Apple's China launch may allay worries for now

Apple's China launch is designed to alleviate some concerns about the supply chain. Analysts have bigger worries as Apple shares weaken.
Written by Larry Dignan, Contributor

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.

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