Apple’s (NASDAQ: AAPL) share price is supposed to keep going up. Many brokers have price targets for the stock above $400 and some are as high as $450. The stock trades at $334 now, which is down over 5% in the last month. The NASDAQ Composite is down 2% in the same period, and shares of rival Google (NASDAQ: GOOG) are flat. Extraordinarily, Microsoft’s shares have moved down only as much as Apple’s in the last month. Microsoft has been identified by many Wall St. analysts as a permanent laggard among macro-cap techs.

Most of the reasons for the Apple sell-off are obvious. The Google (NASDAQ: GOOG) Android operating system has begun to quickly take market share in the mobile industry. Android is open source, which means it is essentially free for smartphone manufacturers to use. That has caused many device firms from Motorola in the US to HTC in Asia to use Android in their flagship products which have become popular with US wireless carriers.

Analysts who track tablet PC sales predict that Apple will keep over three quarters of the market in the US for at least the next two or three years. Their reasons are that most PC companies including Dell (NASDAQ: DELL) and Hewlett-Packard (NYSE: HPQ) have been slow to enter the market. Apple competitors such as Research In Motion (NASDAQ: RIMM) have launched products to mixed reviews. Sales of the RIM Playbook have slowed, according to a number of brokerage firms, since the week it was introduced.

Another explanation for Apple’s sell-off is a growth in the belief that the iPad will be Apple’s last product with very broad appeal. Apple currently is a leader if not the leader in global PCs (the MAC), portable multimedia devices (the iPod), smartphones (the iPhone), and tablet computers (the iPad). Apple can upgrade these devices with more advanced hardware and new features that will allow its wireless devices to run on emerging 4G networks. But, none of these modifications is a quantum leap the way that the iPhone and iPad were. Apple has a powerful position in the music download and software app store businesses, but those are challenged by Google’s app store and new cloud-based music services.

Apple’s problem is easy to identify and investors may sense it. Apple can stay the leader in every sector in which it holds first place, but as competitors become more ingenious and offer low prices to gain market share, Apple will have to lower its prices as well. Competitors like Samsung and HP have balance sheets that will allow them to attempt to buy their way into markets. That strategy may not work, but Apple will be pressured to bring down its own prices even if does not have to match rivals. There are too many customers who will be tempted to make purchase decisions based on price alone.

Apple may have come to the end of a period of extraordinary innovation. It could attack the game console industry, but it would have to dislodge Microsoft, Sony (NYSE: SNE), and Nintendo. There are no other huge markets for consumer electronics products. Apple may be able to keep its No.1 position in every market it controls, but it won’t be able to do so and charge the premiums it does now. The competition is just too well funded.

Douglas A. McIntyre

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