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What caused Apple's sharp share price decline?

Apple's share price has declined rapidly over the past five days, from the height of $636.23 to $580.13.

Apple's share price has declined rapidly over the past five days, from the height of $636.23 a share on Monday 9 April to $580.13 a share a week later on 16 April, that's a 8.818 per cent decrease. The company had $25.1 wiped from its share price yesterday, declining from $605.23 to $580.13 (or 4.147%). However, the stock is still up compared to where it was this time last year: on 15 April 2011 the share price was $327.46, so $580.13 is still a 77.161 per cent increase 12 months later.

Nevertheless, Apple is blamed for dragging down the S&P 500 and the Nasdaq Composite last night. By contrast, the Apple-less Dow Jones Industrial Average saw an increase. "The Dow Jones Industrial Average rose amid better-than-expected retail sales data, while Apple shares' biggest drop since October pulled other major benchmarks into the red", claims a Dow Jones press release. (More below).

The decline follows weeks of good news about Apple's stock. At the beginning of the month two analysts predicted that Apple could see $1,001 a share within the next year, and that its market capitalisation could reach $1 trillion in a few years. We also saw Apple's market value surpass $600 billion. So what caused the decline?

Forbes mentions two analysts who had warned about Apple stock in the run up to the decline. BTIG analyst Walter Piecyk cut his rating on the stock to Neutral from Buy on 9 April. "Given the run up in Apple's stock and the consensus estimates, we think now is a good time to more carefully consider how it will capitalize on the next and likely much larger leg of growth in the industry and prepare for the inevitable bumps that may occur on the way," he said.

Forbes also notes that Wedge Partners analyst Brian Blair said: "A number of analysts have recently raised expectations from the 10 million unit range to 13 - 13.8 in recent weeks, which we believe could prove to be too high."

The Telegraph notes that it's not only Apple that has seen such a marked decline. Google has also seen a slide. The Telegraph notes that "A slide in Apple and Google's share prices has wiped more than $53bn of their combined value in a week".

According to the Telegraph, Google shares fell more than 4 per cent last Friday and a further 3 per cent on Monday, despite announcing a 61 per cent increase in its first-quarter profits to nearly $3bn last week.

The Telegraph suggests that analysts are blaming Apple's row with the US Department of Justice. The US Department of Justice sued Apple and five major book publishers, accusing them of colluding to raise ebook prices. Apple has refused to settle, claiming that its agency model increases competition and broke Amazon's monopoly.

Need for a pause

Another reason for the decline could be the need for 'pause'. The Telegraph refers to Brian Marshall at International Strategy and Investment Group. He notes that Apple is "collapsing a little under its own weight". "The vertical ascent of Apple has been Herculean so it makes sense to have a pause for thought. People with itchy trigger fingers shoot first and ask questions later," he said.

Apple was also due a 'natural pause', according to an analyst quoted by the Wall Street Journal. "Apple has had a pretty uninterrupted rise," says Maury Fertig, chief investment officer at Relative Value Partners. "It's natural for any stock to take a pause no matter how good the story is."

Merlin Securities analyst Rick Bensignor makes a similar claim, suggesting that Apple was due for a fall: "Every living thing, including Apple, needs to stop and breathe."

iPad nano?

Others point to rumours that the company was preparing to launch a cheaper iPad, suggesting that it could have caused the decline. Dave Lutz, an analyst at Stifel Nicolaus, refers to chatter that Apple could roll out an iPad Mini at $200. He said the new product could "cannibalize sales," notes the Wall Street Journal.

Another suggestion is that once the stock passed the $600 mark it became to high. Although, Forbes notes that some will argue that the stock price is trivial as it's the market capitalization and enterprise value that investors should follow.

However, the high stock price does put these Apple's shares out of reach for ordinary retail investors. But that may not matter as institutions do most of the investing.

Last month Apple unveiled that later this year it will begin paying out a dividend and will start buying back shares. The company will begin repurchasing shares ultimately worth $10 billion, beginning in its 2013 fiscal year.


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