Watch Out for the iPhone Sales Conspiracy Theories

July 27th, 2012

As Apple’s stock price begins a tepid recovery after taking a dive on news that iPhone sales in the last quarter missed inflated analyst expectations, you can pretty much expect the sort of chatter that has begun. The most extreme would no doubt be whether the Apple gravy train has reached a stop sign. You won’t see any more sky-high revenue increases year after year. Instead, Apple will grow at a more moderate pace, similar to “normal” companies.

Now I’m not about to predict the future, and maybe it’s true Apple’s growth will slow, to some degree, as customers await the arrival of a new iPhone, or because Apple is no longer walking on water. It’s not that there’s anything wrong with the current iPhone, but with so much publicity about a product upgrade that may feature really significant changes and improvements, is it possible a fair number of customers are just waiting?

The answer depends on whom you ask. Certainly that’s what Apple CEO Tim Cook said during the quarterly conference call with financial analysts. Apple said the very same things when iPhone sales missed targets in the September 2011 quarter. At the time, you had to believe them, since the iPhone was expected in June or July of that year, and didn’t arrive until October. There was a reasonable level of media frenzy about what the next iPhone would be like. Even though some were disappointed that it wasn’t so different, at least externally, that didn’t stop sales from soaring once the iPhone 4s was released.

In recent weeks, there has been another flurry of speculation, suggesting the so-called iPhone 5 will sport a four-inch screen, or something within that range, LTE support, and a totally new case design. It comes across as a very compelling upgrade, and I suppose it’s possible that potential buyers, whose contracts are up now, would rather pay month to month until the next iPhone goes on sale. It’s pretty clear from many surveys that existing iPhone customers are, by substantial numbers, inclined to go Apple again when they want a replacement.

The real question, one that might be determined by a user survey, is just what percentage of potential customers are so hung up on the Apple mythos that they would rather wait till something better comes along, particularly in the June quarter, when that better something maybe be four to six months away.

In an interview recorded for this week’s episode of The Tech Night Owl LIVE, NPD Group industry analyst Stephen Baker suggests only a very small number of potential buyers would be willing to wait that long on the sidelines if they are ready to buy a new smartphone now. Consider, too, that most people aren’t really stuck in our little tech news bubble, and they aren’t so inclined to watch the daily by-play of rumors and speculation about a possible new Apple product. They will usually just select a new smartphone from the available products.

I suppose the real question is whether fence sitters somehow took 10% or so from iPhone sales. But obviously that doesn’t make a whole lot of sense. But Apple did agree that the endless financial crisis in Europe hurt Apple’s sales, which were relatively flat across the continent. That situation could have been responsible for much of the sales shortfall, far more than potential customers who held back for the next iPhone.

But it sure sounds more romantic to attribute the problem to a high level of customer anticipation. It works better from a corporate PR angle. Demand for Apple gear is off the charts, and sales shortfalls are caused by other reasons. In some cases, Apple can’t build enough product to fill demand, the product arrived too late in the quarter to make much of an impact, or fence-sitters are hanging out for the next version. This may be particularly true if there’s a perception that the new model will be far more than a simple refresh.

In the scheme of things, the iPhone 4s was perceived by many as a simple refresh of the iPhone 4. In practice, there were substantial changes inside the case, but that may not have been sufficient to escape the refresh label. If the next iPhone is as substantial an upgrade as the speculation states, it might make sense — to some.

But the real problem maybe be the fact that Apple isn’t responsible for Wall Street’s expectations. Apple delivered guidance for the June quarter, as they always do in anticipation of future earnings. Indeed, Apple exceeded that guidance, and earned a record amount of cash for a June quarter. But Wall Street took figures from analysts that were all over the place, averaged them out, and decided that Apple didn’t do well enough. Those estimates may have little or no basis, but it was sufficient to create the impression that Apple’s luster has dimmed.

In the real world, it may well be that Wall Street became overconfident, or failed to see signs from preliminary sales estimates that would bring inflated expectations down to Earth. I see that, after the initial hit to the stock, prices seem to have settled down, so maybe Wall Street has begun to realize that, where Apple is concerned, the sky is definitely not falling.

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3 Responses to “Watch Out for the iPhone Sales Conspiracy Theories”

  1. AdamC says:

    What do you expect from people who live in fantasy land and their honest day work is trying to guess a figure which they feel is just right from past experience.

    If these people are so good in fortune telling they should be billionaires by now, lounging in holiday resorts and golf clubs.

    But why are they still analysts?

  2. Shameer Mulji says:

    “But why are they still analysts?”

    The real question is why do these guys still have jobs? they don’t do anything productive. if they did they’d be running their own business or Apple.

  3. Contable Odo says:

    Most of you should realize by now that Wall Street is out to stiff Apple shareholders. Take a look at Apple’s P/E compared to Amazon’s. Somehow, Amazon’s P/E of 290 or so seems perfectly natural to Wall Street as the stock continues to climb without the least bit of trouble. Apple has a P/E of less than Microsoft’s and yet there are claims that Apple is already overvalued and that’s why investors are putting money into other companies that have greater potential growth. Priceline got a $55 pop in one day and should Priceline fundamentally have a share price that is $100 higher than Apple’s. Heck, Apple has almost $120 billion in reserve cash which could easily buy all of Priceline a number of times over yet Apple is the company struggling just to even hold a share price of $600. There seems to be some sort of double standard where companies values are completely out of whack. Apple’s fate is being decided by analysts who make up their own numbers to decide whether Apple share price goes up or down despite Apple pulling in more money in a single quarter than most companies in this poor economy.

    I wonder if Apple as a company is doing something wrong. I don’t think so, but Wall Street is not valuing Apple for any growth and I’m not sure why. Maybe Apple needs grab onto some other type of side-business that isn’t so cyclical to fill in the slack quarters. Apple’s P/E continues to shrink while other companies P/Es are continuing to grow and this is even despite a dividend. I can’t figure out how the P/E keeps shrinking despite that growth of reserve cash, either. The company’s overall value should be higher, not lower. Amazon continues to burn money and despite constantly thinning margins the stock is worth more to investors. I don’t get it. When Apple’s margins drop a bit, Wall Street sees it as a terrible thing and the share price plummets. There must be something I fail to understand how companies are supposed to be run. Maybe Apple doesn’t quite get it, either, considering lack of investor interest. The DJIA is over 13,000 and recovering yet Apple still can’t get back to $644.

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