It looks like Apple (AAPL 0.25%) is losing its status as Wall Street's darling. Not only did the company close down 3.3% today, but it was down 6.5% on the week. Take that back a month, and the company's down 12.7%. Ouch.
Well, at least for Apple investors, the blow is softened by the company still being up 45% over the past year, in spite of the recent unpleasantness. Let's take a look at what's causing Apple's recent sell-off to see why investors have soured on the company.
Executive exits -- Wall Street hates uncertainty
Apple's week opened ominously, with the departure of a couple of well-known executives. The exits -- firings -- of iOS chief Scott Forstall and retail head John Browett have been discussed ad nauseam, so I won't delve deeper into it. However, I will note that their exits introduce uncertainty to Apple. With the company firing on all cylinders and dominating the mobile world, investors have been watching for any cracks in the foundation. Two executives leaving the company provide just that, so it's not surprising to see Apple sell off in the wake of their departures.
iPad mini -- no mania to follow
Expectations are a funny thing. Today, Apple released its iPad mini to the public, causing the usual lines and fanfare of an Apple product launch. Stories followed with tales of how Apple fans lined up at the company's New York stores, mere blocks away from where weary New Yorkers lined up for gas. The obvious disparity being, even as people were lining up for basic supplies, Apple could still command a line for its high-end electronics.
However, the overriding theme was that mania surrounding Apple's newest launch was not strong enough. Story after story highlighted that the iPad mini wasn't the only thing smaller with Apple's newest launch; the lines were, too.
For what it's worth, my own "checks" for demand proved robust today. All local Apple stores in Washington DC were sold out of the iPad mini when I called around earlier today. God, this product is such a flop!
Does the iPad mini need to equal the iPad?
The obvious question is whether the iPad mini really needs to match the iPad in sales. That is, while the most recent iPad launch featured new features like a retina display, the iPad mini is more meant to handle incremental demand at a lower price point, and where consumers have uses for smaller screens.
One obvious use for the mini is gaming. The constant knock on the iPad mini is its screen, which features poorer resolution than competitors. However, it's also an extremely light device, weighing in at just 11 ounces -- that's easy to hold with two hands for longer periods. A natural demand for this is the gaming segment where the iPod Touch currently dominates. Not only that, but the mini piggybacks on the iOS' App Store, which has a clear lead over competitors like Google's (GOOGL 1.55%) Play and Microsoft's (MSFT 1.60%) own Windows Store.
Seeing as how the gaming segment gears toward Christmas sales and teen and pre-teen shoppers, the iPad mini's demand could be skewed closer to the Christmas shopping season.
Then again, why make excuses for the iPad mini? Many projections hoped for 1.5 million iPad minis sold over the weekend, which would be about half the demand of the last iPad launch. Given the iPad mini's launch isn't something that would equal the iPad, Apple could be selling off because the media picked up on the narrative that the iPad mini is a disappointment because it didn't equal iPad demand, when reality says its reasonable for it to have less demand to begin with.
Did Apple cause the problems?
In the end, Apple's problems today might be self-inflicted. On the company's last conference call, CEO Tim Cook noted that weaker-than-expected iPad sales of 14 million last quarter likely stemmed from pent-up demand for the iPad mini. With the iPad mini posting initial lines that were shorter than expected, that deals a blow to his argument.
However, with Apple continuing to fall, the pessimism looks to be outpacing reality. The company has trailing earnings of $44.15 per share, meaning that, at its closing price of $576.80 today, it's trading for about 13 times earnings. If you want to back out cash, that figure falls to 10 times.
This is all for a company that's still expected to post sales growth of 17% next quarter, and whose biggest problem is supply-constrained iPhones.
Apple's ills appear to be contagious, with key audio supplier Cirrus Logic (CRUS 0.04%) falling 21% over the past two days after blowing out earnings and its guidance. Likewise, another key Apple supplier, Skyworks (SWKS 1.55%), fell 17% today, after reporting sales guidance which met investor expectations.
Companies blowing out guidance, and falling 21%? More suppliers roughly meeting expectations and seeing a 17% plunge? Apple seeing lines for the iPad mini and still falling by 3.3% in a day, erasing more than $15 billion in market value?
It sounds like crazy talk, but it's the market we're living in. For me, I'm putting on my EarPods, drowning out the noise and, when next week comes, I'm going to be buying into a lot of deals I see forming with some of the best performing companies in the market.
Expert advice to count on
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