Apple's China launch may allay worries for now

Apple's China launch may allay worries for now

Summary: Apple's China launch is designed to alleviate some concerns about the supply chain. Analysts have bigger worries as Apple shares weaken.


Apple said on Monday it sold two million iPhone 5 handsets during its launch weekend in China, a number that may be a smidge better than expected given that many analysts were worried about how the company may have ordered too many components.

Given the year is about to end, it's funny season on Wall Street. Apple's announcement that it had a strong iPhone 5 launch in China was partially designed to allay worries from investors and analysts. Apple shares have been weak and that has analysts---including a few who have made their careers on the company---worried.

As a result, everything Apple does will be analyzed to death. What's likely to be happening is something like this:

  1. Apple shares are being sold because they are big winners and portfolio managers are repositioning.
  2. Capital gains taxes are going up, so why not sell now?
  3. Apple has had a few lumpy quarters lately.

Now those first two will never be outlined because there has to be a reason for every stock movement. You'll never see a headline like: "Well, people just felt like selling today."

Earlier: China's iPhone 5 sales in first weekend top 2 million

So we handicap Apple to death because the stock and the company has been bulletproof. Apple is Wall Street's Superman. The kryptonite could be Apple's long-term cloud strategy and an Apple TV that hasn't appeared yet.

Apple year to date.

 Among the big worries:

  • Apple has a supply chain glut. Reports abound that Apple has cut orders for components for the iPhone 5. Specifically, Apple may have ordered too many in-cell panels used in the iPhone 5.

The upshot: Apple cut orders and inventory should fall dramatically next quarter.

  • iPhone 5 orders aren't that swell. Barclays analyst Ben Reitzes thinks this worry is overblown. He said:

To recap, we currently estimate that Apple will report sales of 43.5 million iPhones in the December quarter, including sales of about 33 million iPhone 5's. We believe that sales trends point to upside of about 5 million iPhones and there is still a lot of quarter left. Recent pessimism around the iPhone 5 launch in China seems overdone since most of the activity seems to be online. In fact, Apple just announced that sales of the iPhone 5 over its first three days in China topped 2 million units - much better than our expectations - especially given negative investor sentiment about emerging markets sales of iPhones of late.

The upshot: Apple is fine this quarter, it's the March quarter that's worrisome. It's also unclear how many iPhone 5s actually sold through.

  • There's no Apple TV. Investors want another hit. Hints about an Apple TV are getting old. A tablet on a wall would be nice.

The upshot: Apple will likely roll out something on the TV front in 2013.

  • Apple will cut estimates for the next quarter.

The upshot: Apple always does, but what's different is that Wall Street is taking guidance cuts more seriously now.

  • Apple can't do cloud.

The upshot: This cloud worry is the biggest one in the long-term. Apple can't compete with Google or Apple on the cloud. Reitzes noted:

The key for Apple in 2013 is to convince investors it can transform into a more reliable web- and cloud-based service provider to compete effectively with Google and Amazon. A more comprehensive media service to integrate TV and subscriptions seem like a must. Also, we would like to see improvements to iCloud and Siri and some major progress in payments.

Topics: Mobility, Apple, Cloud, iPhone, China

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  • typo?

    "This cloud worry is the biggest one in the long-term. Apple can't compete with Google or Apple on the cloud"
    • The 2nd "Apple" should read "Amazon"

      The context for that conclusion is in the following paragraph.
    • Apple is going downhill

      Typos aside, the sentence is true.

      Apple has "cloud" woes. it's online services are not up to standard.

      It's a very, very serious situation. At the minimum, it will take many years for Apple to catch up to Google's online services. Maybe Apple cannot ever catch up.

      People buying phones will be more interested in online services than they are in boutique hardware. It's all about what you can do with your phone.

      Apple's share of the phone market is already slipping away. Apple's current winning position in tablets will also be lost within the next 12 months. Apple is going back to the place where the Mac was. Sub 10% market share, while Android takes over the rest.
  • Apple days are numbered

    Where is the 'Analyst' who said Apple shares will reach $1000? Apple products are no longer attractive and there are much better and cheaper products in the market.
    • No, it's called taking a huge hit in taxes if you don't sell this year.

      People with money are looking for ways to protect it from a tax crazy Washington.
      • Taxes

        And about time too! Apple traders have been riding the gravy train of profits for a long, long time. Users paying over-inflated prices for a product that just doesn't allow them freedom to do what they want to do that costs Apple less than a fifth of the cost to produce. Yeah, that's fair. People are just fools - most of 'em just wearing Edgar suits.
        Ethical Loner
        • Compared to what, exactly? Android? You really think Android is open?

          Get back to me when you can take any stock Android phone, recompile the OS, install it, and get the phone to run on your service provider's network.
          Talk about drinking the KoolAid!
          • hello, that's pretty much what people are doing

            there's large forums sites like xda-developers where there are numerous devs doing exactly that.
          • Bull

            There are dev ATTEMPTING to do that, but not with just any phone, and not with universal success. And not without often having to work around things that break on the individual phones once they lose the carrier specific changes.
          • so that means Android is not open?

            the source is there for anyone to compile.
            people are doing it
            to remove carrier specifics in Android, all you need to do is root the device and remove/replace whatever you like. You don't even need to recompile in most cases. In many cases, you don't even need to root the device, you could just use the debug console thru USB connection and modify almost anything in the OS.
            All your frivolous points are stupid and does nothing to substantiate your point that Android is not open.
    • "better and cheaper products in the market."

      not sure that's accurate. Maybe 1 that's equal, but cheaper for sure but you get what you pay for. My kids have Galaxy S3 - decent phone but cheap feeling, and based on the video reviews - it does not hold up as well.
    • Apple Lowest Cost by far

      As a manager of a company, I analyze costs of doing business. I have had to fire CFO's that that would save a dollar at the expense of costing five dollars.

      Yes there are cheaper products out there certainly. I recently bought a cheap PC computer for $400 for a shop application. It was so cheap the case and display flexed when you handled it. If failed just after 3 months of use. I then had to spend a $1,100 to buy a better quality PC. Buying cheap costs more. The case I am making is that quality is far less expensive in the long run. If you buy quality it lasts. Apple make incredible quality products, gorilla glass and aluminium compared to cheap plastic imitators. This is just one accounting measure.

      Perhaps the more important accounting measure is productivity. We used to be a PC shop for 25 years. We would spend thousands of dollars a year of maintenance. We were used to the frustration of using PC's and annoying software. We found as we transitioned to MACS, that staff productivity doubled. We no longer has to spend money on maintenance. When you spend $100,000 a year on an employee and you can double their productivity with good tools, the cost of those tools become insignificant. The integration of the MAC platform with iPad, and iPhone is beautiful. I can be driving, tell SIRI to set an appointment and it appears on all my devices.

      I recently bought a new PC for software that needed a PC. Long behold, no drivers, after 3 days of work with Microsoft and the application developer, spending my time and money on fixes, the problem could not be resolved. I never have problems like this on a mac.

      In Summary, from a corporate prospective, Apple wins hands down on being the lowest cost IT solution platform.
      • "CRAP" is bad.

        depends on the business.
        In my field, using a MAC, makes productivity worse.

        I do agree, about "CHEAP". I always go for mid range $500 - $850 for a pc, $600 - $1000 for a laptop. For items "HIGH END", inflation rate is too high, and its pointless, as over half the money will be lost in a year, and with "MID RANGE" only 30% is lost in a year. for "LOW END" only 10% is lost in a year as "CRAP" can only get so cheap. Yes there is a base cost for producing crap. and crap one year is still as crappy as the crap next year. Low end speed never really increases, and if it does, its at the expense of production quality.

        Sales: If you see a MID Range PC sold for $200 off, then thats not bad, I bought a good quality HP laptop for $400 which normally was $600.

        Never buy "CRAP" no matter what sales price they give it to you, unless you want to buy a pc for someone you hate. Because an idea of a pc for a present is a good idea and great gift, they will be so pissed at you and ask your year off, and get you to fix it so much it won't be worth it and may end a healthy relationship ;). Just say no to crap.

        For productivity. Stick with what you are use to. Once you go MAC, its hard to go back, i mean to back to another OS, will be hard as there is a very steep learning curve. At lease if you stick with windows if your use to windows, you will keep at the same pace, and there is not much of a learning curve. Had lot of customers that switched to mac, and 3+ years later, god help them, they are out of the loop. The brain needs to be exercised or it gets lazy. Too simple sometimes is a bad thing. I like my two buttons ;) or 6 !
        • problem

          Problem is a lot of people replace their $400 PC "CRAP" special, with a $1100+ mac, then say the MAC is better, which is an unfair comparison. I am sure if they had a $750+ PC in the first place, they wouldn't of had to spend $1100+ on a mac.
          • "wouldn't of"?!? Really?!?

        • "And now for something completely different!"

          @tomsstockpics and @ShqTth – Bottom line for me is that if either of you submitted a RFP/RFQ proposal with the 6th grade spelling and/or grammatical structure used above (“Apple Lowest Cost by far”, “"CRAP" is bad." responses), I’d immediately circle-file it. If you don’t care/know enough to not send out a communication, of any medium, with glaring basic English structural “issues”, there’s NO WAY I’d even begin to consider jeopardizing my company’s hard-earned reputation for quality and thorough products/services to you or your business(es). No; this isn’t a situation of “That’s just minutiae/semantics,” or “It’s ok since it’s just an e-mail”. It’s much more a case of “Stop trolling forums/comment sections to demonstrate your tenuous grasp, at best, of successful business and communicative practices.” You really need to be able to differentiate between a “Tweet” and a standard paragraph if you want to begin to be taken seriously.

          BTW - I won’t do the proof-reading work for you (pl) and repost 80-90% of your responses to identify the plethora of errors made throughout.
          • Give it up.

            Seriously man.

            Its so so clear you dont have a clue about these message boards do you?

            Firstly; I suggest that if the first thing that catches your eye in some of these messages is the poor grammar, you have missed a problem that makes me want to say that having you run a company would be terrifying.

            The far larger problem I speak of are the postings here that say and predict things that are clearly from a biased mind without any kind of serious consideration of real world facts.
            For example, if someone working for me came and told me “Apple days are numbered”, and then said this was so because “Apple products are no longer attractive and there are much better and cheaper products in the market.” I would probably not even notice his grammar was poor given the fact his message was so far out of whack with reality I would be terrified to death that he may have some actual decision making responsibilities in my firm.
            Who cares about poor grammar on a message board. Its far more concerning that far too many people feel so free to post insane remarks and predictions as if they had so much as a whiff of truth to them. That should be your larger concern than being the grammar police.
          • Speak for yourself

            First, poor language skills are a very prescient indicator of underlying reasoning skills. While they alone do not serve as proof, their predictive value is high. This, of course, does not really include simply typos and the posts of non-native speakers.
            Second, if one is going to be posting in a public forum, one has at least a cursory obligation to make said post at least marginally easy to parse without much effort. Not only is it important in terms of the point one is trying to convey, it is simple common courtesy. And in the modern word of real-time spell checkers, failure to do so is inexcusable, and again, indicative of a degree of logical laziness that speaks to their underlying argument.
            As to your last bit, you might want to more closely monitor your OWN posts.
          • mmmmkay

            if you're so smart how come you don't even understand the useless metric of absolute dollar per share in the case of AAPL?
          • form over function

            that's what the Apple zealots are concerned about.
            no surprise that Apple products also have similar priorities.