Chicken Little Comes Calling, $AAPL Falls to $486

| Analysis

The sound you heard on the roof today was the sky falling as as investors worried about all these reports of Apple cutting iPhone orders. In the process, shares of $AAPL fell to US$485.92, a loss of $15.83 (-3.15 percent), the first time the stock has been below $500 for almost a year.

$AAPL Chart for January 15th, 2013

ZOMGTEHSKYSIFALLING!
AAPL Chart for January 15th, 2013
Source: Yahoo! Finance

Investor sentiment has shifted markedly on $AAPL in the last four months. When once the company could do no wrong, now investors see disaster behind every Samsung commercial and Amazon tablet release. The iPad mini is too expensive, the iPhone 5's screen isn't big enough, the competition tablets are simply too cheap, and surely that will finally result in iPad losing share, RIGHT?

Oh sure, Apple's retail stores remain packed to the gills (and unlike Samsung's CES booth, people in the Apple Stores actually play with the devices on hand), the company continues to gain share in a declining PC market, and Apple appears to be gaining significant smartphone share in the U.S., but that doom and gloom must be based on something, RIGHT?

It's these order cuts that have been plaguing Apple's stock the most in recent weeks. Sources in Apple's supply chain told The Wall Street Journal and other outlets that Apple had cut orders, and the natural reaction to that was to assume iPhone demand is lacking.

I've repeatedly written that there are a handful of analysts whom I respect above all others when it comes to Apple, and Sterne Agee's Shaw Wu is at the top of that list. His own sources within Apple's supply chain have been consistently reliable, and Mr. Wu understands Apple's business model and its methods, to boot.

The question ringing in the back of my head as the order cuts story built was simply, "What does Shaw Wu have to say?" Earlier on Tuesday, I got my answer when Mr. Wu released a research note addressing this specific issue.

According to him, iPhone demand remains "robust," and the order cuts are about improving yields on key components and two supplier changes. It runs counter to the current meme that Apple is choking, that Tim Cook can't deliver innovation, and that Android is the bee's knees and everyone wants big screens on their smartphones, but reliable analysis can be like that sometimes.

Headlines about Apple—like this one: "Six Reasons Why I Still Wouldn't Own Apple Stock"—are written by people who don't understand the value proposition of Apple's business model and have absolutely zero historical context for how Apple does business. It's the same-old nonsense we've been hearing from Apple haters (or in this case, the Apple-ignorant) since the iPod was released in 2001, and to a lesser extent since the iMac was released in 1998.

People that crow with delight about Tim Cook's failure to deliver an innovative product can only do so by not paying attention to Apple's own historical track record of market disruption. If in two or three years Apple hasn't released something widely heralded as innovative, then you can begin to question Mr. Cook's ability to lead Apple. My educated guess is that we'll see something this year, but time will tell.

In any event, I believe that there are a lot of Chicken Littles running around pecking at the ground and worrying about Apple's sky falling, while in Cupertino, things continue to run well.

Apple continues to gain smartphone share while maintaining iPod-like share for the iPad. The Mac continues to gain share, and Apple's ecosystem continues to offer an unmatched experience for consumers. Apple will probably turn in yet another record quarter for December, and 2013 will also probably be another record.

Personally, I'm not paying attention tot he Chicken Littles. We get numbers for the December quarter and guidance for the March quarter from Apple next week. When we do, I expect that Shaw Wu's analysis will once again be spot on. Eventually investors will cotton to what's really going on.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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Comments

Bosco (Brad Hutchings)

If it’s not a blow-out quarter that lifts the stock back to $600, Cookie is toast. I will buy the domain and chronicle his quick demise.

Bryan Chaffin

Nah, Mr. Cook is doing very well. His hold on Apple is absolute at this point. This opinion is driven by my perception that Apple is running on all cylinders and has a disruptive product in the pipeline. If neither is the case, my opinion on Mr. Cook’s stability within Apple will prove to be wrong. I don’t think I’m wrong. smile

But I don’t see a sustained $AAPL rally until the company releases something new later this year. Apple will have its record December quarter, but I believe that a short-term rally or further retreat will be driven by guidance and cryptic comments about the next two quarters.

skipaq

The quarterly report will again be good. It will not be a blow-out and does not need to be. All of Apple’s products are established and those markets are not going to excite investors. But Apple’s business is strong and this bear run on their stock will end. The hocus pokus of these analysts should get them banished to Oz.

Constable Odo

Blowout quarter or not, Apple’s share value is already done for.  Wall Street has already burned Apple long-term shareholders.  Apple might be making more money than ever, but shareholders are continuing to lose money.  For whatever reasons, Apple’s value is being frittered away.  Look at Apple’s P/E.  You think that is a fair P/E for a company like Apple.  Apple is not Dell nor is it HP.  You really think Apple should have a lower P/E than Microsoft or Cisco?  Please explain.  Shouldn’t there be some value standard for a company.  Apple’s P/E is far below tech stocks in the S&P 500.  This is a farce if there is any fundamental value point for a company.  How does Apple rate a P/E of 11?  Apple had a mean P/E of 14 in 2012.  Wall Street said Apple’s growth was slowing, but come on.  This number represents negative growth for Apple and it isn’t right.  Apple isn’t losing money.

Alex

Apple’s fate right now lives and die on the fate of iOS products, which accounts for some 75% of its revenues.  The Mac business is nice, but only 15% of its sales.  iTunes is maybe another 10%.  I love Apple products.  I bought the first gen iPhone.  The iPhone 3GS was fantastic.  But since then, it’s. . . stagnated.  Google Now is far more useful than Siri.  The ability to have apps seamlessly have interoperability between third party apps is invaluable.  WiDi.  NFC.  Styluses.  Freakin multiple Windows for Heaven’s sake.  And of course widgets, or “tiles” in Microsoft parlance.  Using my wife’s iPhone 5 is like taking a step backwards in time, and the fact that using Apple Maps was 0 for 3 in getting us where we wanted to go speaks volumes about Apple’s basic quality control (we live in Houston, not exactly out in the boonies here).  And now Android is showing up on refrigerators, on 27” table touchscreens, in portable projectors, video game platforms, televisions, even microwaves.  With Raspberry Pi and its cousins breaching the $25 Android barrier, it’s going to be synonymous with user interfaces very soon.  Apple remains smartphones, tablets, and iPods, with a proprietary OS it doesn’t share.  I think we’re going to see the mobile device industry profit margins go the way of the LCD TV industry, and Apple thus far looks like Sony’s Trinitron.  They’re not going to be able to command 40% profit margins AND mass market share when commoditized comparable experience can be had at a quarter the price.  Apple should probably stick to providing a superior hardware experience with an elegant sort of simplicity, it’s what it’s good at.  The days of introducing revolutionary new product categories commanding whatever price Apple cares to name seems to have died with Steve Jobs.

Neil

I like your disclosure statement at the end.

Slurpey

Android wasn’t around in 2001. For the first time, mid-2012 brought about superior devices running iterations of Android (4.x) that are super-fast, smooth, and easy to use - sold at prices below that of new iPhones. Even the ancient S3 outperforms the iPhone 5, let alone newer models like the Note 2 and DNA. In the tablet space, the Nexus 7 sells for nearly half the price of an iPad Mini but is just as good, and the iPad Mini is cannibalizing sales from the higher-margin iPad. Bottom line: pricing pressure and slipping worldwide market share ( http://goo.gl/VhLE7 ) are changing the scene. Apple sales and revenues will continue to grow, but margins will contract because of price pressure from the competition. It’s not the end of the world for Apple investors - the stock might retreat no further than 2011 levels - but there’s certainly more downside to go.

Johnny Hooper

Translation:

https://images.encyclopediadramatica.se/0/0a/Bawwwww_bunny.jpg

Lee Dronick

A bit over $500 right now, I hope that the trend continues.

RonMacGuy

I love it!!  Bosco Little - “The Apple is falling, the Apple is falling!!”

Just kidding, Brad.  For the record, I almost went with Chicken Bosco, but that seemed a bit more insulting than Bosco Little.

grin

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