy $2.62 1.69 percent dividend that may grow enough to become attractive. Ten years ago, a $10,000 investment in AAPL, with dividends reinvested, would be worth more than $95,000 today. Those were heady and exciting days, and many investors thought that Apple would eventually own the world. However, I think future principal growth of AAPL shares will not come close to matching its previous principal growth.
Initially, the self-driving car will generate enormous publicity and enthusiasm, just like the iWatch. And according to some doubters at AAPL, the demand for this thing has been hugely overestimated, just as it was for the iWatch. They note that programming destination instructions is slightly less complicated than programming an iWatch. Then there’s the cost factor for a completely autonomous car. Sebastian Thrun (Google’s self-driving car guru) founded Udacity with Oliver Cameron, who tells us that the various laser cameras, the PC, hardware, radar, the inertial measurement unit, the graphic reader and other hardware cost about $250,000. That’s enough to pay Uber for 15 years of driving, and you don’t buy gas or insurance. Lots of folks talk about the autonomous car but fail to talk about cost. Sell the stock! I think the Apple has lost some of its shine.

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