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Apple Sinks Again, But Bright Spots Emerge

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Apple (Nasdaq: AAPL  ) sank 2.4% today, bringing its losses past 6% in the past two days. Stretch your timeline back a bit further to the day the iPhone 5 was released and losses now stand at 23% in less than two months.

Yet, for all the negativity, there were some positives coming out of the smartphone space that could reflect on the strength of Apple heading into the holiday season. Let's take a look at the battle surrounding Apple's recent sell-off, and the positive news that points to better news ahead.

Mo' market cap, mo' problems
The common refrain around Apple has been a series of bad news that's rocked the stock since the iPhone 5's launch. First, opening weekend iPhone 5 sales disappointed. Shortly after, the fallout over Maps led the company to apologize and suggest users download alternative mapping applications. Then Apple missed earnings for the third time in three quarters and introduced the iPad Mini at a price point above expectations. Finally, Apple rounded all this news up with the unexpected sacking of iOS chief Scott Forstall and delaying of the next version of iTunes. 

If you look at all those events without context, it definitely looks like Apple's a wounded giant finally reaching the limits of its own growth and beginning to show the strains of operating without Steve Jobs.

The other side of the coin
However, with more context, the events often don't look as damning to Apple's future as headlines might suggest. The iPhone 5 underperformed versus expectations in its opening weekend, but that was largely due to supply constraints. Its shipping times have stubbornly stayed at three to four weeks even as the phone has been on the market for months.

Apple's earnings were a slight disappointment, but they came in a quarter where the iPhone had limited availability. The real test will come next quarter when a full quarter of iPhone sales are recorded.Then we have the Mini, which despite some quibbles with its screen, has largely garnered overwhelmingly positive reviews and whose opening weekend sales surpassed estimates in spite of once again being supply constrained.

Finally, while Forstall created iOS, most reports from inside the company indicated he'd become a divisive figure. Not only that, but many of his recent initiatives (Maps, Siri) were underwhelming.

That's not to say Apple's past couple months have been a walk in the park. Far from it. However, when the investing narrative turns on a company, there can be an inordinate amount of focus on any weaknesses, and after a decade of unrivaled success, everyone's looking for some cracks in Apple's foundation.

Positive news for Apple
The most positive news today surrounding Apple was earnings from Qualcomm (Nasdaq: QCOM  ) , one of the company's largest suppliers. Qualcomm's business model centers on two areas: communications chips and collecting royalties from mobile devices.

Qualcomm's central licensing position allows the company to have great visibility into the smartphone industry. So, the company projecting revenue next year ranging from $23 billion to $24 billion speaks well to the continuing growth of smartphones.

Not only that, but Qualcomm projected 2013 growth in 3G and 4G devices to be 10% to 18%, roughly equal to demand in 2012. The point? Despite continued hand-wringing over Apple running out of consumers to sell to, the growth in smartphones should remain robust next year, with average selling prices remaining intact, as well.

Fears to last
The issues leading to Apple's sell-off are beyond the company itself. For example, Apple sold off yesterday in part because of concerns of Europe's slowdown spreading to Germany and the fiscal cliff hurting U.S. growth. Those are fears that will affect any company, with growth companies in particular.

However, with Apple now trading down near 12 times earnings, it's not priced like a growth company anymore. While macro worries and negative headlines could keep Apple careening south, the central storyline remains that the iPhone 5 demand remains robust and central smartphone players like Qualcomm are predicting continuing better-than-expected growth in 2013.

More Apple advice
The stakes are as high for Apple as they've ever been, and its opportunities are huge, so to help investors understand whether Apple is a buy today, we've just released a premium research report on Apple. You'll learn everything you need to know about the company today and receive ongoing guidance as key news hits. Claim your copy today by clicking here now.

Read/Post Comments (4) | Recommend This Article (7)

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 08, 2012, at 4:28 PM, prginww wrote:

    I love Apple as a company, and believe it will still continue to kick out outstanding results. Having said that, I think iPhone 5 will ultimately disappoint, as will the latest iPad. They will be successes, but not to the level we've come to expect from Apple. I have a hard time imagining massive adoption of the iPhone 5 from folks that have a lot of peripherals already bought for the iPhone 4, aside from the zealots. On top of that, iPhone 4s is a fantastic device and a perfectly sized phone for everyday use. As for tablets, the run is getting long in the tooth, as most folks have already bought their tablets, which work just fine for most of us. I just talked to one of the Apple zealots I referred to earlier, and the one I know isn't even upgrading to the iPad 4, nor is he buying the mini. This coming from a guy who has waited in line for the other launches, and who has plenty of disposable income. Apple will continue to be a healthy company, but not the unrealistic levels people have come to expect. I'm looking to buy back into Apple in the $450-500 range.

  • Report this Comment On November 08, 2012, at 4:43 PM, prginww wrote:

    Sell your house and buy Apple! This has happened several times before and always results in a quick turn around. Its the best value out there bar none.

  • Report this Comment On November 08, 2012, at 4:45 PM, prginww wrote:

    I think these supply constraints are going to be a huge issue going forward. The last thing Apple wants it's fans to do is look at other products and realize what most rational people already have: their technology is not cutting edge. When consumers are doing their holiday shopping and iPhone 5's and iPad's are not on the shelf they are going to naturally take a look at the competition. I don't think Apple is done but I think the growth story is over if they do not have another ace up their sleeve and that is where the abscence of Steve Jobs comes into play. How much faith do you have in the rest of the company to come up with the next big thing? For me the answer is "not much".

  • Report this Comment On November 08, 2012, at 4:53 PM, prginww wrote:

    @sandmanfool First, one person is hardly a way to base an investment on...but sales doubling for the ipad mini(vs. ipad3) and record sales of the iphone 5 despite supply constraints are better judges of future sales. Also, all apps bought for the iphone 4 work on the iphone 5...and that is one of the secrets to Apples continued success. It may get back to 450-500, but its already by far the best deal in a stock out there and I don't know how you can say it ever was at "unrealistic levels" when, even when it was trading at $700+ its PE was just 16, not even considering its massive cash position, and even in a "disappointing" quarter like the last one they were growing their earnings at 27 percent.

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