Trading Apple's Woes
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Depending on one’s perspective, Apple (NASDAQ: AAPL) either had a few hiccups to start the week or finally showed that there might be a real crack in its armor.
When the numbers on initial sales were released, despite their impressive magnitude, they were somewhat behind expectations; Apple’s Maps has received severe criticisms from a number of sources; and the brawl at Foxconn Technology Group’s Chinese factory cost the supplier at least a day of delays. While it is important to keep these developments in perspective, they combined to deal Apple a rough Monday trading session. Apple's true believers will dismiss these concerns as temporary, while others will predict the fall of a giant. In reality, these events will likely serve as the catalyst for a much needed pullback that will ultimately allow Apple to go higher.
Initial Sales Numbers
The iPhone 5, which officially went on sale last Friday, is reported to have sold over 5 million units during its first weekend. While this number is impressive in a vacuum, and higher than the figures achieved by previous releases, it falls short of some of the explosive projections that have circulated. Some estimates were for sales as high as 8 million units in the first weekend, leading to disappointment when the actual numbers were released. Keith Bachman of BMO Capital Markets stated: “we believe the 5 million units is a bit of a disappointment relative to some aggressive sell-side estimates of 6-8 million units during the first weekend. We believe iPhone 5 supply is the issue, not demand.”
To keep these numbers in perspective, not only are these figures beyond those achieved by the iPhone 4S, they may represent higher revenues for Apple. The higher price tag of the new device, depending on the amount of memory demanded, has the potential to make the numbers even stronger. Additionally, the availability of the 4 and 4S at lower prices may benefit the bottom line as well. All the same, sales figures thus far have lagged the average expectations of most analysts.
Where Are We?
Of the many new features that are included in the new iPhone 5, the inclusion of Apple’s Maps, has not been well received. Many users, myself included, are hesitating to download iOS 6 in order to maintain access to Google (NASDAQ: GOOG) Maps. Amongst the landmarks that Apple has incorrectly located, Washington’s Dulles International Airport and The Kennedy Center have the wrong addresses and directions that leave the driver lost. Google has long been considered the dominant player in the maps space, and this release demonstrates why. Google Maps has no issue locating either of these locations.
While this is but one of the many new pieces of functionality offered on the new device, it is rightly considered a critical one. One of the appeals of a smartphone is its ability to replace many other devices, including a GPS navigator. If users cannot rely on this feature from Apple, it has the potential to slow sales or cost the company customers. Apple won an important battle in the recent patent litigation with Samsung that is likely to impact the Android ecosystem. It is important that Apple not give Google such a clear opening as it battles to retrieve the top spot in smartphone usage.
Of perhaps more lasting concern is that fact that the flaw was allowed to escape notice before the release. This may be the first sign of how things have changed in the post-Jobs era. Conscientious Apple fans are amongst the first to point out that Steve Jobs would never have allowed such a glaring flaw to make it out of Cupertino. If this is a sign of things to come, concern is warranted.
The Chinese Connection
Over the weekend, labor tensions at an Apple supplier erupted into a violent episode involving 2,000 workers. The factory, which supplies iPhones to Apple, was temporarily closed. While the real impact of the shutdown remains unclear, the potential problem for Apple is significant. The shutdown calls attention to some of the labor practices tacitly approved by Apple and could cause long-term reverberations if American consumers take exception. The slowdown itself will likely remain minor, but the company will need to carefully manage the PR results.
The Trade
While Apple remains one of the best performing stocks in the market this year, its share price has been in need of a breather for some time. Over the long term, the company still looks solid, but a more attractive entry point should be available in the near term. At the certainty of drawing the ire of Apple fans, keeping a careful eye of this stock should yield a better price.
Interested in Learning More?
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Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
