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On not being boring: A dramatic reading of Apple's share price

Apple’s renaissance began with the iPod. This was not evident right away however. The product was unveiled on October 23, 2001 at a time when Apple’s share price had just fallen 70% from year-earlier levels. It was perhaps a good point from which one could expect a recovery to begin.

It was not to be. One year after the iPod’s launch the stock price had fallen another 20%. Indeed during 2001 the company was in the throes of a “bear market” in its shares. If we measure a time of persistent share price reduction as a bear market, then the one in 2001 was significant. For 154 days, between April 27 and September 28, 2001 the shares fell 38%. This represents the first bar in the following graph showing all the Apple bear markets since then.

I also illustrated these bear markets in terms of their duration and the average %drop/day.

Chronicling these periods:

  • From May 24th 2002 and September 27th, 2002 the stock fell 41%.
  • 2003 was less harsh but on the second anniversary of the iPod, for two months between October 17th 2003 and December 19, 2003 the stock fell another 17%.
  • By 2004 the iPod looked like a hit. The stock rose consistently during the year. Then, in early in 2005, from February 25th to May 13, the stock fell 20%.
  • In early 2006, January 20th to March 10th, the stock dropped 26%. The iPod was reaching incredible levels of popularity and the Mac was looking to be returning to prominence with the switch to Intel.
  • 2007 was the year the iPhone launched. Right after the launch for two weeks between August 3rd and August 17th, the stock fell 15%. That’s the equivalent of 1% per day for two weeks.
  • As the iPhone was shown to be a hit (and before the credit crunch), for four weeks during January 2008 the stock fell 37%. Again, equivalent to 1% a day for 35 days.
  • Then after the iPhone 3G was launched and growth reached triple digits, Apple’s shares fell for 50 days. From August 22 to October 10th they fell a total of 45%. Again, the equivalent rate was 1% every day for a month and a half.
  • In 2009 the stock recovered steadily but in 2010, again around iPhone launch season the stock fell 12% over a two month period.
  • Then in 2011 October, 9% was wiped out.
  • Then for two weeks in April 2012 10% disappeared.
  • Which brings us to September 21 to November 9th, 2012. This latest “bear market” has run up a loss of 21.7%, running for 49 days.

Sounds dramatic. The even more dramatic twist is that in this same time frame the share price increased by 576 points or the equivalent of 6,294%. Nevertheless, there were 13 episodes when the shares dropped violently and sometimes persistently for long periods.

Why does this happen?

It’s important to recall that at no point during Apple’s ascent was there “consensus”  that Apple was being successful and certainly not sustainably so. Analysts gave it at best a growth prospect of 20%, and the risks were always obvious and prominent.  The company was always on the edge and everybody from the layperson to the experts could see that everything was wrong with Apple. Apple went from being irrelevant to being too big without passing through being boring.

So there is a simple explanation for occasional panic: Apple is not predictable.

But it also seems too consistent. Is the pattern of share price collapse actually rooted in some fundamentals, transient or otherwise? There is a clear failure in understanding the long term but were these downdrafts justified as the market “foresaw” or “discounted” the near future? Were these more than just crises of confidence? Was there wisdom in the drops because they were followed by earnings drops or slowing growth? In other words, if there was smoke, was there fire? Was the market being efficient?

No.

The graph below shows the share price change in the more recent episodes above and the earnings growth during the current and following quarters.

At least since the iPhone launched, every dramatic drop in share price was followed by a surge in earnings growth. One could even say the worse the bear, the better the growth.

Sounds completely counter-intuitive, but there is some perverse logic in this as well. The market reflects crises (as well as over-abundance) of confidence. Unforeseen growth is what creates wealth and the crisis in confidence is a reflection of the improbability of continuing out-performance. When Apple’s performance is foreseeable the stock moves slowly upward. When its performance is unforeseeable the stock moves dramatically downward.

A pithy way of putting it is: No news is good news. Good news is bad news.

When a product is understood the stock is mildly desirable. When a new product appears the future is hazy and the stock is undesirable. But that haziness hides potential but up and down. New products is what innovators produce. Bizarre new products is what disruptors produce.

In other words, the paradoxical observation in the chart above of “the more drama in the market, the more success in the marketplace” makes sense when inverted.

For disruptive companies, it should be “the more success in the marketplace, the more drama in the market.”

In that sense the current downdraft may be quite auspicious.

Notes:

  1. Another set of similar observations were made by Eric Jackson in early October in Forbes.
  • http://www.isophist.com/ Emilio Orione

    I understand your point more for innovative products like ipod, iphone or iPad than for the current market drama. In october apple renewed its entire products line. Perhaps the ipad mini will be disruptive, but it seems to me more e new product than a bizarre new product.
    Apple has announced new products that affect its entire line of very good selling products, macs, ipads, iphone and ipod. That’s sustaining innovation. Furthermore both iphone 5 and ipad mini have had spectacular first three days sell.
    We are in the holidays quarter and new products usually appeal enthusiastic customers, both new or recurring, products will appeal mainstream customers next year. Apple is plenty of faithful customers.
    What could go wrong in apple’s sales to justify the market reaction at least looking at this quarter? Where is the uncertainity? Where are the bizarre products that scares the market?
    It seems to me that apple has introduced solid products that polish previous iterations making the products lines solider than ever in markets that are far from their limits.
    The only fear could be less growth than pundit’s forecast. To fight that apple could do a simple move, do not realise sales data anymore like its competitor, and everything will be fine.
    The latest market crisis seems more a speculation on future spectacular growth than ever.

    • Accent_Sweden

      The new factor could be that Apple has basically updated nearly all of its products in the same quarter, putting into question its ability to deliver such a massive transition. I don’t believe they’ve ever done this before, at least not in the last 10 years. That’s a lot of news for the market to swallow. Perhaps this is the market’s uncertainty.

      • http://www.isophist.com/ Emilio Orione

        Interesting, a speculation on the supply chain capacity to sustain the incredible number of sales, now that samsung is at war and augmenting price for apple of about 20% as they say.

        So the move on sharp makes even more sense, but I don’t believe it is a rational market, it is emotional.

        Bear market is a recurring speculation on the necessity to fall the more you go high. It is the horizon of the events in the law of great numbers that is missed by market players.

        This holiday season has seen many competitors launch their best alternatives to ipad and iPhone and macs, market is betting someone will succeed. That could be, but not anytime soon, the first phase of sales new products goes to enthusiastic and for an apple product there are plenty of them to fulfill demand for quarter or two, no matter what.

      • http://profile.yahoo.com/BGNRXB6JCU7H5ESMJ76F64WMZM Alen

        most of apple’s products use the same components so it’s not that big a deal. with others you get into the CPU yield issues where the top CPU’s to be produced go to the most expensive products and those with damage to the circuitry go into lower end products like the Apple TV.

      • Accent_Sweden

        I agree. I was not questioning whether Apple could pull it off. The question is why the market is reacting the way it is. Horace’s writes that no news is good news and good news is bad news to eye of the market. Then lots of news (many new products at once) is really bad news in the market’s mysterious world view.

  • tedcranmore

    Great article, far better than my trivial statement that AAPL suffers times of serious pullback at periodic intervals. Unfortunately, while I used to get ready for these by raising cash to seize the opportunity, this time I got too aggressive too early in the pullback. I had somehow convinced myself that AAPL was about to become a much more boring stock and would show more slow steady growth and have smaller pullbacks. Why? It seemed that there was more consensus on the power of Apple and they had new products everywhere, the formerly Blackberry toting Wall Street guys had finally seemed to acknowledge Apple’s importance in the market, they were paying a dividend and even had a buyback program, and we were staring into the holiday quarter with this refreshed line-up. I also felt that the product cycle script was now so well known that market share losses in the last 2 quarters of a product year, the margins pullbacks on new releases, that the dominance of the iPad will necessarily appear to shrink in share terms, and the usual new product issues/complaints on release were now understood and would start to be at least somewhat “priced in”by the market.

    Wrong. Instead, a greater pullback than the last 3 and without a financial crisis to blame. As usual, but worse this time, the voices of the bears really seemed to multiply even louder this in the press. And, as per usual, the voices of the bulls tend to grow silent at these times. Does ‘this time it’s different’ remain a fatuous call of the main street crowd? Or, does AAPL at some time actually start to act like a boring blue chip vs. the sizzling flare of a fast burning tech company?

    • http://twitter.com/johnk77t John Knoerr

      meke=meek?

      this time it is different has been said before

      and

      this thread is full of content!

  • Big Jerry

    The article is interesting but it does not address the leaving of Forstall, the problems at Foxconn, the leaving of the top retail guy just before christmas , the dumping of Intel and their chip. All of which lead to specualtion as to whether the real truth behind the latest I phone and OSI6 has been disclosed. That’s regardless of the chart action of new product launches.Somehow everybody still is blowing over these issues like nothing happened. And when is Forstall going to tell his side of the story. HELLO OUT there.. The Titantic was built not to sink, But it did…..

    • http://www.asymco.com Horace Dediu

      Contrary to popular mythology, Titanic was never described as “unsinkable”, without qualification, until after she sank. http://en.wikipedia.org/wiki/Legends_and_myths_regarding_RMS_Titanic

      That’s a myth created by the media to sensationalize the event. Much like what you refer to.

      • https://twitter.com/#!/reda_ek Reda

        The article is interesting but you didn’t disclose any positions you might have on aapl

      • http://twitter.com/kgbraund Kyle Braund

        Irrelevant. Horace is presenting historical data. He is not trying to ‘sell’ you something.

      • https://twitter.com/#!/reda_ek Reda

        Sure, if you’re happy with Horace’s financial disclosure (or lack of), who am I to judge? :-)

      • Rich Freed

        Not irrelevant (though I don’t mind the non-disclosure). Whatever one is or does in the present and wants to be and do in the future always influences how one configures the past.

      • http://www.asymco.com Horace Dediu

        I never thought one could configure the past.

    • jwoodgett

      We can only speculate at whether any of those issues is material. For example, Foxconn issues were temporary and reflect a new level of product refinement. They overcame the issues. The “retail guy” was an anathema to Apple and his exit was a good thing (his hiring was the mistake). Apple will use Intel for years more but it is hedging as should any disruptive technology-based company. Forstall is possibly the most relevant case but, again, its all speculation and if losing him was the price to retain Ives, then job done.

      I popped into our local AppleStore on Sunday. Place was absolutely mobbed. You’d think iPad mini’s were made of gold. Line up of people buying new MacBooks. Point being that sales are the driver. Everything else is pontification. Fun to read but let’s not lose perspective.

    • http://www.isophist.com/ Emilio Orione

      Your points with a rational and not emotional mind.
      Scarcity is one of the five reason of appeal for a product. I wont say it is a good thing for apple but problems at foxconn, now resolved, are causing scarcity of the product, they are not causing less appeal or less interest in the product. If apple sells all what foxconn is able to assembly will be a very good thing for apple, not a problem at all.
      It could have sold more if foxconn assembled more, yes as for every iphone model that has been supply constrained, nevertheless apple has been successful enough I dare say.
      The leaving of Forstall could not prove good or bad for some time, we will see, giving the product replacement cicle it will have effect at the very minimum 6 months from now. Market is going down now, what for (relative to Forstall)?
      The top retail guy was recruited for expansion not christmas sales and was the wrong guy, his leaving is a good thing for apple as well as the quick remedy to the error.
      The dumping of intel is strategic move at least two years from now that will be made if it will make sense technically. The consequences could not be discounted now from market, for any realistic reason.
      Any reason for the sink will be from sales, nothing else. Sales will be influenced by competitors, no one has been able to come close, at least without a blatant copy, or market saturation, that is far from now.
      Try again with the same reason every year, like most pundit do with apple and one day you will be lucky, perhaps, then you could say: I had told you and your nephews, using ipad 23, won’t understand.

    • http://www.facebook.com/bob.arker.731 Bob Arker

      It’s quite hard to take your comment seriously when you call iOS “OSI” and an iPhone an I phone. You failed to bring up any fundamental arguments to the table and you are just parroting what the journalists and media sensationalists (who have done little to no research) are saying.

  • sscutchen

    The point missing by most analysts when they examine Apple stock is what you typically cover here, Horace; the viability of Apple’s technological moat. As you have pointed out many tines, Apple has the ability to create huge disruption in the markets where it competes. And it develops its disruptive devices and ecosystems without pre-announcement, birthing them good to go. Then, from this running start, they accelerate. They are essentially impossible to catch. The iPad Mini is the latest.
    .
    No one ever made a viable iPod competitor. The only valid iPhone competitor is being shown to be built in ill-gotten technology. And no one can come close to the iPad and its actual computer capabilities. (Web, books, mail and movies? that’s not an iPad. Name any tablet maker that has a shot at garnering FAA approval for their tablet to be a paper replacement in commercial airline cockpits…)
    .
    I think the stock volatility has been a combination of Schadenfreude and way too much analysis of Apple as a mathematical phenomenon on a technical stock graph. There as not been nearly enough analysis of the technological dominance that Apple has. This may simply be because everyone can fancy themselves a stock analyst, but very few actually have the technological background to do the analysis from an engineering and science perspective. Regardless of the cause, to ignore this side of the valuation is to miss the moat completely. (pun intended…)

    • obarthelemy

      Again, Apple innovates on 2 fronts:
      1- make tech easy to use
      2- make tech socially desirable, sames as cars with BMW vs Hyundai.

      Basically, they’re expending the tech market from nerds to the general public, which has very different aspirations (ease of use vs openness and features, looks vs sturdiness…)

      The issue is that the competition then catches up, especially on the ease of use front: iPhone launched vs Windows Mobile, which was a world of hurt. Nowadays, Android is at par with iOS, better at some things (Widgets, Alerts), worse at others (smoothness), but globally, at par. And introduces a third front: price. a 64GB iPhone 5 is twice as expensive as a 64GB Galaxy S3, using an SD card.
      Which explains why Apple doesn’t “run away” (sic) with anything, but on the contrary sees its market share eroding consistently. Happened in smartphones, is happening in tablets (Android is reaching 50%, vs 10% a year back), no clue about MP3 players. This is not important right now because the market is growing strongly.

      That makes Apple’s strategy dependent on growing markets, and on new markets. As the iPod shows, markets do not grow forever. And new markets are unpredictable: for every iPhone and iPad, there’s an Apple TV and a Pippin.

      Apple don’t have a technological advantage. They have a logistics and marketing advantage, but they products’ features and specs are never very innovative. Touchscreens (which they buy outside), Voice recognition (which they bought outside), iTunes (which they bought), even MacOS (which they bought) are not distinctly innovative. It’s the easy and luxurious way they package those that adds value.

      I think the stock volatility is because people see Apple succeed by bringing tech to new markets, then being overtaken in those markets, which are also maturing. it makes it seems that Apple’s success is dependent on finding a new hit category to apply their easy+sexy formula every few years, which seems a risky proposition.

      • Steve

        But Apple makes all the money in the businesses in which it competes. What’s your point? If it can do that without having to sell 10x units to do it, even better!

      • obarthelemy

        No they don’t.

        In mobile, Samsung certainly makes money (off their phones on top of off the parts they sell to Apple). In Desktops, there’s a bunch of companies living happily. Even in laptops and tablets, where Apple is most dominant, I’m fairly sure there are other living well enough, Asus comes to mind for both, Lenovo, Acer and Dell, maybe HP, on the laptop side too.

        The market Apple has been the longest in is desktop PCs, where they have a 10-20% market share (http://en.wikipedia.org/wiki/Usage_share_of_operating_systems). I found profit data for PCs in 2010, Apple were getting 35% of the prfits, with a 7% share. That’s nice, but nowhere near “all the money” (sic). No clue if it’s gone up or down since.

        Edit: oh, and that’s comparing Apple (OS+hardware) with PC makers (hardware only). To be fair, you’de have to add some of MS’s profit to that, significantly lowering Apple’s 35%.

      • http://www.facebook.com/bob.arker.731 Bob Arker

        obarthelemy, I believe that you did not understand Steve’s comment. I think that Steve is referring to the fact that although Apple’s market share is rather low (around 15% worldwide), their profit share in SMARTPHONES, not computers is by far the greatest.

      • obarthelemy

        “But Apple makes all the money in the businesses in which it competes.” Looks crystal clear to me. *ALL* the money, in *THE BUSINESSES*. Are you sure I’m the one misunderstanding things ?

      • http://www.facebook.com/bob.arker.731 Bob Arker

        The PC market and the Smartphone market are fundamentally very different. Let’s not use the PC market as an apples to apples comparison with the smartphone market, which we all know is currently the most important market for aapl.

      • obarthelemy

        My point is that in mature markets (which the PC is, and smartphones and tablets aren’t), Apple has difficulty maintaining market share because of their high prices. Smartphones are maturing now, and if price transparency improves, Apple may have a problem. Right now subsidized contracts hide the price differentials, but in France for example, there’s a strong move away from subsidies, to a buy/lease phone separately and pay $20/mo for unlimited everything contract, which turns out about half as expensive as the old subsidized model. That makes Apple’s prices stand out sorely (a 64GB iP5 is about twice as expensive as a 64GB GS3).

        In the long term, though they have nice design, the fact that the competition is half their price, and does the same things, limits Apple’s prospects.

      • Joe_Winfield_IL

        If your doomsday scenario (long term) is 10% share and 30-40% of global profits in all mobile device categories, sign me up now. I’d like to think Apple will do better, but the picture you paint isn’t exactly a terrifying proposition for current stockholders.

      • obarthelemy

        Indeed. Actually, I think it will be closer to 20% share of unit sales, and 40-50% profits (2x the price, same costs, 50% margins). And I wouldn’t call it doomsday, but a very good result for a premium band in crowded markets. Same as for desktops.

      • Joe_Winfield_IL

        This is an interesting trend to watch. Clearly carriers are trying anything they can to maximize profitability. If they can cut or eliminate the subsidies for smartphones while keeping high ARPU through data plans, their incentive is pretty clear. With SMS revenue decreasing globally, mobile carriers need to find some free money.

        However, so far the move away from subsidies has had mixed results at best. In Spain, Vodafone and Telfonica both abandoned smartphone subsidies in the spring. The results: major drops in subscriptions at the expense of 2nd-tier carriers who kept subsidies going. Telefonica is so far resolute that it can maintain customers through superior service, while Vodafone has completely reversed course and reinstated all subsidies. Source:http://www.rethink-wireless.com/2012/11/08/spanish-carriers-rethink-dumping-subsidies.htm there are a million versions of this same story, but they all report the same facts.

        And for the record, a long term 20% market share, even with replacement stretched to 3 years instead of the current 2, would require Apple to sell 3-4x its current volume of iPhones. I’d love to see this as the plateau.

      • http://www.asymco.com Horace Dediu

        You’ll also note that when Apple entered the phone business the net value of all profits increased, a lot. See http://www.asymco.com/2012/03/01/why-total-net-profits-are-not-conserved/
        Profits are the best proxy for value created. It’s possible to capture all the value and to create new value simultaneously.

      • JDL

        Oh and you should also remove Googles costs for developing and supporting Android from the smartphone handset makers profits, thats $12.5 billion gone right their which would mean the only one making any profits from smartphones is Apple.

      • obarthelemy

        Android runs on PCs now ?

      • Joe_Winfield_IL

        You can’t add Microsoft’s profit to the PC market to dilute Apple’s share while ignoring Google’s negative profits in the smartphone market. You can ignore both or include both, but you can’t have your cake and eat it too.

      • obarthelemy

        Sure, except I was talking solely of the PC market in that post.

      • JohnDoey

        Apple has 90% of high-end PC’s and 30% of low-end PC’s, and 15% of phones. But Apple makes the majority of the profits everywhere.

        When Apple sells a $600 iPad, they keep $300. When HP sells a $600 HP PC, they keep $30.

        Apple makes something like $3 for every $1 Samsung makes in phones.

        You are way off base. Try reading THIS BLOG instead of Wikipedia. This very blog is about how the conventional wisdom you are now spouting is WRONG in 2012.

      • obarthelemy

        Source ? Or supplier for whatever you’re smoking, ‘coz it must be VERY good.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        Here’s the most recent profit stats for smartphones and tablets in the US:

        http://www.macnews.com/2012/11/13/apple-dominates-smartphone-revenues-us

        “The US mobile data market grew 3% quarter-over-quarter (Q/Q) and 17% year-over-year (Y/Y )to reach US$19.9 billion in the third quarter of 2012, according to a report published Monday by Chetan Sharma (www.chetansharma.com), an independent mobile analyst.

        Apple dominates both the smartphone revenues and, “more importantly just crushes the competition on device profits,” according to the research group. It has only 6% of the global unit shipment share but over 70% profit share.

        “In tablets, Apple completely dominates the landscape in both shipments and revenue,” says Chetan Sharma. “In fact, 95% of the profits in the tablet segment go to Apple with the remaining ecosystem fighting for the crumbs. Apple has the complete stronghold on the supply chain and has sucked out the oxygen from the OEM [original equipment manufacturer] world.”

      • http://twitter.com/WalterMilliken Walter Milliken

        This is a classical business view, which I believe misses the mark. Products aren’t merely a checklist of parts and features, though many companies approach them that way. I think much of Apple’s success is due to their design approach, which doesn’t seem to follow a sum-of-parts model, but a more holistic systems-design approach. *That*, I believe, is their hidden technical advantage.

        Looking at it another way, any author can use any word in the English language, for free. Therefore Steven King and J K Rowling will quickly stop being bestsellers as other authors copy their general model and are cheaper for the publishers to acquire works from. Hasn’t happened, has it? Something else is going on, then. Some of that is “brand”, but *something* builds the brand in the first place…. I think that is what is missing in this analysis.

      • obarthelemy

        ease of use, and sexiness. that’s the first lines of the post.

      • http://twitter.com/WalterMilliken Walter Milliken

        That’s certainly part of it, and the holistic design feeds into the ease of use part, but I believe there’s more to it than that, that there are tradeoffs they make that most companies wouldn’t consider due to compartmentalizing things too much via piecemeal development.

      • JohnDoey

        That’s like asking a chef for a cake recipe and he says “just put in a perfect texture and deliciousness.”

        Apple’s products are easy to use because they are designed to be used, unlike their competition, which is designed to be cheap or compatible.

        What you are calling sexy is just the beauty that comes from form following function. You can see the function of a MacBook Air from its form.

      • Mark

        That’s a great analogy. It’s very illustrative and thought provoking.

      • JohnDoey

        When you are making something out of smaller parts, there is a magic moment where it may become more than the sum of its parts. Apple knows this because Steve Jobs knew it. iPhone 5 has zero parts in common with iPhone 1, yet unquestionablyan iPhone. (Zero hardware parts in common, at least.)

      • ohg67

        Marketshare is great , but you still need to make money !
        Btw..

      • http://www.facebook.com/bob.arker.731 Bob Arker

        Let’s talk about the HTC settlement to license from Apple. Many top lawyers see this as an upcoming deathblow to Samsung. Samsung’s margins are so thin already, if they have to start paying licensing fees to Apple (which is very possible) AND other companies such as Microsoft, their margins will decrease even further. Where is Samsung’s competitive moat versus HTC, Huawei and ZTE? Is it marketing? I see them doing a lot of that. However, that would be a very very weak moat. It would probably be the equivalent of shallow mud that I don’t want to step in.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        To build a strong ecosystem, you need to attract developers – in terms of quantity and quality. Developers go where the marketshare goes.

      • http://www.asymco.com Horace Dediu

        As they did when Symbian was dominant? Or RIM? Or imode? Or Java? Or BREW? Or Windows Mobile? Talent is not attracted to economic advantage. Talent is attracted to the idea of stardom.

      • thirdxeye

        Both. Many people primarily use their talent to simply make money.

      • JDL

        Ahh the same old Google PR spin, the only thing you got right was when you admitted having “no clue”. Care to explain how creating a $1 billion (Apple TV) business dosn’t count as successful?

      • JohnDoey

        You missed that iPhone is a tiny Mac and other phones are just phones. iPhone may cost $100 more than an Android phone, but you get a free Mac with your iPhone. You get real PC class native C/C++ apps from every category, including video editing, multichannel audio, real office apps, real photo editing.

        If you are on a feature phone or BlackBerry, then an Android phone is a great upgrade. But your next phone after that will be an iPhone because after 6 months on Android you realize your friend with an iPhone is doing thousands of things you can’t do.

        Apple is still only selling phones in half the market. Apple is playing catch-up to Samsung’s global footprint. Samsung has not caught up to Apple’s tech. Samsung as yet has zero native apps, zero PC class apps. Apps are everything. Desktop PC sales are shrinking. Going forward, your employer will expect you to shoot, edit, and post a YouTube video from your phone like they expect you to do email today.

        I’ve been using an iPhone for 5 years. It is by far my primary personal computer, even though I have an iPad and MacBook Pro also, and even though I work in digital media. I have a few hardware accessories that turn my iPhone into a recording studio. I’m drinking the milkshake of my friend who has an Android phone to do calls and texts and Facebook.

        Basically, it is all computers now. Even a pocket device needs to be a real PC class computer, or you, the user, will fall behind the rest of us who have iPhones. Android doesn’t have the legs to compete as a PC. You can see that in the fact that the most successful 10-inch Android device is a book reader and media player, not a PC like an iPad.

        iOS keeps doubling every year. Nobody is close to catching up. All that is going on is statistical games to prop up generic tech. For example, iPad artificially excluded from PC sales stats by some analysts. Feature phones included as smartphones to prop up generic phones. Yes, Android is a very popular phone part. So is Apple WebKit. Means nothing to iPhone, which is not a phone, but rather it is a pocket PC. People who want pocket PC’s are 90% on iPhone. Android users want PHONES. Not iPhones, but 2005-style phones to make cell calls and SMS texts.

      • obarthelemy

        That’s the other way around: I’m doing stuff on my Galaxy Note that no iPhone user I know does.

        1- because the hardware is different (i want to say superior ^^): a huge screen makes it comfortable to watch video, not just “possible”. Ditto for ebooks, browsing… No iPhone user I know reads ebooks on their phone. I do, and I have a 7″ and a 10″ tablet next to my bed, so that’s really by choice.
        2- because I’m a nerd: I know how to send stuff back and forth from my PC to my phone. I actually had to teach my Mac-using neighbour how to do that with pics, videos, and music, over slow BT since iStuff doesn’t do USB Mass Storage. To dovetail with my first point: RSS/Greader: I get newsfeeds from interesting sites, filter them, then go read the good posts. No iPhone user around me does this. They Twit ^^
        3- Because the software is more flexible and standard. My android tablet accesses content from my Linux torrentbox and my Windows HTPC over DLNA. The only PCs I can’t easily get content from is iStuff, which use proprietary AirPlay. There are also OK Office suites on Android (OK, not great). I don’t know about painting/photo/video apps since I don’t do that.

        You do know that in phones Android outsells Apple 2-to-1 right ? And that in tablets, they just reached parity ? Nobody is close to catching up because they have caught up already, and are forging ahead.

        I don’t see anything wrong with Apple being a luxury brand, for the design-, but not cost- conscious. Like a BMW or Burlington. It’s just that the vast majority of the market *is* cost-conscious, and that feature-wise, Apple doesn’t offer anything unique, often actually lacking features, or having them in a proprietary form.

        I keep hearing there’s better software on the iPhone, but I’ve been asking for months which one, including on this blog, and I have never found anything unique my Android cannot do, too. You may notice I’m giving specif examples of stuff I actually do, feel free to do the same instead of remaining very vague.

      • Joe_Winfield_IL

        So much distortion in this, likely because you are looking through the prism of your own usage. A few thoughts:

        – You use a “Linux torrentbox” and “HTPC over DLNA.” You use your phone as a USB mass storage device. All of this makes you very atypical of the 6 billion user mass market.

        – You don’t use an office suite, or “painting/photo/video” apps. This makes you atypical of the 6 billion user mass market.

        -You use an RSS reader. This is not atypical. Nor is it exclusive to any modern technology solution. There are plenty of ways of doing this on iOS.

        – You use a large phone, but also own a 7″ and 10″ tablet. The fact that you own these tablets indicates that the phone is not sufficient, even as you assert the opposite.

        Now on to your market share points:

        – Can you point to any market share studies that indicate actual volumes? Not guesses, not estimates, not projections; actual volumes.

        -Any market share study I’ve seen with a high percentage of Android includes the Kindle Fire (and is based on rough guesses). This is a dead horse, but Fire is a bigger competitor to Android than iOS is.

        -Android doesn’t “sell” anything. Again, dead horse, but profits tend to be a better indicator of success than free software licenses activated. There is exactly one Android OEM making solid profits today, and they are doing it through a vertically integrated manufacturing model and a marketing budget that dwarfs Apple’s. Their loyalty to Android goes as far as consumers’ preference for Android over WP8.

        Finally, you are completely dismissive of the broader points re: Apple’s competitive advantages in interface, usability and interoperability. The latest desserts out of Google have improved usability, but the ecosystem lags far behind Apple’s. Legacy products receive embarrassingly little support, and users have not been shown to have any significant loyalty.

      • obarthelemy

        In no particular order:

        – RSS is following out of favor, superceded by FB and twitter. Old schoolers still use it, the young, not so much.

        – My owning several tablets reflects more on my curiosity than each device’s usefulness. I buy about one per quarter, mess around with them, pass them on to friends and family. My GNote is by far the one I use most daily. Then the 10″ Xoom for videos and as a 3rd screen on my desk, with instant-update emails and RSS. The Nook Color (original, long in the tooth) is for the nephews so they don’t mess with my stuff. I’m eagerly awaiting the 13″ Archos FamilyPad, if it doesn’t suck too much. I’ve had a $100 chinese resistive piece of junk, a $150 suprisingly good Ainol novo8, an HP Touchpad, an HTC HD2… I’d have gotten an iDevice and Win8RT is they weren’t so darn expensive ^^

        – Quite a few people use DLNA. The xbox and PS3 use that for streaming, all smart TVs use that, a lot of premade NAS/home servers… use that too. On windows and Linux It’s just a dumb, free program to install (MS’s Windows Media Centre for example) and point to where your media files are, takes about 5 minutes and very little skill. You can get fancier if you wish, but the basic stuff is easy.

        – Hard market share data, in units, last quarter:
        Tablets http://www.idownloadblog.com/2012/11/05/idc-tablet-q312/ . Apple = 50.4%
        Smartphones: http://www.engadget.com/2012/11/01/android-75-percent-marketshare-136-million-shipped/, Apple 15%, Android 75%
        That’s the first relevant links in Google

        – Indeed, I would classify the Kindle Fire as “others”, as it doesn’t participate in the Android ecosystem (though porting software to it is just a contract with Amazon away). I doubt many people buy a Kindle *and* another tablet, be it Android or iOS, though. It competes with both.

        – Whose marketing budget dwarfs Apple ? Source ?

        – How is Apple more interoperable than Android ? They don’t even have a full BT stack, no USB… Apple stuff interoperates mainly with other Apple stuff, which is a very expensive proposition.

        – Apple no longer has any advantage in Interface and usability. No widgets, no back button, not as good alerts… They were very strong vs XP for tablets and Windows Phone; they are at best at par vs Android 4.x, and Win8 is not far.

      • sscutchen

        “RSS is following out of favor, superceded by FB and twitter. Old schoolers still use it, the young, not so much.”
        .
        Usenet says “hi.”

      • Joe_Winfield_IL

        -Your first link of “hard market share data” contain the following quote:

        “Samsung, of course, was the chief beneficiary of the pause in iPad market growth though it should be noted the South Korean company doesn’t report smartphone and tablet sales for competitive reasons. Therefore, IDC’s Samsung numbers are estimates (as opposed to Apple’s public device sales data) and should be taken with a grain of salt.”

        Also not reporting sales data – Amazon, Asus, and Lenovo. Literally every company listed except Apple is based on IDC’s own estimates. The same problem exists on phones as on tablets, thought I’ll concede Apple is clearly far behind the army of Android vendors in raw market share.

        _________________________

        -Interoperability among iOS/Apple devices drives sales of more Apple gear. Android devices do not share a common interface (hardware or software), and do not always play well together. When buying complementary hardware products, there is little advantage to stay within Android in general, let alone a specific brand of Android OEM.

        ________________________

        -Apple’s advantage in interface and usability is still very strong, specifically because the interface is consistent and intuitive. Widgets and back buttons are nice features, but they don’t make the device easier to pick up and use out of the box. Widgets don’t do anything apps don’t do; they also can clutter the interface. Every app that needs a back button has one, and the home button takes care of the rest. I’m not saying iOS is perfect (far from it), but it is in my opinion still far ahead of both Android and WP.

      • BoydWaters

        I’m glad you are bringing your non-iOS-ecsystem perspective to this conversation, and I fear that your lack of iOS experience will cause your observations to be rejected on their face.

        My career in computers started by building Mac networks, then Windows NT system administration and web development, then another 10 years developing applications that run on both Mac and Linux.


        All of my fiction reading – more than 30 books a year since 2008 – on my first-gen iPhone. The screen is way too small for technical nonfiction.


        Your remarks regarding DLNA are correct: Microsoft’s play for the living-room mindshare is arguably (at least) as successful as any of their competitors’.


        I find that I am using RSS less and less, and Twitter more and more, as a means of web content discovery. (I subscribe to an insane number of RSS feeds in Google Reader.)


        I use an external USB keyboard with my iPad, so I don’t quite understand your statement regarding the lack of USB support.


        A “full BT [Bluetooth] stack” I suppose means implementation of every BT application-layer protocol, from OBEX to stereo out, with keyboards and mice in there somewhere. I have no experience with Android Bluetooth support. I have had huge problems getting Bluetooth phones to work with my cars over the years.


        Market share data cannot be reconciled with web-usage data, without concluding that most Android users do not attempt to use their phones as web clients.

        I’m not sure what to make of this except to be suspicious of using market-share arguments while ignoring the fact that Apple is supply-constrained: currently, their only limit to more iOS market share seems to be how quickly they can manufacture their iOS devices.

      • Swami_Binkinanda

        Apple designs products to vertically integrate product lines in the hopes that consumers will buy all the apple devices and integrate them. Kind of like Sony would do if they hadn’t dropped the ball-betamax, minidisc, etc. to keep buyers on their farm, and like Amazon with its loss-leader devices. Remember when Apple was all SCSI drives? ishkabibble.

      • http://www.facebook.com/profile.php?id=100001578926066 Coward Anonim

        1) “huge screen makes it comfortable to watch video, not just “possible”. Ditto for ebooks, browsing…”

        You just proved John’s point:
        “the most successful 10-inch Android device is a book reader and media player”

        iOS allows you (thanks to broad selection of apps) much more:
        “I have a few hardware accessories that turn my iPhone into a recording studio”
        and
        “You get real PC class native C/C++ apps from every category, including video editing, multichannel audio, real office apps, real photo editing.”

        2) ” actually had to teach my Mac-using neighbour how to do that with pics, videos, and music, over slow BT”

        So you misled you neighbor. You can do it wireless (Wifi, cellular connections) with iTunes and iPhoto (or plenty of other applications).
        As for RSS reeders (and many other ) it is iOS getting first-class apps first.

        3) This is nice, but having iOS, OSX and ATV you can stream media between all of them.
        With AirPlay or applications from AppStore.
        While iOS is not so interoperable with 3rd party devices, but still provides much better experience within Apple’s ones.

        My biased rant now…
        “I keep hearing there’s better software on the iPhone, but I’ve been asking for months which one, including on this blog, and I have never found anything unique my Android cannot do, too.”

        Yep. It could be. Android is just huge list of features. Plus some antivirus apps.
        On iOS it also matters how you do your stuff.
        I think some of the apps listed in this interview/article are top notch mobile apps for musician:
        http://www.theverge.com/2012/7/13/3117498/sonic-mayhem-sascha-dikiciyan-ipad-apps

      • Kizedek

        Again, you seem to try and downplay Apple’s technological innovation where ever you can.

        I am curious about this one:
        “even MacOS (which they bought)”
        I am wondering where you place the credit and innovative value for MacOS?

        True, Apple “bought” Next. But you do realize that is where Steve, Federighi and Forstall among others were when Steve came “back”, right? If anything, it was more of a reverse takeover by all accounts. Next OS is what the Mac would have used naturally if events had transpired differently, and the Mac is what all Apple computers would have been if Steve had had his way.

        So what is “MacOS”? Are you giving the credit to the original thinkers behind Unix? That’s a little like saying Stephen Hawkings really isn’t that smart, after all Einstein talked about space and time 100 years ago!

        The platform-agnostic, object-oriented approach is what Next (founded by Steve Jobs) was all about — both in its OS and in its WebObjects product. Both were unrecognized and unappreciated 25 years ago. And it is still under appreciated. And it still goes unrecognized how much of a technological moat Apple really does have.

        If nothing else, it should be recognized that Apple turns what it has “bought” into gold. Versus the pigs ears that everyone else makes of what they buy (MS’ Danger and even Google’s Android — whose early architects came from Apple if I recall). So let’s give Apple a little more credit than just adding a little polish.

      • Swami_Binkinanda

        Apple products are also a Veblen good, intended to communicate that the owner/user is a member of an elite group implying wealth and a certain social cachet, both of which are eroding as the natural audience for Apple’s interfaces adopt them-senior citizens and technophobic upper middle aged people. The design hype was overblown, the usability hype was overblown, but customer service and durability/product quality appear to be above average and deserving of appreciation.

        Brand identity is what drives the Apple product lines’ popularity and that brand identity has aged, and after their leader passed away it appears the innovative edge driven by his compulsion has gone flaccid. They need a much more ambitious program if they want to maintain their high markups and iconic product line hype. Samsung will eat their lunch-Galaxy line is quality, the Note product drove the mini I-pad product development, and at low price points Samsung doesn’t have to maintain backwards compatibility or generate a great deal of company only software to keep the products churning out. Lots of people have been disappointed by the latest Iphone revision and are getting antsy for the green grass on the other side of the fence.

    • Mark

      Yes. I was having a conversation with an acquaintance who said his sister “made out” in AAPL. He doesn’t know I’ve been an investor since ’99, but he was saying how it was impossible to know that AAPL was had a good chance of being a great stock long before it was. My point was that it wasn’t impossible, just impossible for some. He just couldn’t grasp that. I’ve been in IT since shortly after the Mac came out and I’ve used and followed their products, and analyzed the convoluted politics of the entire industry the entire time. If you invest on fundamentals, then nothing other than whatever would enable you to understand a company’s fundamentals would do. It is just amazing how many analysts trot out simplistic versions of “what goes up must come down (the stock)” and that competition must cause a “return to the mean”. But it all depends on the reasons, and you can’t know the reasons without knowing something about computers, the industry that produces them, the difficulties of producing good products in that market, and the needs and desires of users who use them. Not to say everyone needs to understand all that; some get just a small part of it through analogies with other things and grasp the competitive landscape via that. But the bean counters get screened out for sure.

    • poke

      I think a lot of it is obscured by the silly idea, now popular, that Apple “merely” takes existing product and makes them “easy to use.” This, in turn, is based on confusion about what the personal computer revolution has been about from the start. In fact, personal computing has always been about what might be termed “computerised displays,” rather than computation per se. The fundamental uses are all about the image generated on the display (and to a lesser extent the audio produced by the speakers). The computer is used to drive these devices, without which there would be no product at all. The central site of innovation in these products is the user interface, which allow the user to manipulate various representations on the display. There is little more to them than a user interface. The rest of the technology supports the UI.

      Apple has the distinction of being the primary innovator here. Which is to say, Apple is the primary innovator in personal computing as a whole, with the other companies – creators of displays, processors, kernels, file systems, etc – playing a supporting role. For whatever reason, popular sentiment has managed to get this entirely back-to-front, and people see the UI as little more than “polish” added to the supposed “real work” of the components produced in earlier stages of the supply chain. The upshot is that few people understand that Apple has a genuine technical advantage over its competitors.

      • JohnDoey

        The reason the human interface is looked at as extra by some is that computers existed for decades before a human interface was first created. Originally, you talked to the computer in the same ones and zeroes that computers use when they talk to each other.

        Also, human interface is basically a musical instrument discipline, not a number-crunching math/computer thing. Musical instruments have to be instantly responsive, totally reliable, and they most certainly have “feel.” A touchscreen with millions of buttons is more like a piano than a typewriter.

        It is no accident that pro music is almost 100% Apple systems.

      • T

        I think you’re spot on in your comparison of user interfaces and musical instruments!

        While GarageBand is a great piece of software, it’s built on the same “mixer” and “track” metaphor as nearly all other music production software ever. I think it is a big mistake that the stuctural metaphor is music studio equipment, rather than a band or orchestra. See the excellent Toca Band for an idea of what a band music app could be like.

    • http://twitter.com/matthewwanderer matthew

      “Apple’s technological moat.”

      Great post, Horrace, and great observation, sscutchen. The Surface is a great example of something un-Apple: it did not hit the ground running on several levels (the initial setup experience, it’s two-OS metaphor, the constant reminders of the forthcoming PRO…why even try this thing now?).

      In addition to the technical moat, I’d like to add Apple’s customer-experience moat. It’s dense network of Apple Retail Stores and the late Steve Jobs fixation on Apple’s placement in consumer rankings go further than any of its competitors to keep its customers pleased, if not quite happy.

      When consumers choose Apple, they get world class industrial, hardware and software design, a very good user experience, a deep and rich ecosystem, and the kind of consumer experience – both when things go well, but also when something goes wrong – that no other digital device manufacturer I know of can match.

      I mean, anyone here recall what it was like having a Sony Ericsson handset serviced prior to the iPhone?

  • http://www.facebook.com/people/Luis-Alejandro-Masanti/1074106344 Luis Alejandro Masanti

    Horace:
    I would like to see a series of stacked graph, one year length everyone, and increasing years down, with the data you poured.
    That way, it would be easy to see “seasonality” and you can also mark the “events” (like product introductions and quarter releases).
    I think thar part of this volatibility has to be related with stock gambling, but maybe it is related —as your wonderfull analysis on CapEx— with something that happens “out of the analized period.”

    Just a wish!

  • http://twitter.com/kgbraund Kyle Braund

    “Apple went from being irrelevant to being too big without passing through being boring.”
    So perceptive….thanks!

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  • Marcus

    The biggest drops in Apple stock happened during recessions during which the entire market fell dramatically. You need to account for that. When you do, the latest drop looks much worse in comparison to the others. This latest drop followed 2 quarters of below expectation growth and below expectation future Apple guidance (notable the evil Wall Street analysts were more accurate than the amateurs both quarters). In addition, taxes will likely rise significantly next year giving people a large incentive to sell now. You need to take into account major exogenous factors or the analysis doesn’t make sense.

    • http://www.noisetech-software.com/Home.html Steven Noyes

      Interestingly, Apple beat their guidance in each quarter.

      • Steve

        Why is it that no one seems to acknowledge that? Apple really should stop announcing specific numbers so the ‘analysts’ have little to go on when making their erroneous predictions other than Apple’s own guidance.

    • Chris Nystrom

      At this price, even if Apple stops growing it is a buy. It is a cash cow! That no one expects it to stop growing is very nice icing on the cake.

  • Former BullishCross Subscriber

    Dude, I respect all your hard work here. However, stock market looks FORWARD. Looking at past records will not help much. The big problem is: how much growth will Apple show going forward? Where does the growth come from? How about margins?

    Andy Zaky of BullishCross did probably more even more work digging into Apple’s past EPS/revenue/price action, and thought he knew one thing or two. But his records from last spring is a complete joke. The BC subscribers, who mostly hold 655-705 spreads, will most likely get wiped out. Breaking even is their highest goal now. It is a very sad story indeed.

    • http://www.asymco.com Horace Dediu

      The market does and always did look forward. In the last decade twelve times it looked forward and saw doom. It does so again today.

      • Former BullishCross Subscriber

        Apple grows because it creates new categories or products, but for incremental enhancements. What will be the next new thing? Without that, it’ll be in a worse situation than Microsoft. The big number is working against Apple for sure thus the growth will be very minimal without new product.

      • http://www.facebook.com/bob.arker.731 Bob Arker

        and if you have done your research, you will know that growth will not be very minimal in the next few years. Even with no new products.

      • http://www.asymco.com Horace Dediu

        In the last decade two new (to Apple) categories of products were created. Only one was a new category for the industry. That happened 2.5 years ago.

      • http://search.websonar.com:8080/ Duane Bemister

        And Apple stock always recovers and exceeds it’s past high.

      • Rick

        Hi Horace,
        Besides the current market fear (fiscal cliff, Europe, etc), Wall St. also hates uncertainty. I believe this is what is being mixed in with the recent departures of Apple Engineers.
        As a trader, I think we will see $525ish and then move up from there. As a macro, long term investor, I say “stay the course”. Apple hasn’t seen it’s all time highs yet.

    • http://www.facebook.com/bob.arker.731 Bob Arker

      Indeed it is a sad story if they get wiped. You cannot time the market correctly every time. The last time I checked, I don’t think Warren Buffet got rich using the Zaky method. Zaky invests in a super-aggressive fashion and needs to time the market correctly every time to win or get wiped. I don’t think think that this is representative of most AAPL holders’ portfolios, and it is certainly not representative of the fundamental value of AAPL.

      • Greg

        Sir, both you and Former Bullish Cross Subscriber reference Andy Zaky’s strategy as if he suggests going all in 100% on his suggested spreads. I am a subscriber there and have never once seen him suggest that. If you go 100% in on anybody’s suggestion, you deserve to be, and should be wiped out. Let’s place the blame where it belongs.

      • http://www.facebook.com/bob.arker.731 Bob Arker

        Greg, nobody deserves to be wiped out for going all in. That is completely ridiculous. Have you ever heard that diversification is protection against ignorance?

      • Former BullishCross subscriber

        BC subscribers are too trusting (vs critical) to Andy in my opinion. Andy is behaving like a cheerleader vs coach there. He asked people to be fully invested in Jan spreads actaully. Just look at his model portfolio. He got lucky last year but would not adapt this year. He has missed estimates badly in a row. He even asked people to buy puts (twice!) on the parabolic moving up. And his 5th buy rating is already 100 point off. Duh!

        Do you think the trusting BC subscribers deserve to be wiped out? I don’t as I personally know some of them who happen to be nice folks. Here’s a quote from a loyal follower of Andy’s every move:

        “LISTEN GUYS I am down 90 % from the beginning of the year.
        the more the time goes buy the more I am thinking of leaving everything as is
        I hold almost all 645-695 and the 670-690
        I already lost everything . so my only choice is really hanging here. I have a feeling that will BE over 700 at opex . I REALLY DO FEEL THAT . crazy but I do”

      • aaarrrgggh

        Ouch. My guess is that there is no chance in hell before opex of seeing $700 again, but after earnings release we might hit $800. But I don’t have a newsletter to subscribe to…

      • http://www.facebook.com/bob.arker.731 Bob Arker

        worst_christmas_ever

  • http://www.aaplpain.com Travis Lewis

    Love this article. Like others said,
    “Apple went from being irrelevant to being too big without passing through being boring.”

    • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

      I’m sure there’ll be a few Android & Windows Phone users who will disagree with Apple not being boring.

      • Kizedek

        I guess you knew the original quote was from a business perspective…

        Anyway, to address the contention that Android and Windows users would find the Apple UX boring:
        Yeah, we know that consistency and intuitiveness is boring. MS and Google really keep you on your toes by giving no end of surprises and WTH moments.

        The nice thing about iOS is that its depth and APIs really allows developers to push the boundaries and produce all sorts of interesting and innovative new app experiences that are anything but boring. So anyone can pick up an iPad and know exactly how to use it, but you can find all kinds things to do with it that delight and inspire.

      • http://www.asymco.com Horace Dediu

        I was referring to the perception of Apple as an investment.

  • rc

    Horace, Great Data, I think Steve’s illness announcements and passing away affected stock if you co-relate those with drops it will help understand the drops more easily. thanks

  • SamLowry

    Here is another market weirdness:
    Imagine Apple splitted into 2 companies, e.g. software and hardware, or iOS and OS X products.
    Since these companies (Apple1 and Apple2) are each smaller than Apple, more money could and would flow into their shares in total because funds can invest in both, with an illusion of increased diversity in investment.
    But in reality, splitting Apple would only weaken both parts because the synergies would go down. But most inverstors and analysts are probably unable to see the huge synergies.

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  • jwt

    horace, did you see the rumor that samsung charged 20% more for its A6 line of chips? what do you make of it? part of the reason for decline in gross margin guidance in calendar 4Q?

    • http://www.asymco.com Horace Dediu

      Take a look at my estimate for the iPhone cost structure: http://www.asymco.com/2012/02/26/iphone-sine-qua-non/ Add 20% to the processor cost. Let me know what you get in margin impact.

      • rc

        $3 , margin impact <1%

      • http://profiles.google.com/simon.hibbs Simon Hibbs

        But because it’s “bad news for Apple” expect a stock price hit, possibly of several percent.

      • http://ARMdevices.net/ Charbax

        Expect AAPL crash when Samsung announces they are cutting Apple off, so is Foxconn and China. Enough patent arrogance is enough, without Samsung/Chinese technology/manufacturing, Apple is totally worthless.

      • fring

        Oh puleese!
        That’s one of the most bizzarely childish, fact-less and unsubstantiable posts…ever!

  • http://twitter.com/teroterotero Tero Kuittinen

    AAPL is so, so widely owned. It’s the core tech holding of most hedge funds. And as it happens, hedge funds have underperformed S&P pretty badly in 2012. Any hedge fund lagging S&P at this point is mighty nervous about holding onto a declining stock seven week before the year closes. Maybe the ubiquity of AAPL across so many hedge funds who are scrambling to find a way to outperform in the next couple of weeks works against it. It did look like AAPL was heavily sold when the Spanish crisis really hit – it’s such a liquid name that dumping it can be the fastest and easiest way of raising cash for maneuvers like buying gold.

    • Greg

      If you can’t beat the S&P, maybe you have no business running a hedge fund.

  • Ian Ollmann

    > At least since the iPhone launched, every dramatic drop in share price was
    > followed by a surge in earnings growth. One could even say the worse the
    > bear, the better the growth.

    > Sounds completely counter-intuitive, but there is some perverse logic in this
    > as well. The market reflects crises (as well as over-abundance) of confidence.
    > Unforeseen growth is what creates wealth and the crisis in confidence is a
    > reflection of the improbability of continuing out-performance. When Apple’s
    > performance is foreseeable the stock moves slowly upward. When its
    > performance is unforeseeable the stock moves dramatically downward.

    I agree with you. However, you have not taken the time to disprove an alternative hypothesis to panicky faithless investors. Are the panics fueled by small decreases in profitability caused by CapEx expansion?

    • http://www.asymco.com Horace Dediu

      Panics can have many causes. We can’t be sure of the trigger and everybody has an opinion on what the cause may be. I remember a few which I think can be attributed distinctly. One was when Apple switched to Intel. Another was when the Macbook Air was launched (at a seemingly high price). Another was when the iPod had a y/y decline for the first time. This panic may be attributed to the iPhone 5 launch weekend being perceived as weak. Then again, these triggers in other circumstances could have been ignored or even celebrated. At other times they snowball and sentiment swings from the company being invincible to it being doomed in a matter of days.

    • JaneDoe12

      There’s another way to do quotes that you might find quicker to format, and that is by using the <blockquote> tag. If you begin your quote with the tag and end it with the closing </blockquote> tag, it will display with a sidebar like this:

      At least since the iPhone launched, every dramatic drop in share price was followed by a surge in earnings growth. One could even say the worse the bear, the better the growth.

      The tags will disappear. They appear here because I wrote them with “ampersand characters,” otherwise they would have disappeared too and I wouldn’t have been able to write my instructions.

      Of course, you are free to format any way that you wish. I’m not trying to tell you what to do, just want to make life easier.

  • ohg67

    But Apple will sell great numbers of products in the holiday
    season . Surprise, surprise…
    They will make a lot of money…
    And they still will be doomed..
    That’s okay for Apple.
    It could be worse.

  • saltyzip

    There are even fake stories of new iPhones being released to try and stop the rot on Apple share prices. Anyone with an ounce of business acumen will chuckle and see right through this, just like you can see right through an Apple store front. Apple have got embroiled in litigation and showed contempt and snobbery at an unprecedented scale, highlighted beautifully in the latest incident in having complete disregard for the UK courts of law.

    Apple needs to make a major board reshuffle and focus on making love not war. They have alienated most suppliers who have helped provide hardware and software to them over the years. They believe they are a ladder, not just a rung above everyone else and have the ability no matter what the cost to do everything themselves, from creating their own processors to creating their own mapping software, they produce good designs, but their designs are no longer original and stand out.

    Apple only sell a handful of SKU’s, their own devices are competing with each other more than ever.
    If people stop buying the iPhone and iPad in larger and larger numbers as latest figures seem to indicate, Apple shares will slide further and I see little to stop them for the foreseeable future.

    • JDL

      LOL your projecting your own wish, Apple need to keep doing what they are doing. BTW, those suppliers didn’t help Apple for pixie dust, they SOLD components to Apple for a PROFIT. Apple offered them a deal they found too good to resist.

    • 3doug4

      1-2 quarters from now you will be able to argue if people have stopped – or not -buying iPhones and iPads. Last quarter numbers are not a true measure of this because people were expecting the release of the new products and decided to wait for them. On the other hand, from what has been factually reported, Apple stores are packed and demand for both iPhone and iPad (mini and/or 4) seems to be huge.

  • zato

    I think the stock price is being manipulated. There has been an ongoing effort to make Apple appear to be headed downhill ever since the death of Mr. Jobs. That effort has been stepped-up lately to prepare for the launch of new Microsoft products.

    • 3doug4

      Agree. There are some Hedge Funds that thrashed the stock a month ago. Now, 20% later, they are buying again. Pure and simple manipulation.

    • http://www.facebook.com/people/Carlos-Carbajal/620312515 Carlos Carbajal

      I wonder if it is mathematically realistic to “manipulate” the price of AAPL . . . meaning, how many shares would have to be bid up or down on the world’s most valuable company to move the needle significant amounts?

      I’m a little skeptical of hedge funds or other investors moving enough shares in collusion to call anything “manipulaton”

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  • JohnDoey

    Shows you why public companies typically get more and more boring. It’s good for a stable share price.

    For me, the reason to invest in Apple is their creative assets. The “next thing” is always built out of parts of the last thing. Apple has all the parts. Creative designers, creative engineers, massive software stack, both ARM and Intel architecture, both mobile and desktop app platforms, digital content sales and creative community all using Apple systems, and everything very mature, stable, yet also 5 years ahead of all competitors. Apple is an easy long-term bet.

  • rt

    Apple’s problem is not splitting the stock. Weekly options would be very different for apple if much of the strike prices were taken out of this stock.

    Apple is also heavily weighted in the indexes. If hedge funds wanted to take the market down they could do it really easily by targeting those companies. A few well placed rumors to the hedge “funded” media about Apple can easily send the nasdaq down to a new bear market.

    • aaarrrgggh

      Agree. Retail investors get sacred with those kind of share prices and gaming options becomes much easier. Would love to see a 5x or 10x split. It would make Google the odd man out.

  • Peter Daly

    I recently sold what little Apple stock I owned. My reasoning was clear. Apple, thus far, has owned the tablet market. With the iPad Mini pricing, Apple made it clear they do not intend to dominate the market forever, but are happy to retreat to their traditional position of being the premium product producer in a land of “good enough for most people” commodity goods.

    The iPad mini comes to market at a price that will allow the (new) market of high quality but low price (Nexus 7) to establish a strong foothold in the market, which over time should grow to dominate the overall market share in this segment.

    This is a great short term business move for Apple, but at the expense of the utter domination of the table space. I suspect, but do not know for sure, that the peak of the current downturn happened when the iPad mini pricing was announced. For me, that was sign number two that it was time to sell.

    Sign number one came a couple weeks earlier, when my parents canceled their paper newspaper subscription, and used the savings to purchase a Nexus 7, which they love.

    I question whether pure historical analysis provides enough insight on what I believe to be a shift in Apple’s ownership of the “Post PC” era.

    BTW – love your critical path podcast.

    • Peter Daly

      I should add, my stock purchase was at $178, before the App store, when I fully understood the potential hardware power hidden inside the iPhone and iPod Touch. I knew there was huge untapped opportunity. Now, I see Apple has made a decision to let a key unsaturated market go, in a effort to milk high margins at the expense of market share.

      • fring

        ‘…Apple has made a decision to let a key unsaturated market go…’
        You are ignoring reality. There is a section of the buying public who will NEVER buy anything Apple, for reasons good and bad – and Apple knows this full well. Loss of market share is thus inevitable but only when competing manufacturers get their act together which sometimes is quite quick(phones, tablets) and sometimes not at all(mp3players). Also, Apple does not compete in all sections of the market; they don’t do cheap and cheerful, they don’t do loss leaders like Google and Amazon and they don’t cater to the ‘everything and the kitchen sink feature-list crowd. Market ‘sharing’ is thus inevitable but irrelevant as long as Apple provides value, be it real or perceived.

      • Peter Daly

        I fully agree with you, however, I fully believe my explanation is the reason for the stock drop. It’s not about the reality that I do or don’t see. It is THE STOCK MARKET that just saw this reality. I fully understand and appreciate exactly what you said above, but the stock market didn’t, and has now reacted.

    • http://www.asymco.com Horace Dediu

      I’m not sure I understand your reasoning. The company was dominant at $499 starting price but will fail at $329 a year later because it’s too expensive? When launched, was the iPod mini competing on price when there were hundreds of alternative MP3 players? A product should be priced as a commodity and managed this way when it’s well beyond being good enough. Bearing in mind that products are more than good enough when incremental improvements are not valued and not absorbed, are tablets more than good enough 2.5 years after the first one shipped (to horrible reviews) while smartphones are not good enough 12 years after first one shipped?

      • Peter Daly

        The stock market is looking forward, not at the tablet market that used to exist ($499 vs $329), but rather at the tablet market which is just opened up ($329 vs $199).

        Six months ago, this was a one horse race, with no competition in sight. At $329, Apple just demanded a 65% price premium for what many consumers will consider to be similar products. That’s too high a premium, and NEW tablet consumers not already invested in the Apple ecosystem will not see reason to pull another 65% our of their wallet.

        Don’t get me wrong, Apple will sell a crap load of these things, but at a 65% price premium, long term, they just cornered themselves back into a niche part of the market. Granted, I expect Apple to make the majority of hardware profit in the category.

        Even though Apple with make the majority of the hardware profit, Google and Amazon are playing a different game from Apple, making money on the use of the devices, instead of the devices themselves. That being the case, it’s risky for Apple to welcome them with open arms and giving them room to grow their market share.

        I suspect, two years from now, Apple with still have a very strong business in tablets, stronger than today in fact, but it will be a much smaller fraction of the overall market than they own today.

        To me, it’s clear this is what is being reflected in the stock price drop. It’ll take a bit to stabilize, but once this is fully factored in, the stock will probably start a new climb again. This is a strategy shift that the market must absorb.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        “That being the case, it’s risky for Apple to welcome them with open arms and giving them room to grow their market share.”

        I don’t see this Apple welcoming them open arms but Apple marching to the beat of its own drum. Apple’s philosophy has always been to make the best product, not necessarily the cheapest product. You always hear the top brass repeating that over and over again – even the late Steve Jobs.

        “……….but it will be a much smaller fraction of the overall market than they own today.”

        A smaller fraction of a much bigger market is still shit load of more units sold.

      • cellojoe

        If they had priced the mini at around 200 they probably couldn’t keep up with demand. And what would they get for all that effort? Perhaps googles nexus line would vanish as would the kindle, but what of it? google and amazon are losing money on those products, by killing them off completely apple would be doing their competitors a favor.

        the Stock market often rewards price warfare. It interprets predatory pricing as good business strategy. But look at Amazon’s business: razor thin margins and a reputation as a discount retailer. they have no room to expand margins.

    • cellojoe

      I have seen a figure of .5million iPhone5s being manufactured daily. Where is this Number coming from?

  • http://twitter.com/manch manch

    Apple is difficult to beat precisely because it is widely misunderstood. Another widely misunderstood company is Facebook. That’s my investment thesis now. Invest in the misunderstood.

  • Jony

    While that’s great and all…here’s the better question? Can apple rebound as fast as it declined? Will we see all time highs towards the end of the year?

    • aaarrrgggh

      No. There will be tax selling on any movement up this year. People that have been holding 500 or more shares for over 12 months and fully expect to hold for another 12 months minimum stand to save a significant amount of tax by selling now and realizing the gains in 2012, then buying back immediately after.

      The only thing that could move the stock up to 700 this year is if Apple pre-announced sales information that comfortably beat analyst iPhone expectations.

  • http://twitter.com/echotoall echotoall

    It’s interesting in how the market has shifted in its valuation of apple over the years. Around fiscal 2010, the market stopped trading it via its growth prospects. The market stopped looking forward, in the traditional Wall Street sense of the phrase. Instead it focused on cash growth. And the stock price has been following its cash growth since. (Albeit right now there is a disconnect, or inefficiency.)

    Curious as to why. Is it because of its size? Trading in uncharted territories? Makes for an interesting case study.

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  • Carpenter

    There is one very interesting thing that most analyst seem to ignoring or getting it wrong. That is the low end iPhone often called “iPhone mini”. Now when we have iPad mini, there is little doubt that we will see the iPhone mini with similar profit margin.

    These are the most important things that enable successful launch of such device
    1. 200$ Android devices are not very good, competition is still weak.
    2. There is natural market demand for iOS device in that segment.
    3. Apple is quickly approaching technical and logistical ability to make it reality.

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  • rc

    First time in last 10 years Apples PE ratio is lower than Microsoft. How more cheap can it get?

  • jameskatt

    Apple’s Market Cap is simply 4 times its Cash Hoard. Thus, if the current market cap is higher than this, then the additional cap is speculation. Speculation is what can go up and down rapidly. By continuing to add to its Cash Hoard, Apple inevitably grows the stock price.

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  • http://www.facebook.com/bob.arker.731 Bob Arker

    “Then for two weeks in April 2012 10% disappeared.”

    I believe this is incorrrect. It lasted all the way through May 2012, and it was closer to 16%.

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  • http://twitter.com/StartupProgress Startup In Progress

    Great analysis here, and I agree with nearly everything you say. I’ve been an AAPL holder since 2004, and have weathered all the downturns (generally buying during these troughs myself).

    However, I do feel that this AAPL bear market is different from the others in one glaring way; The Fiscal Cliff.

    Like myself, many other people have made a significant amount of money by buying and holding AAPL stock over the years. Sweetening this deal, these gains are taxed at 15% for 2011 and 2012. But if no deal is reached on the Fiscal Cliff, then this rate shoots up to 40%+ in 2013. 25%-30% of your profits is a HUGE chunk, and I had a feeling many people would take some money off the table around this time as a result.

    Just my $.02. I’m long that a deal will be reached, and long AAPL.

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