Shares plummet but too early to write off Apple
Yes, Apple exploits the mood merrily when it has a new gizmo to flog. But Wall Street as showbiz on steroids can be absurd. At Apple, the machine has been in ridiculous overdrive for the past year.
The first sign was analysts competing to be the first to predict a $US1000 share price. Topeka Capital Markets' Brian White was the winner, declaring: "Apple fever is spreading like a wildfire around the world." Others piled in.
Given the size of the company and its weight in various indices, not owning the shares suddenly became a career risk for the average US fund manager. Who would want to be the fool who stood alone against the iPhone 5?
At $US700 the stock was clearly priced for perfection. After a small slip - a wonky mapping app - the machine went into reverse. With tech stocks there is no neutral gear - they are either on their way to the moon, or they are ex-growth companies that have run out of ideas.
Last week's numbers were greeted as evidence of the latter - a confirmation Apple has peaked. It is true that quarterly profits were flat at $US13.1 billion and the annual outcome could be the first decline for a decade.
Higher manufacturing costs are a fact of life and Samsung, which has put a dent in Apple's profit margins, is a formidable competitor. The shares fell another 12 per cent to $US450. So after the ride on Wall Street's rollercoaster, Apple's shares stand where they did a year ago. For a company in transition, that is hardly humiliation. The ex-growth label may sting but it is the rate of decline that matters. Middle age comes to everybody and handing out the winnings (Apple has $US137 billion in cash) in the form of dividends or buy-backs would be no disgrace.
But can anybody really be confident Apple is ex-growth and the 48 million iPhones sold in the past quarter represent a last hurrah? It is far too early to judge. The big event is the next product - it always is. Is it television? That has been the buzz for the past year but nothing has appeared. Is that because the in-house tech geniuses have come up short? We don't know, but it is too soon to conclude that Apple's innovation pipeline is broken.
Frequently Asked Questions about this Article…
The article says a mix of sky-high expectations and a small misstep triggered the sell-off. Analysts' bullish calls (even predicting a US$1,000 share price) and stocks priced for perfection (around US$700) left Apple vulnerable. A wonky mapping app, flat quarterly profits and concerns about rising manufacturing costs and competition saw sentiment reverse and shares fall (the article notes a further 12% drop to about US$450).
According to the article, it’s too early to write Apple off. Quarterly profits were flat at US$13.1 billion and the annual result could be the first decline in a decade, but the piece argues the important question is the rate of decline and the next product — it’s premature to conclude Apple’s innovation pipeline is broken.
The article reports quarterly profits were flat at US$13.1 billion and Apple sold 48 million iPhones in the past quarter. Those figures matter because flat profits and slowing growth fuel talk that Apple might be 'ex-growth,' but strong iPhone sales and future product launches could still change the picture.
The article notes Samsung has put a dent in Apple’s profit margins and is described as a formidable competitor. Higher manufacturing costs combined with competitive pressure are cited as factors that have weighed on Apple’s profits and contributed to the share price weakness.
Yes — the article highlights that Apple has about US$137 billion in cash and suggests that returning some of that cash as dividends or share buy‑backs would 'be no disgrace,' implying it’s a viable option for the company.
The article points out analyst hype played a big role: competing price targets and exuberant commentary (‘Apple fever’) helped push the stock to levels priced for perfection, and when a small issue surfaced the market reversed sharply, amplifying the fall.
The piece suggests watching upcoming product developments (the next major product is the 'big event'), future quarterly earnings and iPhone sales trends, and margin pressures from manufacturing costs and competition. Those factors will help indicate whether growth has slowed permanently or is just in transition.
The article says some have labelled Apple 'ex-growth' after flat profits and tough comparisons, but it cautions that the label may be premature. For long-term investors the key is the rate of decline and whether Apple’s product pipeline (and potential returns of cash to shareholders) can sustain value — the article stops short of declaring the company finished.
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