After Sandy: How Will the Market React to Apple Tomorrow?

In spite of the massive devastation unleashed on parts of the East Coast this weekend, including flooding in New York, the major markets in the city are slated to open again tomorrow. With Hurricane Sandy having kept markets shut down the past two days, it could be a hectic day on markets tomorrow as fund managers whose fiscal year closes at the end of October shed losing stock positions for tax benefits.

However, trading in Apple  (Nasdaq: AAPL  ) could be extra-hectic, considering the amount of news surrounding the company in the past few days. Let's take a check-in on what will be moving the company tomorrow.

Apple's executive shuffle
Late yesterday, news broke that Apple was shuffling its executive suite. Scott Forstall, who had led iOS development, and retail head John Browett were both booted from the company.

Browett's departure wasn't unexpected, as he'd been working as Apple's retail head only since the end of January, and his time with the company was marked by controversy. In spite of the industry-leading sales per square foot sales seen at Apple stores, reports leaked that Browett had focused on cutting payroll expenses and making stores leaner. With Apple still having only a handful of stores in China, a market where 15% of its revenues came from last quarter, that cost-cutting focus seemed misaligned with Apple's own focus on a top-notch retail experience and also its strategic opportunities. Giving Browett the boot seemed like the right call for both parties. 

In Forstall's case, his departure came as a major surprise. At the time of Jobs' passing, Forstall was seen as an integral figure in the company, even receiving some press coverage as a future successor to Tim Cook. However, his star began to dim as recent product releases such as Siri and Maps were met with negative reactions. Not only that, but there were reports that tension between Forstall and other important executives at Apple were reaching a breaking point. Apple's decision to lead off its press release of Forstall's departure with an emphasis on the change's ability to "increase collaboration" hints to the fact Forstall and other key executives were clashing. 

Its also telling that the day after his departure, Apple announced the delay of iTunes 11 tonight. Schedule-driven product release dates at the sake of quality won't be making the cut at Apple anymore. 

The iPad Mini situation
Beyond the executive shake-up, the iPad Mini was also a newsmaker last weekend. The tablet was made available for preorder with some interesting results. While the white model of the iPad Mini sold out its initial allotment in a mere 20 minutes, the black iPad took a bit longer to sell out: 35 hours. 

One obvious caveat: There are a lot of unknowns with preorders. We simply don't know the initial production number of devices until companies later (if ever) come up with a splashy press release of sales. In Apple's case, there could have been far fewer white iPad Minis produced than black ones. On the other hand, the initial run of black iPads could be larger than expected. Supply constraints have hampered recent launches, with the iPhone 5 still showing a three- to four-week delay in shipping.

Amazon.com (Nasdaq: AMZN  ) was quick to deride the iPad Mini. Not only did it claim that the day after the iPad Mini's unveiling was the Kindle Fire HD's "biggest days of sales since launch," but the company also plastered an unflattering comparison between the iPad Mini and Kindle Fire on its homepage. Of course, Amazon produced no figures as to how many Kindle Fires it sold that day, so its own bragging of record sales comes with a grain of salt.

Speaking of competitors, yesterday saw plenty of news from two other players you might have heard of; both Google  (Nasdaq: GOOG  )  and Microsoft  (Nasdaq: MSFT  ) had events planned. In Google's case, its event to announce a trio of new devices was cancelled, but the big news was the company will sell a new flagship smartphone for $299 off contract and a new 10-inch tablet that goes on sale for $399. 

Microsoft went forward with an event promoting Windows Phone 8, but it was largely lost in the news cycle around Hurricane Sandy. Perhaps the most notable part of Microsoft's event was when Steve Ballmer called Apple "the low-volume player" in every market it competes in aside from tablets. As Ballmer's comments came after an event for Windows Phone 8, an operating system with a mere 3% market share, he might want to reconsider that comment. 

So much news set for one trading day
All this leads to the question: How will the market react to all this Apple news tomorrow? On one hand, the executive changes come as a surprise. With Steve Jobs gone, everyone's looking for cracks in the foundation at Apple, and an executive shake-up could be considered a red flag.

However, at the same time, Forstall's recent failures, including Maps, were readily apparent to users of Apple products. Not only that, but his departure also leads the way for more control of the interface of Apple software to Jony Ive, who is widely considered Apple's top talent and to this point focused on hardware design. Whether Ive succeeds in his increased oversight remains to be seen, but his track record is an unquestioned history of design success. 

Therein lies the rub. While there will be no shortage of handicapping Apple based on its executive departures or iPad Mini preorders tomorrow, the real news comes down the line. If you're an Apple investor and there's an outsized move tomorrow, remember that we won't know the significance of iPad Mini demand probably until the end of the quarter, when the company reports. Likewise, the effects of Forstall's departure will take time to digest. 

Apple's already the most newsworthy tech company, but the next six months just got a lot more intriguing. 

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Eric Bleeker has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 31, 2012, at 4:12 AM, aeosfool wrote:

    The ipad Mini sales are a non-story...pretty much as expected and as you say, without knowing how many were built you can't judge if a sell out was good or just ok.

    The personnel changes are, on the the other hand, are great news. In one fell swoop, Tim Cook reshaped the company in a much better way. Both employees were tremendously disruptive to what should be all great news. How can you run a retail division so bad for the best retail stores anywhere. Why emphasize saving money when they are making tremendous amounts by giving world class service? You have the formula, why not embrace it! He really should have been concentrating on new China stores where they can't stock the stores fast enough.

    The only question about Apple earnings this quarter is can they build their products fast enough...which, at least at the last earnings conference call, Tim says they have solved(with the exception of the new imac).

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