Tackling the AAPL Unknown
Humans hate the unknown. Some look towards charts and tables, while others simply create stories to turn the unknown into easy to understand answers.
Apple is currently facing the following questions (I suppose you can say its my attempt at tackling the unknown):
1) Is iPhone growth slowing? Maybe. We don’t know. iPhone 5 supply/demand is not in equilibrium. Apple is currently selling every iPhone 5 it can produce. After reporting 81% annual iPhone unit sales growth in 2011, Apple is tracking towards 70% growth in 2012. Will growth continue to decline or can the iPhone 5 stem the inevitable for a few more quarters?
2) How should we think about iPad? I’m left somewhat confused following Apple’s iPad event. Heading into today, my gut was telling me the iPad (3) was not selling too well compared to the iPad 2 - a sign that consumers’ needs were being met with a cheaper, lower quality iPad. I also assumed an iPad mini would be positioned as a content consumption device to the iPad 2 and 3.
Instead, Apple revised the iPad (4), kept the iPad 2 alive (seemingly to float in no man’s land), and unveiled an iPad mini that by all measures is as capable as a full-size iPad and just as worthy as its larger, and more expensive, siblings. Will iPad’s ASP continue to decline? Where are margins heading? Are consumers’ technology needs being met by iPad? Questions are certainly outnumbering answers.
3) Will Apple introduce new product categories? Maybe. We don’t know. We can assume that Apple has plenty of new stuff cooking in the labs, but we have few concrete details on anything. Will 2013 be the year of the next “big thing”?
4) Is the economy impacting Apple? Maybe. We don’t know. Apple was able to survive the financial crisis of 2008-2009 without much damage, however Apple was a much smaller company at that time appealing to a more niche audience. Are consumers delaying technology purchases due to economic pressures? Apple continues to have supply issues, but once demand/supply equilibrium is met, sales are increasingly disappointing as product cycles appear to be accelerating.
Now compare today’s unknown with the “AAPL story” of early 2012:
1) The iPad (3) was widely expected to be introduced and replace the iPad 2 as the top-selling iPad.
2) The iPhone 4S was selling well and the iPhone 5 was widely believed to be in the works.
3) Overall product margins were making new highs and expected to continue.
4) Management announced a dividend initiation (which may have included some front-running by AAPL shareholders).
AAPL observers had a much easier time turning the unknown facing Apple from January to April into a convenient and easy to understand story. AAPL stock also went up 50% during the same time period. Are the two related? Does a stock go up or down due to a specific reason or is that another example of humans trying to cope with the unknown?
Apple’s unknown will eventually be packaged into a clean story. It may take a day, week, month, or year, but it will happen because humans hate the unknown.