Why the doldrums?

  • Posted: 28 April 2011 10:54 AM

    First post. I’m a bull generally. I want to understand why the stock is sitting still despite massive company growth.

    1) Steve Jobs. An Apple with Jobs is worth how much more than one without? I think we’re seeing the ‘without Jobs’ case now, eating up what would otherwise be a rising stock.

    2) Over-dependence on few hit products. Case in point: white iPhone 4. This was an announced product, got the full-on keynote etc. Then it was delayed nearly a year! What if the same issue had been discovered with the black iPhone 4 too? Scary. The iPhone 4 would be being released *today*, and Apple would be the laughing stock of the phone industry. Black iPhone 4 saved Apple’s butt. Also, hence their scramble to squash the antenna issue.

    Apple only has one iPhone product. One slip and you can subtract a substantial part of Apple’s income (not to mention reputation). Apple got lucky, really lucky, that the iPhone 4 issue was an issue specific to one color.

    Same issue with iPads (though there is no viable alternative for consumers to flock to).

    This presents a high amount of risk. A reliance on one or two products, each needing a refresh every 12-18 months, will subdue the stock.

    Analysts are now claiming the white iPhone will add over a million sales per quarter. That’s many millions of sales LOST in the time since it was announced. Now imagine neither iPhone 4 had been shipping until today, after an announcement so many months ago.

    Look at the iPod. Are sales down due to iOS devices stealing share, or are sales down because the current iPod nano model isn’t all that usable? Apple could make the same misstep with the iPhone design.


    Point 1 Apple can’t do much about except prove themselves over time.

    Point 2; Apple needs diversification in iPhone models. I imagine Apple has been working on an iPhone nano, but hasn’t produced a design they like yet. Until they do, there’s considerable risk relying on just one product.

         
  • Posted: 28 April 2011 01:17 PM #1

    Welcome to AFB.

    Apple takes risks.  They are not alone in that.  Relentless focus is one of the risks.  Would rather that they took this risk than start a space program like Google or do technology joint ventures in China like GM. 

    I think the word you wanted is “quash”.

         
  • Posted: 28 April 2011 02:13 PM #2

    Thanks for the welcome.

    “Quash” is a great word, and appropriate. “Squash” has as a meaning, “firmly reject (an idea or suggestion)”, so squash was perfectly reasonable to use.

         
  • Posted: 28 April 2011 02:47 PM #3

    Graham Perks - 28 April 2011 01:54 PM

    First post. I’m a bull generally. I want to understand why the stock is sitting still despite massive company growth.

    1) Steve Jobs. An Apple with Jobs is worth how much more than one without? I think we’re seeing the ‘without Jobs’ case now, eating up what would otherwise be a rising stock.

    2) Over-dependence on few hit products. Case in point: white iPhone 4. This was an announced product, got the full-on keynote etc. Then it was delayed nearly a year! What if the same issue had been discovered with the black iPhone 4 too? Scary. The iPhone 4 would be being released *today*, and Apple would be the laughing stock of the phone industry. Black iPhone 4 saved Apple’s butt. Also, hence their scramble to squash the antenna issue.

    Apple only has one iPhone product. One slip and you can subtract a substantial part of Apple’s income (not to mention reputation). Apple got lucky, really lucky, that the iPhone 4 issue was an issue specific to one color.

    Same issue with iPads (though there is no viable alternative for consumers to flock to).

    This presents a high amount of risk. A reliance on one or two products, each needing a refresh every 12-18 months, will subdue the stock.

    Analysts are now claiming the white iPhone will add over a million sales per quarter. That’s many millions of sales LOST in the time since it was announced. Now imagine neither iPhone 4 had been shipping until today, after an announcement so many months ago.

    Look at the iPod. Are sales down due to iOS devices stealing share, or are sales down because the current iPod nano model isn’t all that usable? Apple could make the same misstep with the iPhone design.


    Point 1 Apple can’t do much about except prove themselves over time.

    Point 2; Apple needs diversification in iPhone models. I imagine Apple has been working on an iPhone nano, but hasn’t produced a design they like yet. Until they do, there’s considerable risk relying on just one product.

    At this point in time we can speculate all we want about why AAPL is not trading higher.  Having a few products is not the cause, it is a strength.

    Apple’s Revenue and EPS has nearly doubled since last year with all the perceived problems you site.  ANY other company that had accomplished the same growth would have a much higher ISM (PE) than Apple does.

    Apple’s guidance for Q3 is about double what last year’s guidance was.

    You have to look at volume to get an idea of what is happening.  At ~14,000,000 per day you are seeing volume that is dominated by retail traders.  The decrease in volume tells me that institutional buyers are sitting on the sidelines waiting, not for a price point, but some event, before jumping in.  I think that event is the re-balancing of the NAZ100 this coming Monday.

    Anybody that buys Indexes will be holding off until the rebalance is complete because the highest flying of the Index components is AAPL, and its share of the Index is being reduced from ~25% to ~13%.

    I expect to see a lot of that sideline money come back into play on Monday.

    [ Edited: 28 April 2011 02:49 PM by Gregg Thurman ]

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    Posted: 28 April 2011 04:45 PM #4

    Graham, I think you brought up some excellent points.  We are so used to Apple “firing on all cylinders” that we can become blind to the possibility of a really major stumble that is not based on FUD.

    Last night I attended a performance at the Seattle Repertory Theatre by actor Mike Daisey, called “The Agony and the Ecstasy of Steve Jobs” (which also featured a fine museum of old Apple products in the lobby). The performance was riveting, even though it consisted of Daisey sitting behind a glass desk and simply delivering a monologue for two hours, with no intermission. He came across as a strong comedian/actor, and simply told stories about Apple’s history and Steve Jobs, in a performance style with elements that reminded me of Lewis Black and Michael Moore.

    Jobs came across as brilliant but flawed, which I think we all know.  Every driven genius is going to have major quirks and an often abrasive personality. But Daisey’s major thrust in the program came across as political, as he described the terrible working conditions at Foxconn in Shenzhen, China, where nearly a half-million employees assemble products from Apple and other companies. He would like theater-goers to essentially make news of this human rights disaster go viral.

    I don’t think that there will be some major pang of conscience among buyers of Apple products, but I think that there is a possibility that in “the cloud” of social consciousness, there could develop a sense that Apple is a predatory, exploitative company. If another company, with a kinder and gentler and more socially responsible line was to exploit Apple’s weakness in this area, Apple could almost overnight become uncool.  And that is a real hazard to investors.

         
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    Posted: 28 April 2011 05:05 PM #5

    i read a long article about FoxConn by a reporter who went there and spent a lot of time inside.  actually, FoxConn’s conditions are some of the best working conditions of all factories in China.  it’s a highly desired job for factory workers, and they provide on-site dorms for living.  the problem is we try to understand it with what we are used to in the Western world.  noone pictures living in a dorm at work to be ideal in the US.  but in China, those workers come from rural areas to the city to find work and make money for their families.  they don’t have a place to stay.  FoxConn provides living space for them, most other Chinese companies do not, and those workers are often homeless.

         
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    Posted: 28 April 2011 05:18 PM #6

    But the workdays can be really long; they often employ kids 12-14 years old; and injuries on the job are extremely common, leading to lifelong deformities.  There are definite reasons behind the many suicides at the Foxconn plants.  The workers are not allowed to unionize.  It reminds me of labor conditions in America and Europe when the industrial revolution began.  My point is that even though you and many others may find such labor conditions just fine; others do not, and that could create a negative aura around Apple.  We ignore this at our hazard.

         
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    Posted: 28 April 2011 05:19 PM #7

    Terry Gou is no fool.

    Ruthless businessman he may be, but Hon Hai is hardly a sweatshop.  If it was, given its business ties to Apple the echo chamber would make us all deaf. 

    Apple, faceless corporation?  (Yup.)  Secretive?  (Locationgate.)  Mercurial?  (Steve Jobs 1.0)  Predatory?  (Buying up all the world’s flash memory etc. to trample poor competitors.)  Exploitative of its own RDF’d customers?  (Sealed batteries and pitiful RAM loadouts, from Macs to iPads.)  Exploitative of the sweatshop workers who make our iPhones?  (Foxconn?  So five years ago, check some articles from 2006 before iPhone was even a concept.)  Anti-environment?  (Just ask Greenpeace.)  No.  If you’ve been following Apple for any length of time, you’d have been hearing about Apple’s gazillion character flaws on a daily basis.  From kicking consumers around to using conflict metals to enabling megacorps in China to abuse its workforces (none of which stands up to particularly serious scrutiny).  Apple should be terminally unhip to read all the FUD out there.  And yet, here it is.

    [ Edited: 28 April 2011 05:23 PM by Mav ]

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  • Posted: 28 April 2011 05:22 PM #8

    firestorm - 28 April 2011 08:18 PM

    “they often employ kids 12-14 years old”

    Apple investigated this and found some infringements. As far as I know their employment contracts were terminated.  Would you care to support your statement?

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    Posted: 28 April 2011 05:23 PM #9

    Mav - 28 April 2011 08:19 PM

    Terry Gou is no fool.

    Ruthless businessman he may be, but Hon Hai is hardly a sweatshop.  If it was, given its business ties to Apple the echo chamber would make us all deaf. 

    Apple, faceless corporation?  (Yup.)  Secretive?  (Locationgate.)  Mercurial?  (Steve Jobs 1.0)  Predatory?  (Buying up all the world’s flash memory etc. to trample poor competitors.)  Exploitative of its own RDF’d customers?  (Sealed batteries and pitiful RAM loadouts, from Macs to iPads.)  Exploitative of the sweatshop workers who make our iPhones?  (Foxconn?  So five years ago.)  Anti-environment?  (Just ask Greenpeace.)  No.  If you’ve been following Apple for any length of time, you’d have been hearing about Apple’s gazillion character flaws on a daily basis.  From kicking consumers around to using conflict metals to enabling megacorps in China to abuse its workforces (none of which stands up to particularly serious scrutiny).  Apple should be terminally unhip to read all the FUD out there.  And yet, here it is.

    Future success is hardly guaranteed.

         
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    Posted: 28 April 2011 05:25 PM #10

    The future brings unknowns?  Huh.  Who knew.

    Ask yourself this:  Were you thinking this way last year?  The year before?  Before that?  Many in the media have.  Has anyone accurately predicted Apple’s doom?

    The brimstone and outrage have been flying outside Apple HQ for what seems like forever.  Signal from noise.

    EDIT:  Confidence should not be mistaken for ignorance.

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

         
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    Posted: 28 April 2011 05:29 PM #11

    I’m still fully invested; but I’m not a fool. It is critical to take the constantly take the pulse of a company and its ecosystem and social cloud.  Past results are no guarantee ...

         
  • Posted: 28 April 2011 05:46 PM #12

    firestorm - 28 April 2011 08:18 PM

    But the workdays can be really long; they often employ kids 12-14 years old; and injuries on the job are extremely common, leading to lifelong deformities.  There are definite reasons behind the many suicides at the Foxconn plants.  The workers are not allowed to unionize.  It reminds me of labor conditions in America and Europe when the industrial revolution began.  My point is that even though you and many others may find such labor conditions just fine; others do not, and that could create a negative aura around Apple.  We ignore this at our hazard.

    The suicide rate at Foxconn is significantly less than that of Chinese society as a whole. For reasons such as these, Westerners need to be careful about the context in which they judge Foxconn.

    Before we start meddling in the affairs of other countries where we have an imperfect understanding of societal arrangements and personal desires, perhaps we should first tackle shortfalls in our own country such as the abhorrent safety standards in our coal mines and the abuse of antibiotics by US agribusiness, which—because of growing antibiotic resistance—is causing a large number of deaths in this country and is soon to be a major crisis setting our health system back 100 years.

         
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    Posted: 28 April 2011 05:52 PM #13

    rattyuk - 28 April 2011 08:22 PM
    firestorm - 28 April 2011 08:18 PM

    “they often employ kids 12-14 years old”

    Apple investigated this and found some infringements. As far as I know their employment contracts were terminated.  Would you care to support your statement?

    You might enjoy listening to an interview with Mike Daisey on KUOW Seattle, in which he discusses these issues.  Go to:
    http://www.kuow.org/program.php?id=23159

    The strength of this report is that Daisey interviewed workers coming out of the Foxconn plants in China?scores and scores of them. His reports are based on his personal research and investigative reporting, not on statements from Foxconn’s management or PR staff.

    Here are a couple more pieces referencing FoxConn:

    http://mikedaisey.blogspot.com/2011/04/today-is-my-first-day-off-in-months-and.html

    http://chinawatch.washingtonpost.com/2011/03/harsh-reality-behind-apple-scandal.php

    There is also a good article today in the Seattle Times about how Apple might have avoided some of the recent bad publicity if they were more forthcoming about problems:  http://seattletimes.nwsource.com/html/businesstechnology/2014896971_apustecapplecrisismanagement.html

    To reiterate: these stories could eventually influence the mindshare of Apple, and hence the stock price.  Consider them FUD, if you will, at your peril.

         
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    Posted: 28 April 2011 06:06 PM #14

    Hannibal - 28 April 2011 08:46 PM
    firestorm - 28 April 2011 08:18 PM

    But the workdays can be really long; they often employ kids 12-14 years old; and injuries on the job are extremely common, leading to lifelong deformities.  There are definite reasons behind the many suicides at the Foxconn plants.  The workers are not allowed to unionize.  It reminds me of labor conditions in America and Europe when the industrial revolution began.  My point is that even though you and many others may find such labor conditions just fine; others do not, and that could create a negative aura around Apple.  We ignore this at our hazard.

    The suicide rate at Foxconn is significantly less than that of Chinese society as a whole. For reasons such as these, Westerners need to be careful about the context in which they judge Foxconn.

    Before we start meddling in the affairs of other countries where we have an imperfect understanding of societal arrangements and personal desires, perhaps we should first tackle shortfalls in our own country such as the abhorrent safety standards in our coal mines and the abuse of antibiotics by US agribusiness, which—because of growing antibiotic resistance—is causing a large number of deaths in this country and is soon to be a major crisis setting our health system back 100 years.

    So, in other words, look the other way.  That’s what most humans have done throughout history. It has excused slavery, serfdom, and indentured servitude at the cost of human freedom.

    I would instead suggest that major American companies play nations and companies against each other, instead of simply relying on the low bidder, and include better wages and working conditions as line items in a contract.  A company that can maintain a strong human rights record will have a competitive advantage.  And didn’t America enter Iraq to give the people more freedom?

         
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    Posted: 28 April 2011 06:17 PM #15

    Hannibal - 28 April 2011 08:46 PM
    firestorm - 28 April 2011 08:18 PM

    But the workdays can be really long; they often employ kids 12-14 years old; and injuries on the job are extremely common, leading to lifelong deformities.  There are definite reasons behind the many suicides at the Foxconn plants.  The workers are not allowed to unionize.  It reminds me of labor conditions in America and Europe when the industrial revolution began.  My point is that even though you and many others may find such labor conditions just fine; others do not, and that could create a negative aura around Apple.  We ignore this at our hazard.

    The suicide rate at Foxconn is significantly less than that of Chinese society as a whole. For reasons such as these, Westerners need to be careful about the context in which they judge Foxconn.

    Before we start meddling in the affairs of other countries where we have an imperfect understanding of societal arrangements and personal desires, perhaps we should first tackle shortfalls in our own country such as the abhorrent safety standards in our coal mines and the abuse of antibiotics by US agribusiness, which—because of growing antibiotic resistance—is causing a large number of deaths in this country and is soon to be a major crisis setting our health system back 100 years.

    The truth about suicide rates in China is not as simple as many have painted it.  Go to http://www.chinaeconomicreview.com/today-in-china/2010_05_28/Crunching_the_suicide_statistics_at_Foxconn.html