What Apple did in October 2012
The big stories came at the end of October and included the Apple executive shake up, Apple's fiscal fourth quarter financial results and the launch of the iPad mini.
The iPad mini launched on 22 October along with the iPad 4, 13in MacBook Pro with Retina display, and the new super-thin iMac (which Apple said would launch in November). Reactions to the news that Apple had announced a smaller iPad, despite late CEO Steve Jobs claims that users would have to file down their fingers to use one, ranged from concern that the iPad mini would cannibalize sales of the iPad 4 to suggestions that the price was too high. Apple makes greater margins on sales of the iPhone 4, hence the concern about the cannibalization factor. Apple may be gaining users but it would lose revenue, and that's what concerns investors.
The financial results for the quarter that ended on 29 September came on 25 October. Apple announced that earnings were up 23% compared to last year, but they were still weaker than analysts had expected. Apple's net profit for the quarter was $8.2 billion, up sharply from $6.6 billion in the same quarter in 2011. Revenue was $35.97 billion, up from $28.27 billion and slightly ahead of expectations.
The news that Apple was reorganizing its executive team came on Monday 29 November (as New York recovered from the onslaught of Hurricane Sandy). Apple CEO Tim Cook announced that Scott Forstall, who was a senior vice president in charge of iOS development, was 'leaving the company in 2013', but it word on the street was Forstall had been fired. Additionally, John Browett, who led Apple's retail efforts, was also out. It was good news for Jony Ive, formerly head of industrial design; Craig Federighi, recently promoted to lead OS X development; Bob Mansfield and Eddy Cue; who all got extra responsibilities. Analysts reacted positively to the news. Although there were a few raised eyebrows, and speculation that Tim Cook hadn't been handling the infighting amongst his executives particularly well.
What Apple did in November 2012
The stock continued to be buffeted in November. The big question, what was causing Apple's shares to dive to a three-month low and should Apple's 27,696 investors (according to their recently filed Form 10-K) be worried? Or should people take the opportunity to buy Apple stock while it was so low?
Topeka Capital Markets analyst Brian White described the Apple sell off as "insanely insane". However, investors were selling off Apple stock regardless. A number of reasons for the AAPL sell off were suggested, these included: Apple being unable to meet demand for the iPhone 5; the high price of the iPad mini; a low turn out for the iPad mini launch; suggestions in Form 10-K that Gross Margin (a measure of how efficiently a company turns sales into profits) for the December quarter would be lower than previously; and the fall out from Apple's executive reshuffle including questions about Tim Cook's leadership skills.
Also up for suggestion was declining market share, with concerns that Apple had slipped from its position of leading smartphone maker (although the figures were based on Apple's iPhone sales prior to the launch of the iPhone 5).
Not helping matters was the legal battle with Samsung. On 3November Apple UK had to post a statement regarding Samsung on Apple's UK website in which it was forced to repeated the finding of the UK court that Samsung had not copied Apple.
However, we suspect the mass sell off of Apple's stock is likely to have been driven by the looming fiscal cliff, specifically the expiration in January of tax cuts. Apple's investors appear to have been cashing in their gains now so that they won't be hit by next year’s increased taxes – currently capital gains tax is 15% but this could rise to 35% in January.
Fear of the fiscal cliff certainly seems to be a credible reason for the sell off given that President Barack Obama, Treasury Secretary Tim Geithner, and House Speaker John Boehner made calming statements regarding the fiscal cliff over the 17/18 November weekend and investors reacted positively on the following Monday. In addition, President Obama is said to have called and spoken to Apple CEO Tim Cook about the fiscal cliff.
The fiscal cliff is a set of law changes set to take effect in the US on 31 December 2012. They will include new taxes related to Obama’s health care law as well as aim to cut the federal budget deficit. It is feared that they may drag the US economy back into recession.
Right at the end of November Apple announced the new 21in iMac, barely keeping its promise made at the media launch in October.
What Apple did in December 2012
Apple fell to the lowest level since 17 February during trading on Friday 14 December, closing at $509.79. Various reports suggested a number of reasons for the fall, including the 'lack-luster' launch of the iPhone 5 in China (despite the fact that Apple sold 2 million phones in the opening weekend); declining orders reported by Apple's supply chain; and lower than anticipated iPhone 5 demand. Other possible causes of the decline included recent predictions from research firm IDC that suggested Apple could lose tablet market share to Android and Windows in the run up to 2016, as well as claims that China Mobil will carry the Nokia Lumia rather than the iPhone. The US fiscal cliff and associated tax increases, also seems a likely cause of the sell off.
Concern was sparked by reports claiming Apple was ramping down iPhone 5 production. A number of analysts speculated that demand for the phone had slowed, and reviewed their targets for the Apple stock and revenue expectations.
Despite all the negativity some analysts still have high hopes for Apple.
Asymco analyst Horace Dediu suggested that the ramping down of iPhone 5 manufacturing could indicate that the next iPhone is soon to launch. Morgan Stanley analyst Katy Huberty says there is "strong demand" for the iPhone 5. In fact, she emphasizes: "Importantly, a greater percentage of consumers plan to purchase the higher priced iPhone 5 as compared to iPhone 4S mix a year ago."
Topeka Securities Brian White still believes that Apple can hit $1,111 a share. He expects that China will be huge for Apple, and he notes that Apple will have the iPhone and iPad on sale in China in time for Chinese New Year on 10 February.
Well know Apple bull, Piper Jaffray analyst Gene Munster is also still confident that AAPL is going to hit $900, although he admitted that his investor clients have been giving him an "earful" over the recent decline.
Wherever Apple's share price is headed, one analyst puts things in perspective when he notes that between 19 September and 14 December Apple's market cap has fallen from $658.15 billion to $479.56 billion, that's a loss of $178.59 billion, or the equivalent value of 54 of the smallest S&P 500 companies.