Apple Closes Wild Week -- Are Reports of the iPad Mini's Death Premature?

It looks like Apple  (Nasdaq: AAPL  ) 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 (Nasdaq: GOOG  ) Play and Microsoft's (Nasdaq: MSFT  ) 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  (Nasdaq: CRUS  ) falling 21% over the past two days after blowing out earnings and its guidance. Likewise, another key Apple supplier, Skyworks  (Nasdaq: SWKS  ) , 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
The introduction of the iPad mini is an event that Apple investors have been looking forward to for months. The stakes are high and the opportunity is huge, so to help investors understand this epic Apple event, we've just released an exclusive update dedicated to the iPad opportunity. By picking up a copy of our premium research report on Apple, you'll learn everything you need to know about the product family, and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.

Eric Bleeker owns shares of Cirrus Logic. The Motley Fool owns shares of Apple, Cirrus Logic, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.


Read/Post Comments (6) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 03, 2012, at 12:10 AM, rainmon wrote:

    The comment by happypoordays is sarcastic and not based in reality, it's premature to pronounce the death of Apple, we still have not seen a full quarter of iPhone 5 sales and the mini tablet that just came out is the wifi version only, the 3G version won't come out for a few more weeks. All this nonsense about the death of Apple is just that, nonsense as the big money continues to take the stock down. This may continue for another week or 2 before we see buyers come back in anticipition of great holiday sales and a great next quarterly report end of Jan 2013. Plus we still have new products coming out yet unannounced that could push the stock higher in 2013 as Apple has such a loyal almost cult like following.

  • Report this Comment On November 03, 2012, at 2:01 AM, BradApple wrote:

    Joshua Topolsky, editor in chief of The Verge, said it best in his review of the iPad mini:

    "There's no tablet in this size range that's as beautifully constructed, works as flawlessly, or has such an incredible software selection."

    I had an opportunity to put the iPad mini through its paces today at the Apple Store in Century City (Los Angeles), and I can confirm Topolsky's assessment.

  • Report this Comment On November 03, 2012, at 3:02 AM, Microwave52 wrote:

    Apple's pps will test new highs, but we might have to wait until April's earnings. At least one quarter with all of Apple's new products fully released around the world for 1 entire quarter, together with management settling into their new responsibilities, may be needed for Apple to blowout earnings expectations. Until then, I'm buying more Apple shares on the cheap.

  • Report this Comment On November 03, 2012, at 3:48 AM, RussellL wrote:

    Noticed how Josh Topolsky didn't say anything good about how videos, music or pictures look or sound on the mini?

    That's because no matter what type of media... movies, music, books, photos and web pages, look better and sound better on the Kindle Fire HD than any iPad.

  • Report this Comment On November 03, 2012, at 6:08 AM, 0gre wrote:

    "Amazon's device is clearly a cut-rate slate designed to push as much digital buying power into the hands of consumers as possible, while Apple's is simply a legitimately nice tablet. It's a legitimately nice tablet that Apple certainly would love for you to fill with premium content downloaded through iTunes, but it never feels like a shopping portal. The Kindle does."

    – Engaget.

    FWIW, Good luck recording movies, editing movies, on the Kindle. Also, the 16:9 aspect ratio is great for movies, but little else. Web browsing and most apps work better on 4:3 unless you have a fairly large screen.

  • Report this Comment On November 03, 2012, at 10:01 AM, BradApple wrote:

    More excerpts from Topolsky's review:

    "Like most Apple products, the build of the iPad mini is excellent, easily surpassing the competition on the market. By comparison, the Nexus 7 and Fire HD feel like toys. Other manufacturers are going to have to up their game with this product in town. It's just a striking difference in materials and solidness."

    And with respect to screen quality, Topolsky writes that "the display on the mini looks incredibly sharp" despite not having the same retina display as the 3rd and 4th generation iPads.

    Having now experienced the iPad mini for myself, I can attest that the display is beautifully crisp. Videos and photos look stunning on it.

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