The day the market lost faith in Apple

  • Posted: 12 January 2011 12:37 PM #31

    TanToday - 12 January 2011 04:23 PM
    Mav - 12 January 2011 03:08 PM

    Before you call for Oppenheimer’s job (let’s not forget, he does more than issue guidance, and you would have a hard time arguing that he acts alone in this regard)...would you necessarily welcome increased volatility?  Don’t forget what can happen when Apple “disappoints” relative to its guidance.

    But IT DOES, “disappoint” every single solitary time, time after time, by UNREALISTIC known corrupt guidance!

    Management should try to be REALISTIC, TRUTHFUL, and HONEST with the investing community. Give your BEST ESTIMATE, and back it off a few percent. NOT 15-30% as we have seen them do consistently. Shoot, they are in effect LYING to investors, and WS knows that, and reacts accordingly.

    I think Apple has done the lowball thing so long, they’re a little trapped from change.  To some degree, it has become the margin by which Apple beats the guidance, not that it does.  But I would prefer they split the difference of your suggestion and trim 10-15% of expectation to ensure some kind of beat.  If Apple gave their best # and misses, be careful for what you wish unless you’re sporting a parachute.

    Edit:  How about we start doing the best guidance # in parallel with Apple at the time earnings are released?

    [ Edited: 12 January 2011 12:44 PM by ByeTMO ]      
  • Posted: 12 January 2011 12:41 PM #32

    adamthompson3232 - 12 January 2011 04:34 PM

    I really am hoping for impressive guidance this quarter. If Apple really is going to produce 7M+ CDMA phones this quarter could guidance almost be in line with holiday quarter guidance ($23B revs and $4.80 EPS)? If so, we are off to the $400 races very quickly.

    I’ll take a 5-1 stock split AND better guidance.  Thanks in advance, Apple.

         
  • Posted: 12 January 2011 12:50 PM #33

    mbeauch - 12 January 2011 04:24 PM

    Heritage. The family tree goes back into the 1700’s. Of course I am a mutt because my mothers side was German. Woof tongue laugh

    I hope you won’t be offended, but your post, above, reminded me of a quote:

    I married a German. Every night I dress up as Poland and he invades me.-Bette Midler

         
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    Posted: 12 January 2011 12:53 PM #34

    FalKirk - you doing all right there?  You were wrong on the VeriPhone.  That’s fine.  Everyone’s wrong more often than they’d like to admit.

    Step out of your bunker, and into the light.  It’s OK.  You can take your Costco Food Bucket, Hazmat suit and oxygen tanks with you if you need some reassurance.  wink

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  • Posted: 12 January 2011 12:58 PM #35

    It is a combination of two things: Steve Jobs health is the obvious one.

    The other more subtle nuance stems from Apple’s business model dependence on delivering hit consumer electronics on an annual basis. This dynamic did / does not exist in the Mac category - so long as Apple continues delivering reliable machines, they will continue to take share in a growing PC market*

    When Apple was a computer company, they achieved tech multiples commensurate with their outperformance. Now, as a broader consumer electronics play, they must continue to deliver hit after hit. A 50x multiple implies they can do this for the next 25 years, which even the most fervent believers must concede is improbable. “Apple Computer” to just “Apple” is symbolic.

    If the iPhone 5 is a dud, Apple’s overall market cap is in serious trouble (this is why the stock drops 5% with something as trivial as Antennagate). This is a business model weakness - can the iPhone weather its version of “Vista”? (Microsoft’s revenue and profit growth was unaffected by the Vista debacle). I would argue that it can’t (or at least, that it would be massively problematic, in spite of Apple’s hardware & software network effect advantages).

    *The iPod is the only exception to this but it represents a saturated category and small component of market cap, so is not relevant for this discussion

         
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    Posted: 12 January 2011 01:05 PM #36

    “If” the iPhone 5 is a dud is the biggest “if” in the history of “ifs.”  It will likely be as big of a leap as the iPhone 3GS.  Which is to say, improved internals, but the rest of the design isn’t a radical shift from the iPhone 4.  It will probably be a very low-risk iPhone iteration as Apple goes.

    People are not about to start hating the iPhone 5 because it’s passe.  Quality control is the key, as it always is.  Will the A5 chips overheat or blow up?  The iPhone 5 batteries?  Will the multitouch screen not work like it always has?  Will they announce a white iPhone 5 and it never makes it to market?  (Actually, that one probably won’t do too much damage even if it does happen.)

    I’d worry more about iPhone 6.

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    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
  • Posted: 12 January 2011 01:11 PM #37

    BillH - 12 January 2011 04:37 PM

    Hence my top 10 list.  I thought I’d get a couple of comments re: enterprise adoption being number 10 (down from about 5 two short years ago).  It’s about to fall off.

    The analysts may get it (although I’m not at all sure) but the street pundits still don’t. Just in the past week I read a couple of articles about iPad in the Enterprise. You should have seen the negative and dismissive comments. These people have no idea how the iPad is changing the business landscape.

    To use a Desert Storm analogy, the iPhone was like the smart missiles that softened up the enemy’s defenses, and the iPad is like the tanks that streamed, unhindered, across the dessert of failed tablets and netbooks and into the heart of the enemy’s capital. These street pundits believe that their borders are safe and the forces of Apple are being thrown into the sea. A year from now, they are going to wake up and be very surprised to find iPad tanks crusing by their bedroom windows.*

    I’d have to re-look at the other nine things on your list, but now that I’m thinking about this, I’m not at all convinced that Wall Street really believes that the iPad in the Enterprise is for real. They too may need to see a few iTanks cruising down Wall Street before they wise up.

    I’d love to hear everybody’ else’s thoughts on your list of ten. Would be a very interesting discussion.

    *Pun unintended, but really, really fortuitous.

    [ Edited: 12 January 2011 01:34 PM by FalKirk ]      
  • Posted: 12 January 2011 01:24 PM #38

    Mav - 12 January 2011 04:53 PM

    FalKirk - you doing all right there?  You were wrong on the VeriPhone.  That’s fine.  Everyone’s wrong more often than they’d like to admit.

    I’m doing great. I’ve had more fun denying that I was wrong, wallowing in faux outrage and making self-deprecating remarks than anyone has a right to. I just hope that my humor has hit its mark, at least with some.

    Staying on topic, one thing the Verizon iPhone has done is to remove a huge psychological block from Apple’s path. Many people viewed the iPhone and AT&T as one and the same thing. And the chant of Android inevitability was in full voice with the tech pundits. Who knows what the future may bring, but Apple will never again have to accept the blame for AT&T’s shortcomings and the Android Armada has definitely had the wind taken out of its sails.

    Good times. Very good times.

    [ Edited: 12 January 2011 01:36 PM by FalKirk ]      
  • Posted: 12 January 2011 01:29 PM #39

    hamsandwich - 12 January 2011 04:58 PM

    It is a combination of two things: Steve Jobs health is the obvious one.

    The other more subtle nuance stems from Apple’s business model dependence on delivering hit consumer electronics on an annual basis. This dynamic did / does not exist in the Mac category - so long as Apple continues delivering reliable machines, they will continue to take share in a growing PC market*

    When Apple was a computer company, they achieved tech multiples commensurate with their outperformance. Now, as a broader consumer electronics play, they must continue to deliver hit after hit. A 50x multiple implies they can do this for the next 25 years, which even the most fervent believers must concede is improbable. “Apple Computer” to just “Apple” is symbolic.

    If the iPhone 5 is a dud, Apple’s overall market cap is in serious trouble (this is why the stock drops 5% with something as trivial as Antennagate). This is a business model weakness - can the iPhone weather its version of “Vista”? (Microsoft’s revenue and profit growth was unaffected by the Vista debacle). I would argue that it can’t (or at least, that it would be massively problematic, in spite of Apple’s hardware & software network effect advantages).

    *The iPod is the only exception to this but it represents a saturated category and small component of market cap, so is not relevant for this discussion

    That is some mighty fine analysis. Not going to sign on just yet. But its a very well thought out theory and quite plausible.

         
  • Posted: 12 January 2011 01:35 PM #40

    FalKirk - 12 January 2011 05:11 PM
    BillH - 12 January 2011 04:37 PM

    Hence my top 10 list.  I thought I’d get a couple of comments re: enterprise adoption being number 10 (down from about 5 two short years ago).  It’s about to fall off.

    The analysts may get it (although I’m not at all sure) but the street pundits still don’t. Just in the past week I read a couple of articles about iPad in the Enterprise. You should have seen the negative and dismissive comments. These people have no idea how the iPad is changing the business landscape.

    To use a Desert Storm analogy, the iPhone was like the smart missiles that softened up the enemy’s defenses, and the iPad is like the tanks that streamed, unhindered, across the dessert of failed tablets and netbooks and into the heart of the enemy’s capital. These street pundits believe that their borders are safe and the forces of Apple are being thrown into the sea. A year from now, they are going to wake up and be very surprised to find iPad tanks crusing by their bedroom windows.*

    I’d have to re-look at the other nine things on your list, but now that I’m thinking about this, I’m not at all convinced that Wall Street really believes that the iPad in the Enterprise is for real. They too may need to see a few iTanks cruising down Wall Street before they wise up.

    I’d love to hear everybody’ else’s thoughts on your list of ten. Would be a very interesting discussion.

    Pun unintended, but really, really fortuitous.

    Your Desert Storm analogy is appropriate in one other way.  The carriers will be no more interested in defending Android’s moat then the Iraqi soldiers were in defending Bagdad.  Sucks to be a fandroid these days.

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  • Posted: 12 January 2011 01:44 PM #41

    @hamsandwich - great post.  I think you hit the nail on the head. 

    Apple guidance is well known by pretty much everyone that follows the stock to be wholly conservative and therefore is almost always thrown out the window when creating projections for future quarters.  I therefore don’t think this adversely affects the P/E one iota (or if it does, then only slightly marginally).

    I think people get too focussed on P/E as a form of valuation.  I personally prefer EV/FCFE - that’s Enterprise Value over Free Cash Flow to Equity.  It essentially tells you how long it would take for the company to stand still (ie not grow or shrink) and earn enough cash to pay you back for your shares.  Last time I did this, it was something like 17x, so it would take 17 years for Apple to earn enough cash to pay me back for the money that I have invested in AAPL shares.  However, this was about 10 months ago, and with current rates of growth, this time frame drops dramatically.

    Lastly,  I don’t think we should get too het up about AAPL’s low P/E - all it means is that the share price will keep rising alongside each increase in EPS every quarter.  Given EPS is set to continue to grow at 70%, there’s plenty of growth left in the share price to come.  Be thankful this isn’t already priced in to the stock, just leaves more entry points for all of us to get into to load up on more shares as and when we get the funds to do so…

         
  • Posted: 12 January 2011 01:45 PM #42

    I think the notion that Apple needs to introduce a new mega-hit product each year is not only incorrect, it is - well, words fail me

    [ Edited: 12 January 2011 01:51 PM by roni ]      
  • Posted: 12 January 2011 01:48 PM #43

    roni - 12 January 2011 05:45 PM

    I think the notion that Apple needs to introduce a new mega-hit product each year is not only incorrect, it seems the very type of thinking that anti-Apple forces would like to have take hold

    I wouldn’t say it’s taken hold but it’s brought up continually.  #9 on my list.

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    I don’t mind being wrong…,I just hate being wrong so FAST!

         
  • Posted: 12 January 2011 01:52 PM #44

    BillH - 12 January 2011 05:35 PM

    Your Desert Storm analogy is appropriate in one other way.  The carriers will be no more interested in defending Android’s moat then the Iraqi soldiers were in defending Bagdad.  Sucks to be a fandroid these days.

    That’s an interesting point. You would think the opposite. Android gave the carriers everything they wanted - complete control over an operating system that they didn’t have to create or pay for. And it sure as hell seemed to sell phones.

    Verizon’s acceptance of the iPhone may say far more about Android than it does about Verizon. The Droid was their baby, borne of a 100 million dollar advertising campaign. What signal is Verizon sending when they tacitly admit that Droid isn’t cutting it? That the carrier’s dream operating system was merely that - a dream?

    Coming back to the topic at hand, I don’t think the implications of this move have even begun to be absorbed by the general (investing) public. They think in terms of how many phones Apple may sell or how many less phones AT&T may sell. But long term analysis? That’s not the markets forte.

    Actually, this discussion has me re-thinking some of my analysis too. I was so focused on Verizon being willing to give up control in order to acquire the iPhone that I really didn’t see how truly monumental a move this was for Verizon. Yes, they had to give up control to acquire the iPhone. But that means that they also had to admit that the operating system (Android) which gave them all the control in the world was not the answer. I’m going to have to think some more about this.

         
  • Posted: 12 January 2011 02:00 PM #45

    Hopefully they’ll give up their quest to be something other than the pipe.  What’s wrong with being the pipe is lost on me.  There are alternatives to cable and fiber but there’s no alternative to air yet.  They need to get over it and put all their focus on the network.

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    I don’t mind being wrong…,I just hate being wrong so FAST!