Home > Why The Apple Inc. Sell-Off Is Just Getting Started

Why The Apple Inc. Sell-Off Is Just Getting Started

January 25th, 2013

sell these etfsKeith Fitz-Gerald: I’ve made the case several times that Apple Inc. (NASDAQ:AAPL) was over-cooked, most recently last fall when the company was flirting with $700 a share.

Each time I did I was taken to the woodshed by the legions of Apple fans who couldn’t reconcile their passion with their profits.

iHere we go again…

Following earnings that “beat” and revenue that fell short, the company dropped $48 billion, or roughly 10%, in afterhours trading on Wednesday. And still more on Thursday in early trading.

I think this is just the beginning of a protracted sell- off and my argument really isn’t that fancy. In fact, it comes down to two very simple points:

  1. The iPhone isn’t the only game in town;
  2. The iPad isn’t the only tablet, either.

Competition is heating up around the planet and that’s leading to significant margin compression in Apple’s product set. Even if the Street has not yet recognized this explicitly, I think that it’s only a matter of time before it does.

I know Apple’s just beaten the Street yet again, at least when it comes to earnings ($13.07 billion versus $13.06 billion a year ago), and that revenue increased 18% to $54.51 billion versus $46.33 billion a year ago.

But, so what. Get A Free Trend Analysis For Apple Shares Here!

No business – I don’t care how hyped or how rabid the customer base is – can escape the inevitable impact on margins and revenue that comes from higher competition, higher costs and fickle consumers who are less and less enamored with all things “i” every quarter.

Component costs are already high and getting higher. Growth is stalling. It’s “over owned,” to borrow a phrase from DoubleLine CEO Jefffrey Gundlach, who believes like I do that the stock will trade lower this quarter. His target is $425 while mine is a bit lower at $400 and change.

According Bloomberg, Wednesday’s numbers were the slowest growth figures Apple has posted in 14 quarters.

The Apple Double Whammy

Like other manufacturing concerns, the double whammy means that the ongoing margins associated with each new Apple product are becoming smaller. Over time, of course, those go down as production lines ramp up and economies of scale come into effect, but that’s really a short-term game. Apple cannot perpetually introduce products with rising costs and reasonably expect the markets to absorb them as fast as they once did.

If costs are rising faster than revenues over time, sooner or later the two flip and earnings get nailed. There’s not a company in the world that can escape this eventuality.

Additionally, CEO Tim Cook is finding out the hard way that Steve Jobs’ business model really doesn’t account for much absent Jobs himself. Coming into Wednesday’s announcement, t he company had missed estimates for 3 of the past 5 quarters. Now, this makes 4 for 6.

Apple has changed. When Jobs ran the place, it oozed innovation. Now, it oozes MBAs and it risks the same sort of “deadening” process that has plagued Microsoft (Nasdaq:MSFT) since Steve Ballmer took over.

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  1. M. Frederick Black, Ph.D.
    May 3rd, 2016 at 17:24 | #1

    Apple takes half of its offshore money, buys Netflix and Tesla, makes Elon Musk Co-CEO and that’s the end of it. Stock goes straight to $400/share.

  2. David
    May 8th, 2015 at 13:26 | #2

    So how’d that work out, Aaron? AAPL down to 100 by the end of 2014? True it’s only at 127 today.

    @Aaron Toponce

  3. martin f schwartz
    April 1st, 2015 at 07:17 | #3

    Contrarians without facts abound and serve only to reveal their multiple inadequacies.

  4. oooooops shorted appl
    October 17th, 2014 at 05:31 | #4

    hahaha… a year later, the stock has doubled. Apple’s style and elegance just irks the hell out of some people no matter HOW much money they make.

  5. Elie
    May 16th, 2014 at 19:35 | #5

    @Aaron Toponce
    Well Aaron, what can I say ! I did buy at 399 and laughing all the way….I’m guessing the shorters ran out of money !
    Any more good advice ?? Ooh, how about that split !

  6. eric
    August 19th, 2013 at 16:33 | #6

    up 14% since the article… ha ha…

  7. beth
    July 2nd, 2013 at 03:35 | #7

    As of end of June, beginning of July, Apple is trading at under $400.

    All these angry or insulting commentors don’t look that good in their estimates.

  8. Starling Smith
    April 22nd, 2013 at 15:34 | #8

    Right on! If they continue at the rate they are going they will have 200 billion by 2015. This writer is not in touch with AAPL products – he really can’t help it!

  9. Starling Smith
    April 22nd, 2013 at 15:31 | #9

    If AAPL wanted to they could probably buy the entire KO company! And “I gotta worry”. In all seriousness you have a company that has a gzillion dollars, no debt and great products – ask any kid over 10. And I “gotta worry”. Sure there is competition and sure the company has grown so big that they can’t keep up the gross margins but their numbers are still a hell of a lot better then most companies on this planet. You are from this planet – right? Just kidding! AAPl my not go back to 700 but it’s worth more then 400 based on the numbers. By the year 2015 AAPL will probably have over 200 billion in cash and equivs. I don’t worry about AAPL.

  10. einzling
    March 31st, 2013 at 06:13 | #10

    There are gazillions of products that desperately need to be “Appleized” (simplified, made more fun and easy to use and harder to break). I can think of dozens of everyday things I wish were as good as my mac…

  11. Darren Perkins
    March 21st, 2013 at 08:12 | #11

    @Darren Perkins
    btw, I don’t know anyone who think Iphone is cool anymore. not my younger cousins or kids in school

  12. Darren Perkins
    March 21st, 2013 at 08:09 | #12

    As a kid(20 years ago) I remember Mickey Mouse had something like a Smartwatch which he used to communicate with some Professor(not sure) during some series involving some missions. i remember I was not impressed by Disney’s innovation then, so I sure won’t think some smartwatch will be cool now either. Excpet maybe if disney make a Mickey mouse version.

  13. John Doe
    March 19th, 2013 at 23:48 | #13

    @Nate You should google 6 harsh truths by cracked.com and then see if you are one of those people who criticize other people’s creations.

  14. supsup dey
    February 26th, 2013 at 20:17 | #14

    Samsung will not do well in China. The American press does not understand how price sensitive and brand conscious consumer habits of Chinese consumers. There are two market segments in China: Luxury high-end and the rest. Samsung falls in the latter category and Apple in the the former. Apple is an aspirational brand. Samsung is not. Actually Samsung is lumped together with many of the other Asian name brands Chinese consumers choose from every day like HTC.

    This article is among the many that make money on Apple’s slumping stock price. There’s no news here.

  15. tgurn
    February 19th, 2013 at 21:13 | #15

    You are an idiot. They have $140 bil in cash they can’t possibly drop below that to $100/share @Aaron Toponce

  16. DrRoboto
    January 27th, 2013 at 19:10 | #16


    China??? hahaha…. if Apple’s devices are in decline over the Globe (which they are), then they’re getting hit hardest in China. That’s a fact that can’t be denied. The Chinese consumers don’t have the money to buy Apple products first off and they are notoriously more practical in what and how they make their purchases. They are not interested in going in debt or spending tomorrow’s income today like American do!

    Here’s another fact you fools don’t consider. China Mobile the largest carrier in China already has manufacturer contracts with Samsung and Nokia to offer their phones. But… even then they do NOT pay out on substidized contracts to any device maker. They instead rely on lowest rates to attract and keep customers who are primarily Pay As You Go plans.

    Traditionally the Chinese consumers refuse credit or time payment plans. Instead they choose to avoid taxes by first Saving Cash and discretionary income at a rate of 50% savings to Americans saving only 5% and that is why Apple’s over priced devices will never gain on Samsung, Lenovo, Nokia and other Chinese based phone makers. In fact Apple has dropped a few spots in phone sales to SAMSUNG, Nokia, Lenovo, Huawei, Meizu, Xioami, ZTE.

    Even if Apple came out with a lower priced iPhone, there is no way they can match Samsung’s clout on all carriers and the rest of those above. Apple has now become the Microsoft of the 90′s today in this World, as a completely OUT SOURCED middle man and will be feeling that squeeze play even more as time goes on by end to end device makers who actually have their own factory to invest in and supply their own parts.

    As a matter of fact, their only parts in iDevices made in America are made by their largest competitor…. SAMSUNG. Who just recently raised the cost of those parts 20%. That isn’t going to be reflected in their increased costs for some time. But even worse for Apple will be the loss of SAMSUNG’s FTZ (foreign trade zone) customer benefits. Which include leased space inside that zone for their chip design team and firmware installer division. The reality is… that Apple gets some fantastic Tax benefits off having parts made in Samsung’s FTZ, shipped out through their port and returned as finished products with Duty Free status!

    That’ll be gone in a few years and it’s something TSMC can’t offer them. So the reality is this; Steve Jobs should have known better than to threaten SAMSUNG w/ Android TAX of $35 dollars a phone and $45 a tablet. He really should have not declared Thermonuclear War on a company in a country that’s lived at War for over 50yrs. But most of Apple should never have actually sued their most important parts supplier…. the one that supplies the only parts made in America… THE BRAINS IN THEIR DEVICES!!!

  17. Tom
    January 25th, 2013 at 14:40 | #17

    I am placing a bet to buy now, let’s see who’s right, Apple is a great product, the market is just beginning in
    China. People in China have money and they appreciate a great product, it’s going to be a money machine for
    I am seeing the max pessimism as all these guys come out at pounding Apple when Apppppple is making so
    much money, the stock was simply taken over by these market makers and then day traders.
    Also I believe AAPL will soon raise the dividend to reward their shareholders.

  18. mds
    January 25th, 2013 at 14:29 | #18

    Congratulations. I owned it at $335 and sold it all at $705….$0.22 off it’s all-time high.
    I do own it again now; and am obviously down; but what the hell, it’s in my IRA, so I don’t need the money anytime soon; and it’s house money that I paid no gains on in an IRA. Plus; the dividends buy me a nice dinner at The Palm 4X a year.
    @iLuv iIdiots

  19. James
    January 25th, 2013 at 14:26 | #19

    your comment is weird. i use the samsung galaxy 2. ive had it for ages. its an amazing phone. my wife has an iphone. samsung is better but thats not the point. you cant argue about opinion however since more of the world uses a samsung i suppose you can assume more people like it. you must be long. @msh

  20. January 25th, 2013 at 14:25 | #20

    Apple is 1/2 the company it was just 4 months ago. Down from $800b net worth, it’s flirting with $400b. Exxon is now king of the hill once more. Over and over surveys are showing the “i” brand is no longer hip, cool or exclusive, and competition is heating up everywhere. I’m with Keith. It’s time in the spotlight is over. They’ll settle around $100 per share by year end 2014, if not sooner.

  21. mds
    January 25th, 2013 at 14:22 | #21

    Anyone with half a brain can end your theory with two words.
    Vertical Integration.
    AAPL has invested Billions…..That’s right $BB; in production line equipment in Texas, China and now Indonesia in “exclusive” collaboration with manufaturing partners. “Exclusive” meaning that what they build is dedicated to AAPL. In the case of China; investment in Foxcon is actually protected from the rest of Foxcon’s facilities as a joint venture. Same is the case with Sharp.
    Manufacturing costs will decrease in 2013 as a % to sales and margins will increase. The investments were made in 2012; to reap rewards in 2013.

  22. James
    January 25th, 2013 at 14:21 | #22

    Wow all you guys are really quick to jump onto the writer of this article and knock him. There is nothing wrong with what he is saying and everything seems correct and partial. all i can guess is that you are all long the stock and are therefore emotionally attached to it. yes apple is a great great company – no one doubts that. but there are many competitors out there. the iphone was once innovative – today its nowhere near as good as the top android devices. yes if they come out with an amazing new product they will go up again – but guess what ? other companies could too come out with a product to blow the market away. apple need to really revamp the iphone – its old and boring. if they dont it wont be long till they are a blackberry.

  23. iLuv iIdiots
    January 25th, 2013 at 14:20 | #23

    I had posted here that I had feb’13 put options at 600,550 & 500 when AAPL was hovering around 650. It crashed to 504 and bounced to 585, I still held that the AAPL will hit 475 by feb’13 and that I was holding on to my 500/550 puts (i had cashed in 600 puts when APPL was around 525). The iFanboys were all pissed off then, now AAPL trading at 440. I am laughing all the way to the bank. LOL!

  24. psy
    January 25th, 2013 at 14:17 | #24

    Instead of spending the time to sue other companies they should spend more time on developing new innovative products.

  25. January 25th, 2013 at 14:09 | #25

    Interesting analysis. Problem is: not a word about valuation. So there’s not a floor for Apple shares? Is it justified they trade lower than Intel? Is it justified free-cashflow yield is over 10%? I do not think so. Bad news are in the price. As u said short-term traders do not give a damn about numbers other than charts and their P&Ls but there are INVESTORS out there. At least I do hope so.

  26. benji
  27. benji
    January 25th, 2013 at 13:55 | #27

    Hey! I am not fanboy I only invest and therefore I read and know some facts. I am no journalist so I just quote some facts to back up what I said before.
    #1 “That survey claims 22 percent of Android users plan to move to an iPhone within the next six months {..} iPhone habits are different. There, 87 percent of existing iPhone users plan to buy a new iPhone in the next six months; and just 9 percent intend switching to Android. In other words, current Android owners are 2.4 times more likely to switch to an iPhone than vice versa.” source: http://blogs.computerworld.com/ios/21055/why-are-apple-iphone-users-more-platform-loyal-android-users-are

    #2 “Although Android devices are clearly beating out iOS devices from an overall sales-figure perspective, it is apparent that iOS users are considerably more likely to use their devices to access the internet and purchase items.” source: http://www.tenfingercrunch.com/article/196/2012/11/26/mobile_market_share_not_equivalent_to_usage_share/



  28. Baltimore Artblaster
    January 25th, 2013 at 13:52 | #28

    OK, so today AAPL is trading at a P.E. of 9.9. That is similar to a meat and potatoes income share not a technology company that has proven it can disrupt markets not once but four times in the last decade (iPod – MP3 players, iTunes store digital media sales, iPhone – telecoms, iPad mobile computing).

    Coca-Cola today has a P.E. of nearly 20! FFS! Are we saying that Coke will be so innovative that they are twice as likely to grow new markets than Apple?

    Are we really saying that a share in this company will be worth 0 in ten years time? Because that is what a P.E. of 9.9 leads one to think.

    Seriously, unless suddenly Apple implodes this is a very undervalued share on fundamentals.

  29. Oren
    January 25th, 2013 at 13:44 | #29

    Turning bear right before a 50% up in the next 6 months.
    This breaks the all-time shmanalyst nonsense

  30. icrapper
    January 25th, 2013 at 13:33 | #30


    hey buddy, all this talk about facts, and where are yours? all i see are fanboy claims (highly dubious, speculative at best)

  31. The Dictator
    January 25th, 2013 at 13:31 | #31

    @Ron Johnson
    Wow, you are full of it. I’ve been using a Mac and PC side-by-side, 8 hrs a day, for 10 years. PCs/Windows break and crash 10x more often than the mac. So take your anti-Apple BS to the Android forums.

  32. icrapper
    January 25th, 2013 at 13:30 | #32

    “Numbers back up that high numbers of Android users plan to switch to Apple”


  33. oberver2012
    January 25th, 2013 at 13:21 | #33

    To me it is pity how our minds are trained to correlate stock price and the actual company. At the end you must not forget that stock price is more to do with the suits on the wall street.

    Apple is a great compnay, that doesnt mean GE/Microsoft and the likes with there stock in 20′s are 20 times less reputed as Apple.

  34. msh
    January 25th, 2013 at 13:19 | #34

    Stop using apple and buy a samsung..when you are on your 3rd broken phone you will come back to Apple..also do you expect them to bring a new product every month..does Google..IBM..Ford..PG..MMM..stop your whining and pay attention to what they have done and will do

  35. msh
    January 25th, 2013 at 13:12 | #35

    This guy is a fool..where does all hese brilliant valuation discussions leave a stock like AMZN (lost money last quater)..NFLX (lost money last quarter)and many other stocks who have plenty of debt on their balance sheet with marins at 1/ or 1/3 of AAPL’s and zero inovation..this guy would never get his name in print unless he said something sensational about AAPL..I would not invest $10.00 on his advice..sophomoric at best!!

  36. george
    January 25th, 2013 at 13:04 | #36

    I don’t see Apple really worried about all this. There’s a quiet, unassuming confidence about Apple, like they know something big is coming.

    Furthermore, the purpose in not providing profit guidance is due to the media. They are tired of trying to live up to hubris analyst expectations.

  37. Nelson
    January 25th, 2013 at 13:03 | #37

    Click-bait. This article is riding the hype-train. I’ll not be wasting my time with Ftiz-Gerald any longer.

  38. Fernando
    January 25th, 2013 at 12:57 | #38

    It is easy to prophesy about what has already passed!

  39. Zeke
    January 25th, 2013 at 12:52 | #39

    The iPhone isn’t the only game in town;
    The iPad isn’t the only tablet, either.
    Competition is heating up around the planet and that’s leading to significant margin compression in Apple’s product set. Even if the Street has not yet recognized this explicitly, I think that it’s only a matter of time before it does.

    “I know Apple’s just beaten the Street yet again, at least when it comes to earnings ($13.07 billion versus $13.06 billion a year ago), and that revenue increased 18% to $54.51 billion versus $46.33 billion a year ago. But, so what.”

    Right! Let’s ignore the reality of record profits, a 13 week versus a 14 week quarter, and solid fundamentals because I’m a jealous know nothing who missed the boat on this stock due to immense hubris, and now I want to trash it.

    “No business – I don’t care how hyped or how rabid the customer base is – can escape the inevitable impact on margins and revenue that comes from higher competition, higher costs and fickle consumers who are less and less enamored with all things “i” every quarter.”

    Hype? Really? Apple’s rise over the last 10 years, disrupting 3 major industries is all hype and advertising? Competition? What competition? Costs? Apple’s costs have been coming down, not increasing. Of course their CAPEX is up due to purchasing new production equipment for new devices. Customers fickle? Really? 95% of all iPhone customers plan to stay with iPhone. Between 30 and 60% of Android customers plan to switch to iPhone. Microsoft’s Surface tablet sold in the hundreds of thousands, not millions in the CHRISTMAS quarter!

    You’re a jealous putz, ignoring the real numbers, just like the rest of the ANALysts in order to spew your hatred and pile on. The unfortunate thing is that some hapless souls are going to believe your crap. Go buy a clue somewhere.

  40. Hugh
    January 25th, 2013 at 12:47 | #40

    It’s funny how there is no moderation with AAPL…. I will say a few things: First, 425 or 400 are just a few bad trading days away. So this article is not ridiculous with that estimation. Second, Apples refusal to make bigger screens on their iPhone WILL hurt them in the long run. Third: their attempt to reinvent the TV may be too little too late. With Hulu and netflicks and YouTube default on the Xbox 360, I can’t see myself buying an overpriced tv with overpriced television options on it. Not to mention the fact that they will probably limit the size to 2 or 3 smallish but elegant options, that will kill them for the sports fans.
    That said their international market is only getting bigger. So I suspect hitting 400 being a strong possibility, but a continuation of a good margin and foreign growth for another year anyway.

  41. dmax
    January 25th, 2013 at 12:46 | #41

    Apple is in the same phase as when Amelio was in charge. Jobs came in, looked at the smear of various products and created the famous 2×2 square: desktop/laptop vs consumer/pro. It freed up the creativity and focus, and rescued the company.

    How much difference is there really between the iPod touch, the iPhone, and the iPad mini? Not enough to make it clear which one consumers should be _compelled_ to buy. When the iPhone came out, the community was compelled to buy the great new unique product. We’re not there any more.

  42. Jesus
    January 25th, 2013 at 12:36 | #42

    This article is a joke. Can anyone just write every trash and publish it these days?

  43. Richard
    January 25th, 2013 at 12:34 | #43

    Wow, I actually cannot believe the comments under this article. What he is stating here is ENTIRELY plausible. Take myself for example. I am an AVID apple user. Before it was hip I had an apple sticker on my car. I’m still a fan. I still think their products are great. However, I’ve owned tons of products since the early 90s. And in 2012 for the first year in 10 years I did not buy an apple product other than a new keyboard. I have 3 generations of apple laptops within reach at the moment. If they make something cool then I will buy it. But I do not plan to buy another apple product this year either. There is nothing in their current product lineup that I need or want. I thought I’d get an iPhone5 but the one I’ve got works. It doesn’t make sense to spend $200 on something a little better. I want them to make something I want! And in the past they have. But at the moment I have not even heard a murmur of a new product that I think is worth it.

    This article is completely plausible if they don’t find a way to expand into china something fierce.

  44. Ron Johnson
    January 25th, 2013 at 12:34 | #44

    I’m not a “money guy”….but I look at it as an “Apple end user” or customer, if you will. To me, the fall of Apple will come simply because they are still living and doing business as a DICTATORSHIP…and I’m an Apple user!!!
    They are SO close-minded …they don’t want to play nicely with other companies and technologies. Apple stuff ain’t better than everyone else’s…it’s just the aura Jobs created about it. my iMac crashes just as often as my PC ever did. My iPhone can’t sort my iTunes properly…but I’m pretty much “locked in” to this Apple BS now. The “Apple eco-system”. Getting gouged for a simple USB cable because its white and paying for their stupid Apple Bar “geniuses”….it’s all smoke and mirrors and the average Joe is fed up….and THAT trickles upwards, results in lower sales….results in falling stocks. Pretty simple to me….
    I’m glad Apple is getting punched in the guts. Welcome back to Earth, Apple….

  45. Nate
    January 25th, 2013 at 12:27 | #45

    I’m not even long APPL and can tell you, you are completely incompetent as you are just stating an opinion with no math to back it up. Since the inception of AAPL, they release a “new product” every ~3-4 years. The last was 3 years ago. Even if they do not come out with a new product, look at the earnings and forward earnings only with what they have… then compare to every company in the world since if I do the math the P/E ratio would be 5-8… Everything you see around you has been included into the Apple network… it’s going nowhere. $180 billion in cash could buy nearly anything as well, including competition, but they are smarter than that today. Yes we read your article so you succeeded by getting us to read, but your poorly written article with no math is what makes people literally laugh when they read this – I’m sure those that short this stock would agree as well.

  46. Bob Smith
    January 25th, 2013 at 12:21 | #46

    You analysts are all the same. You love to pile it on… probably to get the stock at historically low prices so you can ride it up when the hype starts building for the next I roll out. A few months ago, Zuck and Facebook could do no right. Analysts wrote article after article about how their IPO failed, their mobile business was failing, they lacked leadership, there is an increase in competition from other social networks, and ultimately that they were doomed to be the next MySpace. The only problem is that none of that is true. Just like very little of what you write above is true. By all accounts, Jobs laid the foundation of what Apple is to do for the next five years and if he was at the helm AAPL would have the same product pipeline that they have now. Jobs was quality over quantity and he didn’t believe in chasing every niche market and besides for the maps fiasco, there is no evidence that Cook is doing anything differently. Apple, even under Jobs, could not live up to the grown expectations that were set and there was a reasons that he was so upset with Google. He knew Google’s foray into mobile phone market jeopardized Apple’s dominance in the space. Apple is still much more profitable than just about any technology company and the stock has ALWAYS been fickle…primarily because of consumer electronic manufacturing is a fickle business. Throughout Apple’s history, even under Jobs, you will see tremendous up and down short term moves in stock price that often defy logic but the upward trend over the long term has been constant to go along with the upward trend in their revenue and profits (even if they miss the exorbitant expectations).

  47. Antduj
    January 25th, 2013 at 12:11 | #47

    Another click-bait article, because it’s so eaaaaasy right now to generate traffic with the fall of Apple …

    By the way you forgot to mention that the biggest competitor (Samsung) guided lower, too. I wonder why?! Because this quarter is usually lower, but it would kill the the main argument for this whole article.

  48. Rick S
    January 25th, 2013 at 12:11 | #48

    Then short the devil out of it and sell the 400$ calls. Are you money or just mouth?

  49. Hata
    January 25th, 2013 at 12:06 | #49

    What a piece of garbage article! Please show some respect to the audiences for all the “already known” info and back your stuff up with real numbers!

  50. benji
    January 25th, 2013 at 12:05 | #50

    I think you have no idea what you are talking about. “The iPhone isn’t the only game in town;
    The iPad isn’t the only tablet, either.” that is true. However true is also that Apple is making 2/3 of all the profits from the smartphone market. In fact it is only Apple and Samsung that make profits selling smartphones. Numbers back up that high numbers of Android users plan to switch to Apple and Apple customers tend to stay within the Apple Eco System. Just some hard facts that you missed.
    If you decide to write about something know the facts before you speak.

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