Why You Shouldn’t Bite into Apple Inc. (AAPL): International Business Machines Corp. (IBM), Intel Corporation (INTC)

Today Apple has once again sparked a technological revolution with its iPhone.  Yet, as before, it seems to be making similar mistakes.   Once again, Apple is reluctant to give up control of hardware or software. Consider that iPhone owners can’t even replace their own batteries without Apple’s permission.  And once again, Apple has limited collaboration with others. For example, Apple seems to have no interest in letting other manufacturers use its iOS operating system. And of course, we can expect that the iPhone will always run exclusively on iOS.

Contrast that with how software giant Google Inc (NASDAQ:GOOG) ) has approached the market.  Google developed its own mobile phone and its own operating system, Android.  At the same time, Google partnered with other manufacturers like : SSNLF) and encouraged them use Android as well.  Based on the numbers, the collaboration seems to be working.

In the fourth quarter of 2012, Samsung sold over 106 million mobile phones, versus 43 million for Apple.  Samsung achieved this despite being half of Apple’s size; it has a market cap of $196 billion versus $405 billion for Apple.  Keep in mind that Samsung is only one of Google’s partners. Looking at all smartphone manufacturers together, Android-operated phones captured almost 70% of worldwide market share in 2012, versus less than 20% for the iPhone.

I am not saying that Apple is at risk of being eliminated, but the current Apple versus Google Inc (NASDAQ:GOOG)story sure does sound a lot like the Apple versus Microsoft story of the 1990s.  Something worth noting this time around is that Google is bringing real competition to Apple, even though smart phones constitute only a small portion of Google’s overall business. Make no mistake about it, Google’s primary focus and business is in advertising, which made up $43 billion of its $46 billion in 2012 revenues (93% of revenues).  In that respect, we can say that smart phones and Android have been like a side project for Google Inc (NASDAQ:GOOG).

Whatever the case, the point is that Apple’s competitors are once again coordinating their efforts, and looking to divide and conquer.  Meanwhile, Apple stubbornly maintains an “us against the world” attitude.  Apple has Google Inc (NASDAQ:GOOG) attacking from one side and a syndicate of hardware manufacturers on the other.  How long can Apple realistically fight on both fronts and expect to win?  Sure, Apple has an uncanny ability for making comebacks and is chock full of innovation, but even that has limits.  Word on the street is that Apple’s next big thing is an “iWatch.” Who’s banking a wrist watch revolution?

The bottom line, I think the recent correction in Apple Inc. (NASDAQ:AAPL) was necessary, and priced in more reasonable expectations.  At under $450, I think Apple may even be a bit undervalued.  Based on average analyst earnings estimates, I would approximate fair value to be around $520.  There may be some value there, but I seriously doubt that Apple will rocket its way back to $705 anytime soon.  Anyone salivating over the thought of doubling up quickly may want to take a big, juicy bite out of something other than Apple, in my opinion.

The article Why You Shouldn’t Bite into Apple originally appeared on and is written by Victor Lai.

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