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Apple Inc. (AAPL): Is iWatch A Bad Omen?

Apple Inc. (NASDAQ:AAPL) has been struggling to prove to the market that it still has the Steve Jobs magic, even without Steve Jobs around. So far, the market isn’t impressed with the company’s prospects, or at least with the price it’s been paying for those prospects. The rumor of an iWatch doesn’t make that better; it may even make things worse.

Amazing Innovation

Over the past decade or so Apple Inc. (NASDAQ:AAPL)’s innovations have been nothing short of revolutionary. Its iPod music players completely reshaped the music industry, giving the company a seat atop the music business with its iTunes store in the process. Of course the music business was pretty much decimated along the way.

Apple Inc. (NASDAQ:AAPL)The iPhone took the cell phone business by storm, reshaping the landscape of both the handset manufacturers and the cellular service providers. In fact, Research In Motion Ltd (NASDAQ:BBRY) BlackBerry and Nokia Corporation (ADR) (NYSE:NOK) are both clinging to life in the smart phone space, a massive fall from their previous dominant positions. Cell phone service, meanwhile, has moved from voice to data as the focus. The more functionality that Apple Inc. (NASDAQ:AAPL) crammed into its iPhones, the more data people have been using.

The iPad, meanwhile, brought the notion of a casual computer to the fore. It has completely altered the mindset of dealing with a personal computer at all, since many people only use a computer as a gateway to the Internet. While online, the tasks are usually pretty simple. That’s causing notable strife at once massive personal computer companies like Hewlett-Packard Company (NYSE:HPQ), which is trying to follow the lead of International Business Machines Corp. (NYSE:IBM) out of the hardware business. Too bad for HP it was late to the shift and hasn’t executed particularly well.

What’s Next

One big problem Apple Inc. (NASDAQ:AAPL) has is answering the question, “What’s next?” Everyone would like to know. There have been rumors since late last year that an iWatch was to be the next big release. However, it’s hard to see that as being a transformational event.

For starters, a watch is relatively small, which would severely limit the functionality of any device. There simply wouldn’t be enough screen space on a realistically sized watch to allow it. Second, voice control, while much improved from the past, isn’t up to Star Trek speed and would more than likely disappoint. The company’s Siri voice activated control system is cool, but seen as little more than a toy by most users.

Tipping the Hand

Perhaps that an iWatch is even making the news is tipping the company’s hand. With such a small space, perhaps it will simply connect wirelessly to an iPhone or iPad and act as an extension of the more powerful device. This could work in the same way that some applications use an iPhone to control functionality on an iPad (such as the iPhone becoming the paint pallet for an art program). That would leave an iWatch as little more than a neat accessory. It seems unlikely that people would give up their $1,000+ Omega watches for an iWatch for very long.

Thinking longer term, does this cement the notion that Apple Inc. (NASDAQ:AAPL) is it just a device maker that can only grow by selling more baubles. If this proves true, then an iWatch will be a great new toy for the company to hype and sell. However, it won’t transform the world.

Stiff Competition

The second problem Apple Inc. (NASDAQ:AAPL) is facing is that competition is heating up, and getting better at fighting back. For example, while Nokia pretty much gave the cell phone market away when it stumbled in the smart phone space, its recent partnership with Microsoft Corporation (NASDAQ:MSFT) to create the Lumia phone line has, so far, been received well. While it may not displace Apple, it gives Nokia a toehold that it lacked before—a decent phone. With Nokia’s strength in emerging markets, it has a good chance of regaining its footing.

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