Why Apple Inc. (AAPL) Won’t Go Down

Although we don’t believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes — just in case they’re material to our investing thesis.

This month is thus far not conforming with September’s grim historical reputation for stocks, as we close another positive day — the sixth in a row. The S&P 500 gained another 0.7%, while the narrower, price-weighted Dow Jones Industrial Average was up 0.8%, after S&P Dow Jones Indexes announced its most significant changes to the Dow in nearly a decade. It’s highly likely that much of this positive trend has to do with a de-escalation between the U.S. and Syria — some sort of diplomatic solution now looks like a possibility.

With those gains in mind, it’s not surprising that the CBOE Volatility Index fell 7% today, to close at 14.53. The VIX, Wall Street’s “fear index,” is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.

Apple Inc. (NASDAQ:AAPL)

Is Apple’s new iPhone 5C too expensive?

With today’s launch of two new iPhone models — the first “double” launch in the iPhone’s history — Apple Inc. (NASDAQ:AAPL) signaled that it is committed to defending its premium positioning and does not want to compete on price to regain some of the market share it has lost to Android-based rivals, including Samsung.

According to research firm Gartner, Apple Inc. (NASDAQ:AAPL)’s share of the worldwide smartphone market has fallen to 14% from 19% a year ago, while Samsung’s has increased from 30% to 32% over the same period.

The iPhone 5C, the cheaper of the two models, will be priced at $99 in the U.S. with a two-year contract and $549 without. That is less than the new top-of-the range 5S but more expensive than competing devices from Chinese manufacturers, which have been taking market share in markets including China and India.

Indeed, as Christopher Mims of Quartz points out, “Most phones in emerging markets are sold without the subsidy that comes with a monthly plan, people must pay the full cost of a phone upfront. At $549 even for the base model, the iPhone 5C remains a luxury item in China and other emerging markets.”

Investors may have been hoping for a cheaper entry point that would have made Apple Inc. (NASDAQ:AAPL)’s offer more competitive in emerging markets, a lucrative growth opportunity. If so, they certainly registered their disappointment today, clipping 2.3% from the share price and knocking it back down below the symbolic $500 level while the technology-heavy Nasdaq index advanced 0.6%.

Apple Inc. (NASDAQ:AAPL) has been extremely successful in creating and marketing devices that command premium pricing over competitors thanks (partially) to meticulous design. However, as the competition adapts and improves, this is a difficult strategy to sustain. On that topic, the market appears to be sending a signal of its own: Competing on design is great, but, at some point, trench warfare may be necessary, and Apple needs to get more aggressive on price.

The article The Mobile Wars: Apple Won’t Go Down originally appeared on Fool.com and is written by Alex Dumortier, CFA.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool recommends and owns shares of Apple.

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