Investors slam Apple shares

(MoneyWatch) Investors are punishing Apple (AAPL) after the company late Wednesday announced its latest quarterly earnings. The company's stock fell 12.3 percent today, the biggest drop in Apple's share price in four years, and tumbled below the $500 mark, far under the peak price of $702.10 last September. That has cut more than $50 billion from its market value.

For Wall Street, the larger question regarding Apple is this: Is the technology giant's recent disappointing performance a temporary dip, or does it reflect a longer-term and unavoidable shift in Apple's strategy as it adjusts to the ever changing consumer electronics landscape?

In the short term, consumer desire for smaller, cheaper tablets, competition from Google's (GOOG) competing mobile platform, Android, and the price sensitivity of the Chinese market will likely continue to exert pressure on Apple's growth and profitability. And those factors do not appear to be going away anytime soon.

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Given the objective strength of Apple's performance, it may seem unfair for the company's stock to take a beating. After all, what other high-tech firm has delivered such sustained revenue and profit growth? Apple also has for years demonstrated a remarkable ability to redefine and even create entire product categories, as well as to attract customers with continued innovation and style.

That said, the lifecycle of product categories has greatly sped up over the years. Perception of Apple's new iPhone model has often been that of incremental improvements marred by disappointments in such technology features as the voice response Siri system and the company's own mapping software.

The Android factor

Had Apple been able to leave Android in the dust, chances are that the company's growth could have continued unabated. But the combination of rapid improvement by Google in its mobile platform and the combined innovation efforts of many hardware vendors have resulted in new capabilities and form factors that have put Android into a commanding global lead.

Those efforts have put Apple on the defensive. For example, the iPad mini was a reaction to smaller and cheaper tablets from Amazon (AMZN), Barnes & Noble (BKS), Samsung and others. The move was necessary for Apple, but the result was cannibalization of full-sized iPad sales and a significant erosion of tablet revenue and profit.

Apple has had enormous success in North America and Europe, but all products eventually approach a saturation point. The iPhone is in particular danger of this phenomenon. It is the biggest driver of revenue and profit for Apple, but its potential for further significant growth in its current strong markets is limited.

Meanwhile, Wall Street wants growth, and that means Apple needs to expand other markets. That is why China is critical to the company. One problem for Apple is that Chinese consumers are far more price-sensitive than those in the West. As a result, Chinese phone makers that are tiny compared to Apple regularly outsell the company because they offer products that cost less than a fifth of Apple's low-end iPhone. Carriers there are also reluctant to pay the hefty product subsidies that have become common in North America, preventing Apple from making the costs invisible to consumers.

Waiting for a cheaper phone

Apple is trying to overcome those obstacles. Earlier this month, it introduced an installment payment plan, spreading payments over as much as two years for Chinese buyers. But that is only a stopgap measure.

Ultimately, Apple needs a low-cost phone to compete strongly in China and to regain the growth that investors want. However, as with the iPad mini, the results is likely to crimp profits. But longing for the days of spectacular growth of revenue and profits at Apple may be nothing more than wishing thinking. Those who want to continue investing in the company will have to learn to love its new incarnation.