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Why Does Wall Street Hate the iPad Mini?

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Whoever said bears hibernate during the winter was lying.

Apple (NASDAQ: AAPL  ) is selling off yet again today, down more than 3% as of this writing, on no news whatsoever. Big Money investors apparently like other stocks more. Some are also betting against the Mac maker -- short interest is up from near zero a year ago to almost 2% today, according to data compiled by S&P Capital IQ.

I blame the iPad mini.

Apple has sold off mightily since CEO Tim Cook unveiled the device at an Oct. 23 press event:

^SPX Chart

^SPX data by YCharts.

The mini scares the Street. Not only because it's cheaper, but also because it lacks the Retina display that makes the newest iPads so crystal clear.

Scarier is that no one -- not even thieves -- seem to care about these shortcomings. According to a recent report from Citi, Apple's Q1 order book calls for adding twice as many minis to inventory as regular iPads. The same report also says that Apple likely sold out of all 10 million units it ordered. Fourth-generation iPads remain available.

And the good news?
if you're a long-term investor, this news isn't nearly as bad as it might seem. The mini is performing remarkably well despite formidable competitors:  Google's (NASDAQ: GOOGL  ) Nexus 7 tablet sold out shortly after its release while's (NASDAQ: AMZN  ) Kindle Fire HD topped the e-tailer's sales charts throughout the holiday shopping season.

Finally, there's math to consider. Appearances to the contrary -- a $499 fourth-gen iPad certainly seems like it would be more profitable -- Apple generates from six to eight more points of margin from the mini than its larger-screen peers. That's according to an iSuppli teardown analysis of device components and manufacturing costs.

Thus in punishing Apple for releasing the lower-cost mini, Wall Street is making a huge mistake. It's not the first time we've seen this, and it definitely won't be the last.

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

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 January 14, 2013, at 11:54 PM, dwilh51183 wrote:

    Topeka capital Brian White had an excellent interview video recording about Apple. Everyone should go listen to him he makes a lot of senseGREAT ARTICLE!! RUMORS TODAY ARE TOTALLY FALSE. AAPL sales are strong. If recent reports are true from Kantar Research that "AAPL'S market share increased to 53% of all smartphones sold", then out of the 51 MILLION phones activated the day after Christmas, 28 million of them had to be AAPL phones. Add the 5 million iphones sold the 1st week they went on sale in the U.S.A....and the 2 million sold in China the first 3 days, that equals 35 million IPHONE'S SOLD IN ABOUT A 5 WEEK TIME FRAME. You still need to calculate 4 more weeks of sales in the U.S.A.and 9 WEEKS OF SALES NOT INCLUDED IN OUR CURRENT SALES FIGURES...from 98 more countries.ALSO add the remainder of the quarter from China

  • Report this Comment On January 14, 2013, at 11:54 PM, dwilh51183 wrote:

    Great point by that analyst who said if AAPL cant meet earnings expectations, then who can? AAPL has no problems? Show me any other company that makes this kind of money. Wall street is fixed and full of crooked people.CNBC can not be trusted with all their negative comments. Cant you people see what scare tactics these guys are using on you . They want you to sell so they can buy it way cheaper, then they will ALL start saying AAPL is so cheap and everything they have is selling like crazy and AAPL has all the buying pressure now.... THERE IS NO LOGICAL REASON FOR AAPL to be trading at this price with a P.E OF 8, YET MAKING 60 BILLION dollars every quarter. This stock should be every hedge fund and mutual funds top position, and every parent in U.S.A. should buy this stock for their kids college educations, unless you feel better buying AMZN w their 2600.P.E , and selling their products for a loss just so dumb idiots can order a few books online.

  • Report this Comment On January 14, 2013, at 11:54 PM, dwilh51183 wrote:

    Apple may have pared iPhone production to rebalance inventory or because of lower consumer demand, according to Milunovich. Order cuts may also be due to suppliers becoming more adept at assembling the latest iPhone, reducing the need for excess inventory, he said.

    Milunovich’s projection for 25 million iPhone 5 units to be sold in the quarters ending in December and in March will still be exceeded under the scenario Nikkei reported, he said.

    Exaggerated Reports

    BOCI Research Ltd. analyst Tony Yang in Hong Kong said checks with Apple suppliers failed to produce any signs of “a huge iPhone 5 shipment drop.” Barclays Plc analyst Jones Ku also said there were no indications of a large order cut for speakers made by Shenzhen, China-based AAC.

    “The actual order cut for iPhone 5s in the first quarter is exaggerated,” Ku said in Hong Kong. “The large cut for displays is mainly due to the over-purchase of displays in the fourth quarter.”

  • Report this Comment On January 15, 2013, at 8:42 AM, TMFGemHunter wrote:

    I agree with most of what you've said in the article, Tim. However, I think the Q4 earnings report (which came out two days after the product announcement) was the bigger catalyst for Apple's big drop. People were spooked by the predicted margin contraction.

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