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Off The Cliff: Apple Shares Fall Based on iPhone Sales

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Apple Inc. needs a cheaper iPhone to keep pace with low-cost rivals, analysts said, after the company’s smartphone sales fell short of lofty expectations in the holiday shopping season.

Apple’s shares fell as much as 8.8 percent on Tuesday, their steepest decline in a year, a day after the company’s weak revenue forecast for the current quarter renewed fears about Chinese smartphone demand and a tepid global market.

The world’s most valuable technology company had lost $43 billion of its market capitalization — more than the entire market value of Twitter Inc — at the stock’s intra-day low of $502.07.

Activist investor Carl Icahn, who is waging a public campaign to get Apple to return more cash to shareholders, bought up $500 million worth of Apple stock — his third purchase of the same size in less than a week — to boost his total investment in the iPhone maker to more than $4 billion.

The record 51 million iPhones sold by Apple in the quarter ended Dec. 28 fell short of the 55 million expected by Wall Street.

The iPhone 5C sells for $549 without a two-year contract with a telecom carrier. Samsung Electronics Co Ltd’s flagship Galaxy S4 now sells for $530 without a contract in the United States, while Google Nexus 5 sells for $350.

Analysts said they were looking to the launch of the iPhone 6, a mid-range smartphone, and wearable devices such as iWatch in the second half of the year to boost investor confidence.

“Apple has the ability to lower the price of the iPhone to compete more aggressively in the midrange, and we believe the resulting elasticity would yield net profit improvements,” Goldman Sachs analysts said.

Apple maintained its gross profit margin of 37.9 percent for the quarter just ended, as more people opted for the high-margin iPhone 5S than the 5C.

But rival Samsung, which has a phone for every budget, widened its lead over Apple by cornering 29.6 percent of the global smartphone market in the fourth quarter of 2013, ahead of Apple’s 17.6 percent, data from research firm Strategy Analytics showed.

source: reuters.com

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