Investors Unnerved by Apple Stock Slide
News of a cut in Apple's orders for mobile displays sent investors scurrying for the doors, but there's probably a reasonable explanation other than sharply falling sales, said Global Equities Research analyst Trip Chowdhry. "Apple cut LCD orders by 40 to 80 percent not because the demand has declined 40 to 80 percent, but probably because Apple is shifting to different display technology."
01/16/13 5:00 AM PT
Spooked by reports that Apple is cutting its iPhone 5 orders, many investors unloaded their Apple stock this week, sending the price dipping to its lowest point in nearly a year.
The company did not confirm the reports that first appeared in The Wall Street Journal, but several analysts have also cut estimates on iPhone sales for the quarter. The official numbers are expected to be released next week when the company issues its quarterly earnings report.
Increased competition in the mobile device space is largely to blame for the decrease. Even though iPhone and iPad debuts have resulted in riots at some stores, Apple's premium-priced phones -- and the pricey data plans that accompany them -- come at a higher cost than many consumers in markets such as India, Latin America and China are willing to pay.
To combat growing competition from companies with lower-priced offerings, such as Samsung and Nokia, some supply rumors have surfaced suggesting that Apple is working on a smaller, and therefore more affordable, iPhone. While there's no doubt that Apple would be exploring all kinds of options for its next-generation device, it's unlikely the company is going to go that route, at least in the short-term, said Colin Gibbs, analyst at GigaOm Pro.
"I'm skeptical that we'll see a substantially smaller or cheaper iPhone this year," Gibbs. "While that strategy could give Apple an opportunity to reach more users in emerging markets like China and India, I don't think Apple wants to play in the low end of the smartphone market."
That uncertainty about Apple's plans in the area is what is making investors nervous, said Jeff Kagan, tech analyst and consultant. While many want to believe in the company known for its innovative products and ability to bottle brand loyalty, the mobile device arena is rapidly changing.
"There are two Apples," Kagan told MacNewsWorld. "One is the company that makes the iPhone and iPad and its customers continue to rave about them. When Apple iPhone entered the smartphone space they recreated the entire segment. Previous leaders, RIM and Nokia suddenly dropped like a rock. However this is six years later and today there is competition in this space. This smartphone space is not all about the iPhone any longer."
That's where the second Apple, the investment vehicle, comes in, said Kagan, and lately the corporate leadership hasn't been able to keep that side happy.
"This recent softness from Apple has put many investors into a sort of a la-la-land," he noted. "People just don't know what's coming next. Is this a temporary lull, or is this a sign of things to come? This is unchartered territory for the Apple investor."
The stock was down about 3 percent Tuesday, closing at US$485.92 per share. Apple's stock price had not dropped below $500 in nearly a year, and has seen a steep drop from its historic high of $705.07 last September following the launch of the iPhone 5.
Even with the recent stock dips, though, consumers and investors alike shouldn't become so preoccupied with a stock-market dip, said Trip Chowdhry, senior analyst for Global Equities Research. There could be several reasons for one quarter of uncharacteristically low iPhone sales, including inaccurate estimates about how many screens were needed on the supply side.
"Apple cut LCD orders by 40 to 80 percent not because the demand has declined 40 to 80 percent, but probably because Apple is shifting to different display technology," he said.
That doesn't mean there's probably not some heated meetings and tension inside the walls of Apple's headquarters, Chowdhry acknowledged, but Apple as a company is still a tech force with which to be reckoned, he said. "This week's weakness in Apple stock is a buying opportunity."