There is no reason to believe that Apple Inc. (NASDAQ:AAPL) would be unable to create a successful larger-screen smartphone. Amazon.com, Inc. (NASDAQ:AMZN) shook up the tablet market in late 2011 when it released the Kindle Fire, a 7-inch tablet that retailed for $199, 60% less than the iPad’s $499 starting price. However, while the Kindle Fire performed better than other Android tablets, the first generation only sold a total of 6 million to 8 million units (Amazon never released official sales figures). This was well below the 58 million iPads sold during Apple’s FY12. Nevertheless, Apple decided to meet the 7-inch tablet threat head-on and released the iPad Mini last fall. Apple is believed to have sold at least 8 million iPad minis in the holiday quarter, and that number was depressed by significant supply constraints.
In other words, the shift in consumer preferences toward larger phones has not been as clear-cut as panicked analysts seem to assume. Moreover, just as Apple Inc. (NASDAQ:AAPL) was “late” to the 7-inch tablet market but still gained a big share after entering it, Apple will not suffer any long-term damage from being late to the 5-inch phone market.
Ride the wave
Investors should not worry too much about the short-term logic of Wall Street price target changes. Investing is about long-term trends and competitive advantages. Apple owns iOS, a popular ecosystem that will drive a reliable upgrade cycle for years to come. By contrast, Android vendors who offer larger screen sizes have no moat: Apple Inc. (NASDAQ:AAPL) can simply follow suit whenever it wants to.
There are several potential catalysts that could boost Apple sentiment later this year. Whether it’s the launch of a new product line, a more ambitious return of cash to shareholders, or an iPhone launch at China Mobile Ltd. (ADR) (NYSE:CHL), a strong catalyst could quickly reverse Apple’s recent losses. With the company trading for less than 10 times earnings despite having lots of opportunities ahead of it, long-term investors will be rewarded for sticking with Apple.
The article Analysts Are Chasing Apple’s Price Chart originally appeared on Fool.com and is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg owns shares of Apple and is short shares of Amazon.com. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, China Mobile, and Google.
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