Apple agonistes

Steve Jobs: What, me worry?

Browsing the headlines on Yahoo Finance this morning was enough to make anyone briefly consider jumping out the window. To wit:

• Job worries sink consumer confidence
• S&P: U.S. home prices down sharply
• U.S. home foreclosures soar in January
• Harsh light shines on iPhone, iPod sales

So here's the multiple choice test: Which headline does not fit with the rest? If you chose letter "D" you win a dream date with my colleague Michael Kanellos (No worries: Kanellos is off reporting on start-ups in Ireland this week, and so you're safe.)

I have to confess that the depth of emotion punctuating the "whither Apple" debate never ceases to baffle me. Throughout its history, Apple has always received more than its fair share of scrutiny. The commentary has usually been marked by extremes, pro and con, between the bulls and bears. That just went with the territory. And now a new element has been injected into the debate over Apple's prospects: recession. On Monday, my ZDNET colleague, Larry Dignan, wrote eloqently about Apple: the angst versus the reality. And he's right in many respects.

What with home foreclosures on the rise, crude oil prices breaking record highs, and the banking industry in its deepest crisis since the S&L mess of the early 1990s, there's enough to worry even the most Panglossian optimist in the crowd. And so in the last couple of months, Apple shares have plummeted from the $200 level late last year to under $120.

Which side has it right? Based upon the current stock price, you have to go with the bears--at least until the free fall ends. The gist of their argument is as follows:
•  Apple doesn't have any upside surprises coming off one of its biggest product cycles.
•  Sales of iPhones are said to be coming up short of expectations, while the number of people unlocking the devices is higher than anticipated.
•  There are increasing signs of iPod saturation.
•  With the economy worsening, why assume strong demand for (relatively) expensive Apple electronics products will continue?

Eric Savitz from Barrons has a good synopsis of the current concerns being articulated by analysts at Bernstein Research, J.P. Morgan, and Morgan Stanley.

The problem I have with the bears is that they've been wrong for much of the last three years. Everyone knows that the iPod is maturing. That's yesterday's news. In fact, Piper Jaffrey analyst Gene Munster believes the debut of the iPod touch signals the start of more Internet- and Wi-Fi-connected iPods in the future. If he's right, that may well turn out to be a game changer.

On the iPhone front, we'll have to wait for Apple to disclose the latest numbers during its next earnings call. But the same worry warts bemoaning the rise in so-called unlocked iPhones remind me of the sturm und drang surrounding the early days of the iPod. It took a couple of years but Apple had a major hit on its hands by 2003. I'd be floored if the iPhone did not repeat that pattern.

iPod unit growth rates

(Credit: PiperJaffrey)

The problem I have with the bulls (maybe "perma-bulls is the better term?) is that they turn insane when the subject is Apple. These folks would ordain Steve Jobs dictator for life. Nothing he touches is unworthy of hushed reverence. And woe to the infidel reporter who dares breathe a syllable of criticism--the Mac mujahadeen make no allowance for the 4th Estate (or the First, Second and Third, either.)

So here's where I think we're heading.

Apple is not immune to what's going on in the rest of the world. If the U.S. economy goes into the dumper, some prospective buyers will defer their purchases until a sunnier day. But that's old news by now. The iPhone remains head-and-shoulders above any smartphone in the industry. Everyone knows the product is a long-term play. When my wife, perhaps the most nontechnical human on the planet, told me last month she wanted one, it spoke volumes to me.

Don't lump in Macintosh customers with regular PC shoppers. These folks have always been ready to pay a premium because they believed the Mac offered special value. Save the fight about whether they're right for another day. What's important to recognize is that they groove on Apple. Recession or no recession.

[lkrupp]

I must confess I don't understand the stock market and the judgments it makes about companies. Why is sustained, double digit growth so important? Why can't a company just make a good product, sell it in a stable market and grow at a reasonable pace? Instead a company like Apple is first touted and then demonized by analysts for failing to maintain a furious growth pattern. Apple, of course, is targeted by extremists from both sides but other companies suffer the same. Why is a company with no debt and $18 billion cash in the bank suddenly considered an abject failure because it can't sustain frantic growth. The company isn't shrinking, mind you, it's still growing just not as fast as the analysts would like or predict.

Again, I just don't get it.

[pr_bluewater]

It's not that Apple is a bad company. And there is nothing wrong with growing at a reasonable pace. However, the price Apple stock was commanding requires the kind of growth that is unsustainable. Google's stock is tanking right now. Is it a bad company? No. But the price has some built in expectations that are not being met.

I'm not apologizing for Wall Street. It is certainly irrational and it acts on emotion. However over the long term Wall Street gets it right. Good companies get rewarded while bad ones get punished.

[dcase99]

I'd be floored if the iPhone did not repeat that pattern.
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Prepare to be floored. Plenty of other, better and cheaper phones out there than the iFlop, er phone.

[GGGlen]

iFlop?
Man, it must chap your buns that the iPhone is the market growth leader in its segment if all you can do is resort to name calling.
FWIW, I've owned numerous "cheaper" phones, and the one thing they've all had in common, is that they were all "cheap".

[OldManCoyote1]

Why are there so many Apple bulls?

Follow the money. Apple's stock price is susceptible to easy manipulation by pundits. Why? Because Apple's counter culture ethic threatens the establishment. So, the establishment is very willing to believe that Apple is going to fail. Buy driving the stock down, the investment pundits and friends can then buy Apple low, and then sell it high. It has happened so many times before, it's remarkable that it still works.

[mayadanteamihan]

Why do you Americans think the US is your only market? All Apple has to do to sell more products despite the US recession is to open up iTunes and Apple stores in Asia. But then it still hasn't done that, has it, so there go your Apple stocks, definitely downward.

[sachxn]

I don't agree with the statement that Apple iPod is reaching its saturation point, still Apple can make a lot of improvements in it as it did by launching it iPod Touch. So there's always a chance for improvemnt. And regarding iPhone, it still has to see the sun in most of the continents.

Sachin

[tordelf]

If more people within the US could only imagine the amount of people outside the US that would give anything to own an iPhone, and if Apple only would deliver (now +90% of the World can't even buy an iPhone because it is not available to them) then Apple stock would be up there with Google.
Let us pray that Apple lets the iPhone loose and allows it to become the iPod of Smartphones, which it is!
The Windows following will soon be a retirement home fellowship.
Today the European Court hit Microsoft with yet another monopolizing charge and a fat guilty verdict.
Sorry. My bet is on Apple and the UNIX community. The Quick and Dirty Operating System is past, dead and gone.

[mikele11111]

dcase99 , you sound like a guy who owns a LG Voyager and badly wants to believe he made the right choice. The iPhone is already a hit. Record penetration and market share. You must be one of those guy who makes Apple hating his religion. It's likely you are still claiming Windows Millenium is a great operating system that MS should still be supporting. You need to get over your biased dislike for Apple.

[bondj303]

I had a smartphone before I got the apple iphone. Iphone has excellent aesthetic features, but when it comes to utility, it's still needs a lot of improvement. Bluetooth doesn't support anything other than a headset: I had to manually transfer the phone numbers to my new Mercedes car which is bluetooth enabled (that was quite painful, btw). No voice recording. No video recording. can't save files other than photos & songs. Need to pay for a song to make a ringtone on itunes & then pay again to save the ringtone you prepared (if you want to do it legally). I could rant on and on. I am not an apple bashing, but once you get over the beauty of the iphone & have touched the screen enough number of times, it just sucks!