Losing that Apple Magic – Wall St. Sours on Apple


Apple took an after-hours beating after earnings reports for the first quarter emerged yesterday.   A ten percent drop in late trading can only be described as a beating.  When trading opens on Thursday it could actually get worse.  Now, $13.1 Billion in profit and revenues of $54.1 Billion are not bad numbers, nor is the fact that they sold 47 million iPhones and close to 23 million iPads.  Still, the numbers fell short of the revenue forecasts that some expected and there are signs of Apple’s decay everywhere.  The CEO of an investment management firm publicly went so far as to describe the situation:

“I think this is really a broken company that is over-owned,”

$175 Billion Market Cap Gone

Since Apple hit a peak in September, $175 Billion in market capitalization has been lost.  I can remember when the big news came out that it was the most valuable company in the world, like it was last year – I think it was.  Now that is threatened and it could unravel as early as today.  The report marks the slowest profit growth since 2003 and the weakest sales increase in nearly four years.  Suddenly, Apple appears quite vulnerable and hopelessly driven by public investment and its cyclic machinations.

Signs, Rumors, and Saturation

We’ve heard the word saturated used to describe the smartphone market, but there are signs of many things going wrong at the same time.

  •  Competitors are clawing at Apple’s share
  • Apple has fought back with lawsuits
  • Rising production costs
  • Mac sales were short of estimates
  • Many analysts see a shift in iPhone purchasing becoming upgrades vs. new purchases
  • No new breakthrough products have come out since April 2010
  • Sharp reported production cut of 9.7 inch iPads, reflecting demand concerns
  • Supplier reports of reduced production of iPhone screens
  • Foray into the iPad Mini – known to be a less profitable product, but more significantly, a product that puts Apple into competition with themselves

Cook Responds

Apple’s CEO Tim Cook took the position on the supply reports that there were intricacies of better yield, supplier performance, and other supply chain matters to explain it all and that any one report alone could not truly be taken to represent the larger business outlook.  Cook also looks to the future of Apple’s products potentially including the much-rumored Apple TV:

“We’re working on some incredible stuff,” he said. “We feel great about what we’ve got in store.”

It is also submitted that Apple would not be producing conservative estimates from this point on.  As one commentator put it:

the company seems to be saying it won’t sandbag anymore.

Steve’s Shadow

It has been eighteen months since Tim Cook took over permanently from Steve Jobs.  Steve Jobs was an absolute phenomenon, we will never see the likes of him again.  The company suffered greatly once before when Jobs was gone.  This time, he clearly will not return, but his legacy looms large over this company and how to persevere through these times.  Perhaps with the next Macworld coming up, a little of that magic can be restored, maybe with a sneak peek at a new product or perhaps some other surprise.  Reportedly, they are also bringing in Ashton Kutcher, who is playing Jobs in an upcoming movie.  It always comes back to Jobs – Steve Jobs had a special ability to innovate and market like no other before or since.  Apple is still a great company and despite its many troubles is mature, still producing great products, they have their devotees and has a good deal of expanding steady-rate growth to look forward to.  What we are seeing in this vacuum of another breakout product is the end of an explosive surge of growth that simply could not be expected to be infinitely sustained.  The market will continue to see the fact of this emerge quarter after quarter until Apple comes back to earth, at least until the next product may come about.