The annual dance of supply chain rumors has caught Apple Inc. (NASDAQ:AAPL) short of the $1-trillion market cap level.
Shares dropped $3 overnight on Jun. 7, a loss of nearly $15 billion in market cap, after reports from Japan that the company is planning to ship 80 million iPhones next year, down from 100 million.
The company sold 217 million phones, including older models, during the fiscal year ending last September, and 129.5 million for the six months ending in March.
Apple has also been fighting reports it will lower prices on its next three models, due to be announced in September, after finding sales of the $1,000 iPhone X sluggish. One analyst said prices may start at $550 to regain market share in China.
Investors cut that overnight loss in half on Jun. 8. Here is why.
The Hot Stove League
The summer represents a sort of “hot stove league” for Apple. News grows scarce as designers and engineers prepare the next year’s models. Rumor takes over.
In the past, these rumors have often proven to be unfounded. Investors who buy the stock in the summer are often richly rewarded when the company reports its Christmas season revenue.
Services are buoying the stock, making results less seasonal. The company had nearly $9.2 billion in service revenue during the March quarter, up 31% over the previous year, making it the second-largest business at the company, behind the iPhone, and twice as big as the iPad.
Paid services have let Apple become a “cloud czar,” with a network of hyper-scale data centers, and scaled connections, rivaling those of Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT) and Facebook, Inc. (NASDAQ:FB).
Investors treasure these investments, so long as they’re paid for, because they put their owners at the bleeding edge of technology and allow them to play the “Great Game” of defining the technology future.
Apple Is Thriving
Talk of sluggish sales is a bit like complaints about the point spread on a Super Bowl win, CEO Tim Cook said in his last earnings call. What matters is the company keeps winning, that its iPhone X remains the company’s top seller, and that the company now has 270 million paid subscribers for its services.
The growth in services has also obscured Apple’s growth in its “other product” category, which includes things like the Apple Watch, Apple TV, HomePod and accessories. Wearables are growing at 50% per year.
The bottom line for Cook is that the company is much less dependent on the iPhone than it appears, and that initiatives undertaken on his watch, like the cloud, services and wearables, are the reason.
Analysts seem to agree, which is why Apple shares flew off the stock market shelves after the parts cut reports came out.
The Bottom Line on Apple Stock
Apple has many subsidiary industries beneath it, one of which is the Apple rumor mill.
Ming-Chi Kuo is one of this industry’s leaders. He recently launched his own firm, TF International Securities, to drive it, by pulling news out of the news-averse Chinese tech market. It’s Kuo who is reporting that Apple’s pricing will be more aggressive this year, that it will be shipping phones with screens as big as 6.5 inches, to be announced in September.
Steve Hemmerstoffer, another rumor maven, has also published what he says are pictures of the new phones.
None of this should matter to Apple investors. What should matter is the broadening of the revenue stream, the share buybacks, and the ever-widening profit margins. The advice to “buy it and hold” is still correct.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN and MSFT.
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