So is Wall Street Misjudging Apple?

January 16th, 2013

It’s a sure thing that Apple’s stock price has had a roller coaster ride in recent months. After reaching a peak of $700 per share last September, the price has dropped considerably. It was under $500 as of Tuesday. Now, you’d think that there are logical reasons for developments of this sort, but reading the Wall Street tea leaves can often be an exercise in futility.

So Apple’s stock price has crashed big time, and you wonder if the company is in trouble, or has, at the very least, lost its luster for some reason. The stock’s current behavior appears to result from reports, dating back to early December, indicating that Apple had severely cut back on component orders for the iPhone 5. The current version, from the Wall Street journal, asserts that “the Nikkei said Japan Display and Sharp have begun reducing production of the liquid-crystal-display panels used in the iPhone 5 amid slower-than-anticipated global sales of the handset.”

Rather than consider other possible reasons for this decision, assuming it’s correct — and no such thing has been confirmed by Apple — the media has looked strictly for bad news. If Apple needs fewer parts, demand for the iPhone 5 must have fallen off precipitously. It’s not that there are any other possible reasons, or that, perish forbid, the story just isn’t true.

At the same time, a number of industry analysts that deliver reasonably credible estimates of tech gear sales, such as Shaw Wu of Sterne Agee, report their own contacts among suppliers of Apple components indicate “robust’ demand. So what’s going on here?

Well, the largest part of the problem is the source. Yes, you can argue that the current owners of the Wall Street Journal, News Corporation, headed by Rupert Murdoch, is not the most credible news source nowadays. But the real issue is that the reporters who delivered that story, and their editors, failed to use common sense. Other reasons for an alleged cutback in components purchases wasn’t considered.

It’s not hard to suggest such alternatives, and still allow for great iPhone 5 sales. One is that Apple and their contractors have improved manufacturing yields, meaning fewer parts are needed. The other is that Apple may divide component purchases differently among various suppliers in the normal course of events, or choose different suppliers altogether. One example is the supposed cutback in purchasing from Samsung, with whom Apple remains in ongoing litigation over intellectual property issues. Yet another reason is seasonal. Sales in the March quarter are usually a lot less than a December quarter for obvious reasons. Hence fewer parts are needed.

One report has it that Apple had planned to announce a new iPhone 5 carrier in China, but that agreement has been delayed. So the additional iPhones needed to fill that demand won’t be built, at least not yet. This doesn’t mean that sales for the last quarter were bad, or that there was a severe falloff in demand for this quarter.

Add to this the prevailing fear factor on Wall Street. The market survived the temporarily resolution of the so-called “fiscal cliff,” only to be faced with the partisan divide over the debt ceiling, and the possibility of a government shutdown. The market is shaky, and the slightest evidence that something is wrong at Apple sent the stock reeling.

Worse, it appears the media has picked up on the meme that Apple is having a problem selling iPhones, although no such thing has been proven. For example, I heard a couple of talking heads bantering incoherently on the subject the other day on one of the 24/7 cable news networks. I felt hugely tempted to phone or write them and provide a measure of common sense. But it doesn’t matter. If the news about Apple takes a favorable direction again, there will be new bantering on the subject that will be oblivious to the previous bantering.

During this “quiet period,” Apple isn’t responding. But the company is facing serious pressure ahead of next week’s financial announcements. If they report record sales in almost all areas for the December quarter, and revenue and profits that reflect those numbers, will the Wall Street Journal apologize for publishing a story that wiped tens of billions of dollars from the company’s market cap? What about guidance for the current quarter also indicating robust sales? Or would the media use the excuse that the story came from sources that are usually accurate?

I suppose it is possible that, in the end, whatever Apple announces next week won’t meet the expectations of industry analysts and the investment community. Even when Apple does exceed their own guidance, the results are sometimes viewed unfavorably.

On the other hand, maybe the expectations for next week are properly diminished now. People expect doom and gloom, or at least tepid results. Anything that exceeds those expectations might be reviewed favorably enough to send Apple’s stock price soaring.

But you have to wonder how unconfirmed reports, without any solid evidence, can sink a company’s value, and why far too many people take it seriously.

Of course, the Wall Street Journal also said Apple would build a cheap — make that low-cost — iPhone this year. Maybe it’s true, maybe it’s not. But that doesn’t mean the story about a lack of demand for the iPhone 5 has any basis in fact.

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2 Responses to “So is Wall Street Misjudging Apple?”

  1. Mike says:

    Thanks for proving to me that not everyone has lost their common sense. I really have to say that with Billions of dollars of market cap at stake, I would not be surprised in the least if this “information” and speculation is merely manipulation of the market by hedge funds and others to make millions “moving the sheep around”. The media these days is either stupid to be manipulated this way, or are working for their own best interest (sensation, ratings, big headlines).

    One day everyone is in love with Apple and the next everyone is predicting doom again. It’s not just Apple they do this with but because I follow Apple closely I see the constant garbage the media puts out. On this “news” I bought Apple yesterday at $488 and right now it is back up to $503.35. I am just a small investor so I was not able to buy tons of shares, but just image if a Hedge fund bought a million shares when I bought mine… 15 Million dollars profit in one day is not bad.

    Now tell me, doesn’t that sort of potential for profit just beg for corruption by someone?

    Just sayn’

  2. AdamC says:


    Likewise when they sold the stocks at say $505 and buy them back at $485 at the end of the day or after hour trading.

    Someone or ones made a huge killing selling down from $705.

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