
Apple Stock Sinks as Profits and Products Are Questioned - Cbasedlifeform
http://www.nytimes.com/2012/11/08/technology/apples-stock-sinks-as-profits-and-products-are-questioned.html?
======
czhiddy
Wall Street (among other people) has this belief that Apple products are a
temporary fad. Their argument is that at some unspecified point in the future,
popular sentiment will do a 180, and the company will fall off the face of the
planet like they're the Crocs of the tech world. This completely ignores how
the company built itself up - by making high quality products and pairing it
with strong customer service. The built-up trust is similar to how you pay a
little more to go to your favorite mechanic vs Jiffy Lube.

Incidentally, I think this was a key reason Scott Forstall was let go. His
slip ups on Siri and Maps (particularly) annoyed enough customers to the point
where brand loyalty was damaged. See how much Jobs stressed the importance of
the brand (<http://www.youtube.com/watch?v=ugqcXqTEVMA>).

This weakness is a great opportunity for other companies, but Microsoft seems
to have fumbled a bit with Surface so far (judging by the reviews). Android
manufacturers, as usual, release a dozen or so mediocre phones each year
alongside their high quality flagship models, which doesn't do much to improve
their image. "More wood behind fewer arrows" would certainly mean much stiffer
competition for Apple.

~~~
rorrr
Apple has many problems now. Android and Windows phones/tablets being a
massive one. Android is now 75% of the new phones (as of Q3 of 2012), 41% of
the tablet market.

Google is eating Apple's lunch as we speak.

Microsoft is about to take a bite of their pie as well.

Another big problem is - Apple hasn't invented anything in a while. They are
riding the old wave, doing only incremental changes. Their OS is super stale
and is sooo far behind Android.

They did increase the resolution of the tablets/phones, but they don't
manufacture the screens, and so now everyone has high resolution displays.

From my perspective, Apple is done, unless they come up with something new and
exciting. They understand it too. That's why we see lawsuits instead of
innovation.

~~~
rimantas

      > Another big problem is - Apple hasn't invented
      > anything in a while.
    

They don't invent, they reinvent. We got iPhone in 2007, iPad in 2010. Do you
want to bring completely new product every year? What company does that?

    
    
      > Their OS is super stale and is sooo far behind Android.
    

It's mature, not stale. I won't go into "sooo far behind", because we both
know how it really is.

    
    
      > but they don't manufacture the screens,
     

True. Does Google manufacture screens? Does Microsoft?

    
    
      > and so now everyone has high resolution displays.
    

Not really true.

    
    
      > From my perspective, Apple is done
    

From your perspective (applying the same criteria) Google and Microsoft are
even more done.

------
AlexMuir
I've been thinking a lot about Apple recently. Here's a brain dump:

1\. Apple cannot compete with their current strategy outside metropolitan
areas - and that's most of the world. I'm in rural France at the moment. There
is nowhere to buy anything Apple, expect the iPhone - I haven't seen a single
Mac computer anywhere - in use or for sale. But you can't move in the
supermarkets for Android tablets and PC laptops. And we're not talking 3rd
world countries here.

2\. Apple's rise has partly been caused by being ahead of the curve on
technology, with a blockbuster launch every 4-5 years. iPod (storage, battery
life), iPhone (touch screen, UI), iPad (touch screen). There is no evidence of
a further blockbuster launch - I am not supportive of an Apple TV.

Coolness has a lifespan. People get bored. I'm bored of the iPhone now. It's
viable for me to switch to Android and so I will do so at some point. I don't
want to have the same phone for the next 50 years.

Apple is not in control of its manufacturing facilities. If we agree that
Steve Jobs was right on a lot of things, then was he right to push for Apple
to own and build its own factories?

Out of battery.

~~~
apl

      > There is no evidence of a further blockbuster launch
    

There wasn't any evidence preceding previous blockbuster launches either.
That's precisely what made them "revolutionary": nobody was anticipating their
respective successes. So your argument is a non-starter.

~~~
panacea
There wasn't any evidence Apple was working on the first iPhone before they
announced it, but it was an obvious target for Apple to hit. I had a fake osX
theme on my crappy Nokia and was hanging out for Apple to enter the fray. I
can't think of anything they could 'revolutionize' in their own way anymore.

~~~
bad_user
There's always stuff to invent and reinvent. Apple is good at interfaces. They
took the crappy phone design and delivered smartphones with friendlier
interfaces.

There's always room for improvement though. How about devices with no
interface at all? Like devices that can read your mind or act on their own.

And this is where I think the fundamental problem of Apple lies. Autonomous
devices require a revolution in hardware and algorithms, not just merely
building on top of other people's work ... Apple's revolution until now has
been nothing more than mere evolution.

Case in point: Google works on cars that can drive by themselves and on smart
glasses. Apple doesn't work on anything similar, never did and anybody paying
attention knew that Siri is going to be worse than the speech recognition that
comes with Android.

------
mlchild
This is a fairly shallow article, but I suppose most investors do fairly
shallow fundamental analysis. Aside from whether or not you believe in the
company, the management team, the product line, growth opportunities in China,
etc., the profit story is simply too compelling for investors to avoid.

Zaky does a reasonable job summarizing
([http://bullishcross.com/2012/10/apple-1000-why-its-time-
to-b...](http://bullishcross.com/2012/10/apple-1000-why-its-time-to-buy/)),
but the essential point is that 160-180 million iPhones next year
(conservative estimate) means $66 eps/share, which with a 15 P/E is $990.

Even if you believe the unbelievably conservative P/E of 10 is appropriate
(here's why that's nuts [http://www.asymco.com/2012/10/12/what-is-apples-
realized-pe-...](http://www.asymco.com/2012/10/12/what-is-apples-realized-pe-
ratio/)), you're still making a tidy 18% return over the next year. And if you
believe there is _any_ growth coming beyond the next fiscal year...

------
hoi
With the UK tax figures for several companies including apple, where they only
paid approx 2.5% in tax because most of the revenue recognition occurs in
Ireland where they pay cheaper corporation tax, I guess this will have an
impact for revenues for several companies going forward. Google are already in
a dispute with France over this, and I would expect these tax loopholes to
close int he future as Austerity hits the EU and each country looking for ways
to boost tax income.

~~~
fauigerzigerk
You probably mean profits not revenue. But the thing about raising taxes is
that it opens an opportunity for other countries to benefit from having lower
taxes without losing any tax revenue, because global companies will want to be
there.

At the end of the day, consumers will benefit from global tax competition ...
as long as they stay healthy and young.

~~~
hoi
Yeah, profits is what I meant. That;s what they are doing using the
competitive tax structure of Ireland and recognizing all EU revenue in Ireland
instead of the repective countries in which the product is bought. My
assumption is that these loopholes will eventually close because they are
being reported about and taxpayers in those countries will be disgruntled that
a company only pays 2.5% of its profits in tax because it's recognizing the
revenues in a different jurisdiction to which the product was bought.

------
fleitz
Yeah, it's slid so far they are trading at a PE of 12.63 instead of the much
more respectable 190 that FB trades at.

When you think about the world's most valuable company doubling profit year
after year and your return on investment you shouldn't accept a mere 12, you
should go for the gold with FB's 190, I mean they'd have to 10x their profit
just to get to a PE of 19.

Dumping a stock with a PE of 12.63 on track to double profits because it slid
3.8% is kind of advice you get from expert traders like Jim Cramer, he was so
successful at trading that NBC offered him a show and he took it. This guy
knows his stuff!

The stock is seriously overvalued if Cramer announces a sell soon and everyone
who reads this article dumps it you could be looking at a nice little
Christmas present with AAPL at a PE of 9 or 10 just in time for tax loss
selling.

~~~
fauigerzigerk
I'm not optimistic on Apple in the long run, because so little of their
revenue is recurring. They hit the jackpot with the iPhone, but once that
euphoria ends either their sales or their margins will crash.

But I don't think that time is now. People will be buying their stuff hand
over fist for Christmas and the stock is cheap. Incredibly cheap actually,
considering a fifth of their market cap is cash.

~~~
nicholassmith
Scroll back about 5 years or so and people were saying that exact same thing
about the iPod. They move from one product onto another, and we won't know
what's next until it occurs.

~~~
fauigerzigerk
I don't doubt they will come out with great new products. But one day the kind
of growth we have seen will be over. Their sales growth has been about 44% for
the last 10 years. Another 10 years like that and Apple sales alone will be a
third of the US GDP. That's not going to happen.

------
z92
With every month passing it's getting late for Apple to declare its next big
thing. The next big thing should have already been here. Thinking about the
next product to capture a new market overnight is what Jobs did best. And if
Apple fails to find someone good enough to fill that place, it won't crash
over night, but slowing decent like a glider plane for the lack of the upper
thrust.

After Jobs death, everyone was talking how the company isn't taking any hit
from the market. While I was waiting to see two years forward in the future,
wondering everyday whether it can come up with new product ideas like Jobs. If
it had, then Apple's success was not dependent on Jobs. If it can't then Apple
is the new Microsoft-after-Gates.

Right now Apple is increasingly looking like Microsoft.

~~~
JuDue
Harping back to Steve is silly.

They could shuffle on as-is for years and still be OK, unless you interest
lies only in doubling your money.

Steve didn't have yearly "big things"

It would be healthy for them to stabilise and lower expectations.

------
nicholassmith
I'm reading 'Inside Apple' at the moment, and there's a line near the start
that says (paraphrasing) "Apple views investors as an irritant to necessary
evil". I'm sure whilst analysts pontificate on the prices going up and down
and the tech community view it as a sign Apple is waning, the fact is they're
selling more product and making more money than ever before. They're very much
in a comfortable position, they make about $6bn in _profit_ most quarters,
that's just a silly number.

Analysts might say Apple is on the wane, but they really don't seem to be at
all. And for what it's worth, I can see iPhone/iPad sales staying consistent,
because once you invest a reasonable sum into the ecosystem it's not like
you're going to be able to walk away.

------
Cbasedlifeform
Face it: the global economy sucks. There are various types of crisis in the
US, UK, EU, Japan, and China. Every government is desperate to raise money
i.e. increase taxes (cf France's various recent disastrous forays in this
area). So the point that Apple, Facebook, Google, Starbucks et al may have to
pay higher corporate tax is a good one (and let's hope they do).

More importantly for AAPL though is the generational shift, I think. People in
their 20s (just), 30s, 40s know about the Apple 'cool' factor but on a recent
trip to SE Asia I would guess 60% or more of the teens were using non-iPhones.
(And NB smartphone usage in this group in Singapore is probably 90%+). The
newspapers had multiple full-page ads every day for Android phones (paid for
by the telcos I guess). And needless to say the Androids are far cheaper than
the iPhone.

Finally if the iPad mini is "good enough" for most people then it will
cannabalise the full iPad sales.

I don't foresee another blockbuster product rollout though I'd love to be
surprised.

I used to have some AAPL shares -- I sold at a tidy profit (though not at the
peak) and now just observe from the sidelines and sleep better at night :)

I just wish they would improve the working practices in China, or at least pay
higher wages and take a bit less in profit.

~~~
czhiddy
> People in their 20s (just), 30s, 40s know about the Apple 'cool' factor but
> on a recent trip to SE Asia I would guess 60% or more of the teens were
> using non-iPhones.

I can't speak for the rest of Asia, but judging by my extended family, the
Apple craze in mainland China is still pretty ferocious. A combination of the
materialistic culture and view of Apple as a luxury brand often leads to
situations like [1] and [2] popping up in the news.

Of course, each country is different. Was it Indonesia where Blackberry had a
90% market share among the youth?

[1] [http://www.chinasmack.com/2012/stories/chinese-freshman-
girl...](http://www.chinasmack.com/2012/stories/chinese-freshman-girl-demands-
apple-iphone-ipad-macbook-3-piece-set-for-college.html) [2]
[http://www.dailymail.co.uk/news/article-2126172/Chinese-
boy-...](http://www.dailymail.co.uk/news/article-2126172/Chinese-boy-sells-
kidney-buy-iPad-iPhone.html)

> Finally if the iPad mini is "good enough" for most people then it will
> cannabalise the full iPad sales.

This was the same argument against the iPod mini. As Apple has stated before,
they'd much rather cannibalize their own products than have a competitor do
it.

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Avshalom
Don't Apple stocks historically sink for a quarter any time a new product is
announced?

