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Jim Cramer Issues Apple Warning- Still Believes

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apple (NASDAQ: AAPL) has fallen nearly 17% off its highs, and suddenly the normally chipper cheerleader of Apple, Jim Cramer, has started spouting off warnings. Are these the tremors of a volcano pre-eruption, or a false alarm as Apple’s mountain of cash continues to grow? Let's take a look at what Cramer had to say, and evaluate whether or not he has a point.

1) He starts off by stating that the two high level Apple executives who departed the company this week needed to go. Scott Forstall, a protégé of Steve Jobs, is leaving after 15 years at Apple.  He was in charge of the operating system which runs the iPhone and iPad, and was the overseer of the Apple Maps, which has proved to be a temporary embarrassment for the company. Apple installed on the iPhone in place of Google (NASDAQ: GOOG) Maps, which as of right now, seems to be the superior product. 

Cramer contends that Jobs loved the retail stores and would have been beside himself if some cheapskate changed the work rules for Apple retail employees that would turn going to the Apple store into a negative experience for the consumer. Thus, John Browett, the company's retail chief, is also headed out the door.

2) Cramer states that he had the opportunity to interview Walter Isaacson, author of Steve Jobs's biography.  When Cramer asked how he viewed the post Jobs Apple, Isaacson answered that Apple has not released an OMG (Oh My God) product since Jobs passed.

3) Jobs dreamed of perfecting the TV so that you can throw away all your remotes.  When Jobs was developing iTunes, he essentially browbeat the music executives into submission.  Cramer feels that Tim Cook won't be nearly as successful with Hollywood executives who own the entertainment content, thus the development of the Apple TV might suffer.

Okay, let's examine.

1) The Layoffs

I have read as other analysts opinions in this regard.  According to Colin Gillis at BGC Partners, "Tim Cook needs to make these kinds of changes occasionally to keep forward progress."

According to this Eric Jackson article on Forbes, he states that the rumors are that Scott Forstall was abrasive, and didn't get along well with his coworkers.  Without Jobs there to protect him, despite creating the amazing initial operating system for the iPhone (the IOS), with the release of a lackluster Apple Maps, he fell out of favor with Tim Cook, and was essentially fired. 

Jackson then surmises that when Forstall becomes a free agent in 2014, he might head over to Google to lead the Android division, which would be akin to Anakin Skywalker in Star Wars going over to the dark side.  Jackson's tone was a lot less bullish on the move than other analysts I read.

My take, if you're an important player on a championship team, you'd want to stay at almost all costs, wouldn't you? Forstall refused to sign an apology to consumers for Apple Maps.  Although he likely has too much money to do anything he might consider "below him," in business, as in sports, team turmoil often indicates the beginning of a negative trend.

2) No OMG products

This is absolutely true, and something I have been harping on. The OMG products are what give Apple its ability to get their extraordinarily high margins in the hardware area, as well as raise its "cool quotient."

Nobody outside of Apple insiders know whether or not they have an OMG product in the works, but until they release one, you'll see margins contract as the competition (Google, Amazon Kindle, Samsung, etc.) catches up, with their outsized profits shrinking accordingly.  Many Apple bulls say the company is more than Jobs, and I'm sure they are right, but until an amazing new product gets released that the consumer feels he MUST have this is an astute warning sign offered by Mr. Cramer.

3) Apple TV-

Has been rumored forever, and so far it hasn't happened.  Undoubtedly, Google and others are likely working on a similar product.  The longer we wait for Apple to release it, the more likely somebody else will do so first.

Honestly, Tim Cook has the biggest shoes to fill in history (with the possible exception of Saint Peter). 

My Final Thoughts

Despite all this, Apple has over 100 billion in cash on its balance sheet, a price to earnings ratio of 14, and is undoubtedly going to have a stellar Christmas quarter with the iPhone 5 being sold out everywhere.  A friend of mine just received his (albeit a month late as it was pre-ordered) and absolutely loves it.  Cramer is correct in everything that he mentions, but I still believe Apple to be a good long-term investment.

Stay with Apple, stick with Margie.

Final Note

One thing, if you watch the Mad Money video, it might confuse you if you just listen. It seems that Cramer is saying "sell sell sell Apple" (which he literally does) but an icon appears onscreen stating that Cramer still believes in the company. His rant is very confusing, which is another reason not to react emotionally to what any blowhard tells you (including myself), but to take the information they offer and make your own, informed analysis.

Take a Closer Look

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margiecfl owns Apple and Google. 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.

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