Apple Has an Identity Crisis

Apple is facing an identity crisis on Wall Street.

As Apple prepares to report what analysts project may be the company's first year-over-year quarterly earnings decline in a decade on Tuesday, it is also grappling with jittery investors. Much of the investor nervousness is rooted in how Wall Street is treating and valuing the Cupertino, Calif., company as a traditional hardware maker. One camp of analysts and some investors said there is strong evidence that Apple should be viewed in a different light: as a software-hardware hybrid. The distinction matters. If it continues to be seen as a hardware business, Apple's streak—driven by products like the iPhone and iPad—could run out quickly as smartphones and tablets get commoditized and consumer tastes change.

If Apple is classified as a software-hardware hybrid, the company could be valued more like Internet and software makers that have recurring revenue streams and that often trade at higher price-to-earnings ratios than hardware firms.