I'm Bearish on Apple

That's right, Apple fans. I can already feel your venom.

Stepping into the bear's den seemed crazy at first. I'm a customer.
A casual stroll through my home will reveal that I have a MacBook,
three iPhones, and a handful of iPods in various stages of disrepair.

However, the deeper I decided to dig, the easier it became for me to
get down on the stock's near-term potential. So grab a shovel and come
along.

It's all about the smartphones, baby

The market cheered last week's quarterly report.
Apple walloped expectations, the way it typically does. However, I
wasn't entirely comfortable with a company that sells iPhones like
crazy but still scores year-over-year gains of just 9% and 15% on the
top and bottom lines, respectively.

Sure enough, the rest of Apple's report stunk up the joint.

• Mac desktop sales fell 22%.
• The seemingly unsinkable MacBooks took a 12% top-line hit.
• Even the once mighty iPod suffered an 8% decline in sales.

Apple's high-end computers took quite a hit. The company did manage
to move a few more iPods, though clearly at lower price points.

The iPhone is the one thing that's going right at Apple. Since Apple
records its iPhone revenue over a 24-month period -- the way it does
with the Apple TV, hee-hee -- the company has a lot of juicy income-statement goodness baked into its future.

However, if I'm buying Apple only as a smartphone play -- since the
rest of its businesses are in varying states of decline -- why don't I
just buy market leader Research In Motion (Nasdaq: RIMM) as a pure play?

After all, instead of revenue and earnings gains of 9% and 15%, respectively, at Apple, RIM scored year-over-year gains of 84% and 25%, respectively. And while Apple posted a sequential decline in iPhone units, RIM posted a healthy sequential increase in both shipments and net new subscribers.

Sure, RIM's quarter ends in February, so it includes the cheery
month of December. However, BlackBerrys aren't exactly stocking
stuffers. Go back a year, and you'll find that smartphone shipments at
RIM were higher in the March-through-May quarter relative to the
previous one that included December.

In the end, Apple is trading for 24 times this year's projected
profitability and 21 times next year's target. The faster-growing RIM,
on the other hand, is fetching multiples of just 23 and 16 times,
respectively.

The clear investment choice between the two isn't even close. And it's not Apple.

Making things even more interesting is that as RIM widens its smartphone lead over Apple, companies such as Google (Nasdaq: GOOG) and Palm (Nasdaq: PALM) are nipping hungrily at the iPhone's heels.

While my Apple Store gently weeps

This
isn't an argument on which smartphone stock is the better choice for
your portfolio, so let's move on to Apple's chain of stores. They're
cool, crowded, and probably not doing as well as you think.

Retail sales at Apple were climbed by just $20 million, or 1%, this
past quarter -- practically unchanged. The numbers may not seem all
that damaging, but keep in mind that the number of Apple Stores out
there has expanded by 21% -- from 208 to 252 -- over the past year.
Brutal comps, right?

The bigger concern is that Apple apparently hasn't learned the lessons that other premium retailers have sadly lived out.

• Premium family-entertainment giant Disney (NYSE: DIS) overbuilt its Disney Store chain. It had to sell it to Children's Place before eventually buying back a much smaller version of the mall-based chain.
• Premium barista haven Starbucks (Nasdaq: SBUX) is now closing down stores and lowering prices.

You can't be both a marketer of upscale merchandise -- and clearly,
there is an Apple premium out there, especially in the computing space
-- and a mainstream merchant.

You know who realizes this? Microsoft (Nasdaq: MSFT).
The world's largest software company has made a ton of marketing and
operating system blunders in the past, but it's really striking a nerve
with its new ad campaign that promotes the value of Windows-powered
machines to everyday consumers.

Microsoft has been a comical competitor against Apple's iPod, but it
knows it can hit Apple in the computing gut by forcing it to either
slash prices to reach the masses in this netbook-happy world or retreat
to its niche of well-to-do loyalists. But it can't do both. You don't
sell Kobe beef burgers at Mickey D's, after all.

Copyright © 2008 Universal Press Syndicate.