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  • Old Wall Street Rumors Become New Wall Street Rumors

    January 15th, 2013

    So on Monday morning, Apple's stock price took a drubbing because of a rumor, never officially confirmed by the company, that orders for the 4-inch LCDs used on the iPhone 5 were severely cut back for the current quarter. The alleged reason: Soft demand, meaning that the luster of the new iPhone had supposedly worn off to an astonishing degree.

    Coming off what analysts are suggesting is a record quarter for iPhone sales -- and including reports that the American wireless carriers had sold record numbers of Apple's "jesus phone" -- this would be a curious development indeed.

    Predictably, the media is wondering whether people woke up one day and decided they no longer want iPhones. Unfortunately, the story lacks a center and, in fact, common sense. Besides, it's nothing new.

    In early December, a story that cited sources in the Asian supply chain made the very same claim. But, after an initial flurry of concern, reality asserted itself. Sales in the March quarter would predictably be far less than the December quarter, so Apple would order fewer parts. Period. Nothing strange about that, except in this hypersensitive environment where even the suggestion of trouble is enough to sink Apple's stock.

    I would be willing to suggest, with no information at hand to confirm the statement, that Samsung also cut parts orders for their smartphones for this quarter. Why should it be otherwise? This is the way the tech business works, but Apple is getting blamed for normal behavior.

    Now I would think that the editors of the Wall Street Journal, the country's largest financially oriented newspaper, would understand the niceties of production and demand, and how seasonal factors impact sales. You would also think they were aware of the history of the story, and that it was weeks old before being presented as something altogether new and the source of potentially serious concerns about Apple. Indeed, some industry analysts, including J. P. Morgan, are already calling the story little more than "noise" and not news. A similar response comes from Shaw Wu of Sterne Agee, who reports that his information from suppliers continues to reveal "robust" demand for the iPhone 5.

    What's more, don't forget the recent introduction of the iPhone 5 in China, when two million copies were sold over the first weekend on sale. But you do recall how tech pundits claimed, at first, that sales were poor, because customers weren't crowding the stores to get theirs? It turned out that Apple offered online reservations, so people could just go in at their convenience to pick up their merchandise. Fewer lines, but such subtleties escaped the media at the time until the sales figures were revealed.

    The larger question is just how Apple's sales fared for the December quarter, and how they seem to have progressed for this quarter. When Apple releases their financials on January 23rd, the situation will be more obvious. It won't be just the sales and revenue already booked, but the guidance for the current quarter. That will either confirm the current reports of poor iPhone 5 demand, or demonstrate that the media has made a big deal out of an old story that merely reflected a normal component inventory situation.

    In all fairness, some members of the media have already awakened to the reality of the situation, that this is an old story in a new dress. That won't, however, stop investors from assuming something is wrong in Cupertino, and that Apple is losing direction. But there hardly seems to be any evidence for such a conclusion.

    Indeed, there's even survey from Gartner contradicting estimates from IDC that Mac sales dropped slightly in the U.S. in the last quarter. Garner says that sales were up 5.4%, and that Apple remains comfortably in the number three position. The real key is overseas sales, which have taken a larger and larger share of the company's revenue. It may well signal yet another record quarter for the Mac, which, along with expected record quarters for the iPhone and the iPad (particularly because of the arrival of the iPad mini) should help silence the critics.

    That is unless the record sales don't quite come up to the expectations of the financial community. Yes, it may well be that some of those expectations are simply pulled out of a hat, or some dark portion of one's anatomy. But the figures are nonetheless taken seriously by far too many people. Better to look at Apple's own guidance, conservative as it might be, to get a sense of how well the company expected to do. If those figures are exceeded by a decent margin, why the fuss?

    But while the tone is one of gloom and doom about Apple this week, media speculation continues about what sort of products the company plans to introduce this year. Will there be an iPhone mini or some other lower-cost version? What about the fate of the Apple TV, and how will Apple deal with the existing complications of TV and TV interface technology? Would it require a whole slate of contracts with carriers and contract providers, or is there a way to do it without getting those deals? When does the Apple TV hobby stop being a hobby? Or is that all a smokescreen to conceal the "real" product and service initiative Apple is developing behind the scenes?



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    3 Responses to “Old Wall Street Rumors Become New Wall Street Rumors”

    1. tz says:

      Don't forget that the Wall Street Journal is brought you by the same people who bring you Fox (cough)"News" .

    2. Kaleberg says:

      tz is right. Most business journalists these days don't have the slightest clues about the industries or companies they cover. They probably can't even read a balance sheet, let alone a 10Q filing. It's kind of sad. Business journalism used to be pretty good. If nothing else, people relied on it to take action in their investing. Nowadays it's straight out of People magazine and just as useful.

      Gene Steinberg Reply:

      @Kaleberg, It's also very much about focusing on the worst possible interpretation of the matter, not to mention how true it might be.

      Peace,
      Gene

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