Why Apple's Stock Is Getting Demolished Lately

tim cook

Photo: Photo by Kevork Djansezian/Getty Images

Apple’s stock has entered “bear market” territory.It’s down 20% from its September 21 intraday high of $705.07, according to Bloomberg data.

Why is the stock on a big losing streak? A bunch of reasons.

One theory being advanced by analysts is that investors are selling shares because they think capital gains taxes are going increase during President Obama’s second term.

Another reason is that Foxconn leader Terry Gou said, “It’s not easy to make the iPhones. We are falling short of meeting the huge demand.”

This quote has a few implications for Apple.

The first, and most obvious implication, is that Apple is not going to have enough phones to meet demand. Therefore it’s going to miss on iPhone estimates for the quarter.

Before the iPhone 5 was released, analysts were whispering of about a monster holiday quarter for Apple. They were talking about Apple selling 50 million iPhones. Apple’s best iPhone sales quarter was last holiday quarter when it sold 37 million iPhones.

But since the iPhone 5 came out and Apple has struggled to meet demand, estimates have been coming down. Piper Jaffray analyst Gene Munster cut his iPhone forecast by 4 million.

Apple is an iPhone company. So anything that affects sales of the iPhone is going to affect the stock.

But what about the iPad Mini? Shouldn’t it make up for falling iPhone sales?

It’s selling well, but its a mixed bag if you’re an investor. On the one hand Apple is protecting itself from losing sales to smaller tablets by Google and Amazon. On the other hand, the iPad’s average selling price is going to collapse even further. And the iPad profit margin will get smaller, bringing down Apple’s overall profit margin.

So, even if the iPad Mini is a monster hit, its impact on total sales will be limited. In fact, Munster at Piper didn’t adjust his iPad revenue number after the iPad Mini came out. After Apple announced iPad Mini sales, he said, “units may increase driven by iPad Mini, but have a slight cannibalization effect, which, when factoring in the lower average selling price, would result in revenue unchanged.”

Returning to the iPhone supply issue, there’s another angle to the story.

Tim Cook’s specialty is supposed to be supply chain management. He’s supposed to be able to forecast iPhone manufacturing. The fact that he got this wrong is not good.

Typically, Apple has a measured product roll out for new gadgets. With the iPhone 5, Cook decided to go with a big product roll out. This gave investors reason for optimism. They thought Apple was going to be able to manufacture boat loads of iPhone 5s, otherwise, why spread the supply thin?

Apple misjudged its ability to make the iPhone 5. And now it can’t meet demand.

This isn’t a problem if consumers just delay their purchases of iPhone 5s. But, there’s a theory being advanced by analyst Walter Piecyk at BTIG that people won’t delay purchases of the iPhone 5. Either they will buy someone else’s phone, or they will wait for the iPhone 6. If they wait for iPhone 6, then Apple misses out on sales until next year.

In isolation, this wouldn’t totally demolish the stock.

But, with the aforementioned tax issue, last week’s executive turmoil, and the fact that no one sees Apple releasing a new industry defining product at any point in the near future, suddenly you get a company with oodles of cash, good sales and profit growth diving into a bear market.

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