The Good News Won’t Help Apple on Wall Street

October 6th, 2008

Apple has some news that, if confirmed, they can really crow about in their financial statements that are due for release later this month. But, at the end of the day, it probably won’t help their stock price.

Their troubles got worse last week, when a bogus report about Steve Jobs suffering a severe heart attack got posted on a citizen blog at CNN. In retrospect, such controversial stories should be vetted by one or more editors before being posted, but someone was apparently asleep at the wheel.

It was understandable to watch Apple’s already dipping stock price tank still further. After all, Steve Jobs and Apple are regarded as one and the same. The destinies are always tied together, and if anything happens to Jobs to impair his work at Apple, you just know that lots of people will feel that the glory days are over.

In practice, this is likely only partly true. Apple has thousands and thousands of employees developing and supporting their products. Without a number of brilliant executives, the vision of Steve Jobs cannot be carried out properly, however skilled he might be at whip-cracking. He is, after all, not an engineer or designer, although he is credited with that and other skills by many people.

Now it’s also true that Apple claims to have a succession plan in place should the worst occur, although they aren’t revealing what that might be. That, to me, is a boneheaded maneuver, because you can how easily billions of dollars of the company’s value can be lopped off simply by an unfounded rumor.

Worse, with serious concerns about the economy, despite the decision of Congress last week to approve that so-called bailout package, it doesn’t appear that Apple will get off easily for a while. Even a stellar financial report for the past quarter may not be enough to assuage doubts about the company’s ongoing success.

Indeed, as I observed Apple’s stock price declining, I was also reading a report that they have already succeeded in selling more than the promised 10 million iPhones so far this year. How did they come by that figure? Well, simply by examining the serial numbers of various units and applying a few known facts about the way Apple designs such data. It may just be a case of spreadsheet voodoo, of course, but there are other indications that iPhone 3G sales are way ahead of what the pundits expected.

There’s a report from the NPD Group that the iPhone 3G had a 17 percent share of the overall U.S. mobile handset market surveys taken from June through August. That’s the entire market, not just smartphones, and number one is the aging Motorola RAZR, which is often given away as a free premium by cell phone carriers to get you to sign up.

To make this information even more compelling, at one time Steve Jobs suggested that he’d be satisfied if the iPhone garnered just one percent of the global market. How well they really did won’t be known until the final figures are released.

Under normal circumstances, extremely positive news of this sort ought to be sufficient to send Apple’s stock skyrocketing. It would mean that, despite the ongoing concerns about the economy around the planet, Apple had managed to succeed beyond the wildest expectations of their severest critics.

So how can they prevail under these conditions?

Well I don’t pretend to be an expert on such matters, but if you have less disposable income to spend, you are going to look for something that delivers the most value. Yes, you can get smartphones for nearly nothing, but most provide a level of value equal to the purchase price.

That is just as true for the cheap PC. Yes, they can probably all handle the basics, such as email and Web browsing, with reasonable levels of performance. But as soon as you run into some sort of oddball behavior, such as the inability to get a peripheral to work, and you confront one of those typical Windows configuration nightmares, you wonder just how much your time is really worth. Wouldn’t you prefer to spend that time earning a living rather than coping with the eccentricities of a temperamental machine.

I don’t know about you, but the reason I use Macs is because I can usually get my work done without any distractions. Not that things are perfect by any means. We all know that Macs have their own share of problems from time to time. But for most people, they just work, and don’t you want the best tool for the job?

This isn’t to say that Apple is immune to possible economic catastrophes, or at least severe downturns. In fact, I fully expect Apple’s quarterly results to demonstrate great sales performance, but their guidance for the current quarter is going to be extremely conservative, despite the coming holiday season. Indeed, I expect the stock price may continue to drop for a while before it goes up, unless the overall flavor of the market undergoes some change.

But that’s as far as my predictions extend, and I always reserve the right to be wrong.

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8 Responses to “The Good News Won’t Help Apple on Wall Street”

  1. rwahrens says:

    I cannot disagree with much of what you said. Makes a lot of sense.

    I can’t help but think that AAPL’s performance in the markets is due to a mixture of deliberate manipulation and relatively ignorant investors doing what they do best – panic on bad news and being skeptical on good.

    I am not by any means an expert on finances – much less the stock markets. But I own 9 shares of AAPL, two of them bought last week. That decision is based upon a long personal history of using, supporting and actively hawking Apple products to anybody that’ll listen – and to many that wouldn’t!! I remain a bull on AAPL and the company too – their products are too good, and their performance in the market (the computer market, not the stock market) is too consistently phenomenal NOT to own Apple stock.

    Last night, my wife and I made the decision that we are going to cut loose some more savings to buy more AAPL, should the stock drop again – and maybe even if it doesn’t.

    THAT is based upon my experience that the stock market WILL go back up – and I am an investor for the long haul, not a trader!

  2. RobInNZ says:

    Maybe a simplistic point of view, and a lack of grasp of the US stock market, but I still fundamentally struggle to understand why anyone conceptually thinks that (most) US companies stock price has any real fundamental basis in the performance of the company.

    Look at it from this point of view. As I understand it, APPL dont pay dividends. The basic concept behind stocks was originally to provide comparmentalised ownership of a company, in order to raise capital to invest in the business. The return on the risk of buying stock in that company was to receive dividends (ie a profit share if the business grew as a result of the capital it raised). Stock then became a tradable item, based on potential returns as a result of company performance.

    Now basically, since the company doesnt provide an actual return on the stock to the shareholder, it appears that the only thing that is actually affecting stock value is market confidence. Confidence in both the market, and whether an indvidual believes the stock will rise further. In other words, basically a house of cards that has no grounding in actual reality, and purely feeds on the confidence of the market itself. Oh, and of course, whether Steve Jobs possibly had a heartattack this week. Its this lack of grounding in tangebility that causes the stock to be so volatile.

    Just my 10c (love inflation).

  3. rwahrens says:

    Robin, you’ve got a point. Confidence is the basic stuff of which the stock market is composed. Without it, we’ve got what we have today, which is a freefall.

    But, Gene, my point is that this market may be a real dog, but it isn’t going away. (If it does, we’d all be better off buying flour in bulk and guns and ammo instead of stock!) But it won’t, this too will pass.

    And when it does, those that bought at or near the bottom half of that market will profit, at least IF they buy with the intent to stay the course and hold what they buy.

    No, this market is NOT for the faint of heart or the day trader – unless you’ve got a lot of money to burn. But if you want to buy some stock in a company with a solid performance history, that you can be sure will be there at the end of this bad turn of economic events, Apple, with $20 billion (with a B) in the bank, is a good bet to buy and hold.

    Several analysts have noted them as a good opportunity already.

  4. @ rwahrens:

    If I had money to burn, I’d probably put it under the mattress nowadays. 🙂


  5. rwahrens says:

    I hope your mattress is giving you a good interest rate – and doesn’t go on any looong vacations, at your expense!!

  6. rwahrens wrote:

    I hope your mattress is giving you a good interest rate – and doesn’t go on any looong vacations, at your expense!!

    Yes, those mattresses can be mighty untrustworthy sometimes.


  7. rwahrens says:

    My wife’s family (in Germany) had an old aunt before WWII that didn’t trust banks. During the thirties when inflation was in the thousand percentiles, she buried her cash in her backyard. For safekeeping.

    When the new Reich government issued new money, requiring citizens to trade the old money in for the new, she was distrustful and failed to do so. When the family found out, her entire fortune, worth a considerable amount before the exchange, was worthless.

    Riches to rags in a heartbeat.

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