Is Apple capitulating?

Another Wall Street analyst cuts estimates on the tech giant. There may be more to come, but this could be a bottoming process.

By TheStreet Staff Mar 11, 2013 12:25PM

thestreet.com logoBusinessman reading newspaper copyright A. Chederros, ONOKY, Getty ImagesBy Chris Ciaccia

 

Apple (AAPL) has received more than its fair share of criticism from Wall Street in recent days, and Monday is no different. That may be a sign that capitulation is starting to happen though.

 

CLSA analyst Avi Silver downgraded shares to "outperform" from "buy," lowering his price target to $505 from $575. Silver cited weaker iPhone trends as the primary reason why Apple's shares have been so weak recently. Shares of the tech heavyweight have fallen 18.9% year to date, and more than 38% since the iPhone 5 went on sale.

 

Silver cut his earnings estimates for fiscal year 2014 to $46.62 a share from $51.71, but noted that he expects to see an uptick in new products later this year to help Apple return to growth.


"Following a Jun-Q product lull, we expect new products (including iPhone mini) to expand Apple's emerging markets offering and return Apple to EPS growth in C2H," Silver wrote in a note.

 

This is the same story Apple investors have been hearing recently. Credit Suisse recently cut its Apple earnings estimates on iPhone concerns (see TheStreet), citing competition from Samsung, and the inevitable product refresh later this year. The iPhone 5S is expected later this year, according to recent rumors.

 

Citi and Barclays Capital also cut earnings estimates last week for essentially the same reasons (see TheStreet). Citi is worried about both the iPhone and the iPad, while Barclays is more worried about the iPhone.

 

"Indications of reduced demand to Apple's suppliers contribute to our existing concerns that end demand for 10-inch iPad and iPhone5 in particular is softening, reflecting share loss by Apple in both the tablet market and the smartphone market," wrote Citi's Glen Yeung in a note. He cut iPhone estimates for the second quarter to 34 million units from 35 million, with the third quarter staying at 25 million units.

 

Barclays' Ben Reitzes cited Samsung as a factor for his estimate cuts. "Given our checks in the supply chain and factoring in increased competition from Samsung, we are lowering our iPhone forecast," he wrote. He cut iPhone estimates for the March quarter to 35 million, down from 36 million, with the full year at 150.8 million units.

 

Even one of the most bullish Apple analysts, Topeka Capital Markets Brian White is sounding negative these days. "The final February sales numbers for our Apple Monitor have been reported and the performance missed historical averages," White said in a note.

 

While nothing is certain, additional price target revisions, and perhaps a couple more downgrades on Apple, are in the cards in the near term. Sentiment has changed so violently in the past few months, it's scary. The company that was once the darling of Wall Street and Main Street, now can seemingly do no right. Investment guru Jeff Gundlach noted as such in a recent presentation that perhaps the mindset on Apple has gotten too bearish.

 

"I don't have an opinion on Apple now," Gundlach said during a Q&A session, but noted that Apple is "really oversold" in the short-term, and could go higher as its next move. He ended by saying he does not think Apple shares will see $700 "anytime soon."

 

When Wall Street analysts move on a name, it is a herd mentality. The consensus right now is that Google (GOOG) and Samsung are eating Apple's lunch. Current estimates from analysts polled by Thomson Reuters expect Apple to earn $10.22 a share on $42.9 billion in revenue this quarter. A year ago, Apple earned $12.30 a share on revenue of $39.19 billion, so revenue is projected grow just 9.5% year over year.

 

Samsung and Google both certainly have more buzz, especially as Samsung gets ready to launch its Galaxy S IV later this week. There is no denying that, but there is no denying either that sentiment is low on Apple either. This could be a sign of capitulation, a sign of giving up. That may very well be the sign that sentiment is poised to change.

 

The Cupertino, Calif. company is in a perceived rut right now, with the sentiment being that innovation is dead, and that Apple will never be able to best Google and Samsung. Apple needs to alter the perception of itself, or this cycle won't end. A deal with China Mobile (CHL) could change this, as well as a raised dividend and more return to shareholders.

 

Apple has played the underdog role once before, however, under CEO Steve Jobs, now deceased. Now is the time that CEO Tim Cook and his new management team will prove their worth. Expectations are low, and Wall Street is taking them lower with each passing day.

 

All it would take is "one more thing" (see TheStreet) for those thoughts to turn on a dime.

 

 

 

More from TheStreet.com

46Comments
Mar 11, 2013 5:38PM
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People finally getting that they don't have to have the latest new device, that was only a color change or some quickie gadget that was added?  Hmmm.

Mar 12, 2013 9:32AM
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If Apple would learn to play nice and get flash on their devices then people might not be going to the other phones and tablets.
Mar 11, 2013 10:12PM
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As I've pointed out many times, the previous examples of IBM, GE, Microsoft, Motorola, RCA, etc. show that when you grow to a huge size you need ever more huge sales successes to grow by the percentage needed to justify your P/E.  I say "I've pointed out" because as Apple was on its roll you know none of these "experts" was going to urge caution!

Apple stumbles - and just slightly - one time with a low P/E to start with and we get idiotic notions like "capitulation."  It makes you wonder if any of these college journalism majors has a clue about the math behind what makes a company grow.  If you have a $100/week lemonade stand, you need to earn another $10/week to grow 10%.  If you have a $1000/week lemonade stand, you need to earn $100/week to grow the same 10%.  The $10 is a lot easier to do than the $100 - especially if there are other lemonade stands on the street and they're adding new flavors like "Samsung."

Mar 12, 2013 10:59AM
Mar 12, 2013 9:02AM
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It was only a matter of time that this would happen. Steve Jobs was Apple and the driving force behind the products. With him out of the picture I think Apple's best years are behind it.
Mar 11, 2013 5:33PM
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Interesting that since the Android OS is free, Samsung cashes in... not Google

Google makes it money by selling advertising.

 

What have YOU bought based on the on-line advertising?

How much does it influenece you?

 

I find that if I am looking for something online (say a ping pong table) is that ALL my ads are now geared to this search. But, the ads are meaningless once I bought my ping pong table.

 

Does it actually pay for the advertisers? Someone enlighten me to why this revenue stream won't break down. Won't the Amazon's, Targets and Walmarts begin to dominate specific searches?

Mar 11, 2013 7:08PM
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All that stuff way overpriced anyways!  What a bunch of techno suckers that couldn't tech their way out of wet paper bag anyhows!   Lot less material than your average desk top although it cost just as much or even more!  Oh yeah, some of those deals require subscriptions that cost $100s of dollars a month.  So what if the phone or pad is free, you more than pay for it in subscription costs that are way overrated!  I didn't get a cell phone until they were cheaper than my wall phone.  I finally found something that cost me less than $25.00 a month.  Same goes for a tablet except I ain't getting one of those until they cheaper than a computer I can build myself and does more than my computer can do.  But don't you all stop buying.  That's what it takes to get the price down so people like me with better sense can get one too!  I'm feeling left out.  Hurry up!  Buy some more over priced stuff!
Mar 12, 2013 5:40AM
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Biggest mistake they made was going with the worst comm company in the world which is SBC which is now hiding under the AT&T logo but is the same company. Three friends of mine have dropped them cause they cannot get their billing straight or down right fraud in the way they were told originally and the way it came out. Tablet? You have to be kidding. You ride the bus and in a week you may see one or two people using one. I bought a 30 dollar ebook reader and that's all I need I can wait to see my email until I get to work or home.
Mar 12, 2013 10:30AM
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This is only history repeating itself.  Apple is great at releasing innovative "prototypes".  However while other companies continue to advance the design Apple sits on it's hands selling "pretty" overpriced and underpowered devices.
Mar 12, 2013 11:44AM
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APPLE Should get out of town. Selling the new and improved  2013 iMAC, no CD rom or SD slot. The response, oh, yes, you have to use USB cables for the camera now and get an APPLE usable external CD Rom. How sweet it is.  Steve Jobs, are you hearing the latest!! 
Mar 12, 2013 11:59AM
Mar 12, 2013 12:32PM
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This is what happens when you peddle the same old stuff with new bells and Whistles there are only so many things you can do before it just gets old and is still the same old same.  I dont need a new phone every 6 months to a year.  What I need is the phone I have too stay up todate...  The good thing about apple is they are sitting on a mountain of cash....
Mar 12, 2013 10:15AM
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Hey how's that cheap chinese labor working out? No it's people getting tired of paying out the yazoo and getting a piece of CRAP! Bring back those OUTSOURCED JOB'S and watch the quality go back up and profitts return with them!
Mar 12, 2013 9:49AM
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Have people finally seen the light?  Could it be that the finally see that an Android OS is far better than anything Apple has.  One can only hope. 
Mar 12, 2013 2:00PM
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I guess people today really do have an attention span that rivals a flea.  Financial trends take more than 3 seconds (or minutes, hours, days, weeks) to come and go.  So, Apple had a "disappointing" quarter - disappointing to who?  They still made billions, isn't that enough?  They will ONLY make $46 a share for FY 14, instead of the PROJECTED earnings of $51.  Obviously the company is falling apart and will go broke this afternoon!  Anyone who buys or sells stock based on this type of information is a MORON!  What has Apple done over the last 3 months (3 years/30 years), THAT's what you base stock purchases on.  It's not the lottery!

 

I read an article a few years ago, if you invested $50 in a blue chip stock in 1950 (say, Johnson & Johnson), you could retire a multi-millionaire in 2000 off that 1 investment.  That's how investment is supposed to work.  The way it works now, lots of average people and small institutional investors put money into the market, then the markets get manipulated by a small group of ultra rich players who suck all the money out for their own gain.  How else can you explain the 200 point swings we've seen on a regular basis lately?

 

Another SERIOUS problem that this article exposes.  There are a small handful of stock "analysts", who decide how much money Apple is supposed to make.  If Apple disappoints this handful of people (miss their earnings projection) it costs Apple MILLIONS of dollars because the share price falls, and short sighted morons sell.  And we're talking pennies here.  If a company misses their earnings goal by even a few pennies per share, it costs them millions.  So Apple (and all other publicly traded companies) have a vested interest in earning EVERY POSSIBLE PENNY they can - don't want to disappoint those analysts!  Which helps explain why products are overpriced, labor is outsourced, you get the idea.

 

Come on people, get your heads out of your a - the sand!  Time to take control of our economy back from the 1%

Mar 12, 2013 10:09AM
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Found it funny.  The spell check found Obama as a mistake as well.  lol
Mar 12, 2013 2:54PM
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greed of wall street has nothing to do with how well a company is really doing...look it up! apple is one of the most profitable innovative companies around...the money mongers want more more more. does anyone really think apple has thrown in the towel and just given up? my gawd people what do you want from a phone or tablet, free sex or something? you are walking around w a device the that can access the knowledge of the know universe in your pocket. maybe you could be happy with it for more than 30 days before clamoring for something new and groundbreaking.  
Mar 12, 2013 1:32PM
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its about time.. Slow down with technology already.. geez. Just throw in the towel Apple. I love Ya, but you need to throw in the towel.
Mar 12, 2013 3:13PM
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The last time Apple was in the dumps they rehired Jobs. Not gonna happen this time.
Mar 12, 2013 2:01PM
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Looks like Apple is becoming Apple Sauce...and Samsung is becoming SamZing!

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