Saxo Bank “Outrageous Prediction:” AAPL Declines 50% in 2012

The point of the company’s “Outrageous Predictions” list is to identify events that are “unlikely to happen,” but that have more chance of happening than the markets are currently accounting for. The firm says that it believes investors should consider such events that have “under-recognized probabilities.”

So what better headline grabber is there than the idea that AAPL will run off a cliff? None, it would seem. Saxo bank not only lead with its AAPL prediction, it sent Steen Jakobsen, chief economist for the company, on the rounds at many financial outlets to discuss the issue.

First, let’s look at the numbers. AAPL’s closing high was set on October 18th, when the stock closed at US$422.24. AAPL set an intra-day high of $426.70 on October 17th. The stock closed this Friday at $381.02, up $2.08 (+0.55 percent), on moderate volume of 14.6 million shares trading hands. A decline of 50 percent from its all-time closing high would mean the stock would have to drop to $211.12 per share.

Saxo Bank wrote that, “Going into 2012 Apple will find itself faced with multiple competitors such as Google, Amazon, Microsoft/Nokia, and Samsung across its most innovative products, the iPhone and iPad. Apple will be unable to maintain its market share of 55 percent (three times as much as Android) and 66 percent on the iOS and iPad.”

Note that the firm’s market share numbers for iPhone are off substantially. Apple has held approximately 27 percent of the smartphone market for the past few quarters, the highest share Apple has enjoyed. That’s far below Saxo’s 55 percent share claim. The company is more or less right about Apple’s tablet market share being 66 percent (if not higher—it depends on whom you ask).

Mr. Jakobsen told CNBC that, “In relation to current earnings, Apple is not expensive but expectations about future profit growth will come down hard as competition reaches insane levels and crushes Apple’s profit margins.”

When asked by Bloomberg how Apple could be threatened when it has such a high share in the smartphone and tablet markets, Mr. Jakobsen replied, “That’s exactly the point, the point is that no product, no company is able to maintain such a lead relative to other players. On top of that, of course, you have the micro-economics of the open source [nature of Android]; you have Microsoft coming into the frame; if you look among younger people, you’ll find that Samsung is becoming very popular.”

These are the same arguments that have been used to predict Apple’s doom and destruction for years. We heard it in 2009 about Android, and we heard it in 2010 about Android. We’ve heard it about the iPhone and we’ve heard it about iPad. For more than a decade, we heard it about the Mac.

Yet today, the iPhone remains the top selling device, and Apple has increased its market share consistently in the smartphone business (note that Android did pass iPhone’s market share in 2011, but it did so at the expense of everyone but Apple).

This quarter, we do have a legitimate competitor for the iPad in the form of Amazon’s Kindle Fire, but that device appears at this point to be taking share away from all other would-be competitors, and it remains to be seen how it will do after the Christmas buying frenzy is over. It could continue to do quite well, but it won’t overtake Apple’s iPad in total share.

Even the Mac is doing well, and the company has outgrown the PC market as a whole for 22 quarters in a row.

Let’s come back to Saxo’s central premise, however, and that’s the idea that no company has ever maintained a dominant share against other companies. This is something that seems to be a comfort food for many people who simply can’t grasp the idea that Apple’s whole widget model works.

Time and again we’ve seen people argue that this is the week/month/quarter/year when Apple’s iOS empire gets buried in the Android mud slide, and yet it hasn’t happened. This time, the proponent of the idea states boldly that no company has ever maintained the kind of lead Apple has in its iOS devices.

And yet one company has done so, and is doing so even now. That company is Apple, and the market is MP3 players, and the product is iPod. Apple has owned somewhere between 60 percent and 70 percent of the MP3 player market since it brought iPod to Windows, and that is still true today.

Which makes Mr. Jakobsen wrong.

He also specifically states that Apple’s margins won’t be able to withstand the Android/WinARM/Wintel hordes. What’s so fascinating about that is that Apple is the price leader and the margin leader in tablets and the so-called Ultrabooks that Intel modeled after Apple’s own MacBook Air.

In tablets, the only way to beat Apple is to offer low end cheap plastic devices, something that Amazon has done with its Kindle Fire, and something that we believe only Amazon is capable of doing successfully. The rest of the industry can’t survive selling devices below cost, and if they make 7” cheap plastic devices, no one will buy them because there’s no ecosystem of Android content outside of Amazon.

When Apple is the price and margin leader, how can competitors put the hurt on Apple’s margins? It makes sense if you’re stuck in 2005, but it requires a weird kind of delusional faith in a world where Apple isn’t an electronics giant with the best supply chain in the world.

The point of Saxo’s “Outrageous Predictions” is to be outrageous and to look at things most people aren’t thinking about, but the firm’s predictions for Apple are rooted in an alternate reality where Wintel rules and whole widgets are merely a faded echo of a bygone era.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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