Bulls & Bears on Apple

Many analysts are beginning to ponder the once unthinkable: What will {complink 379|Apple Inc.} look like without the guiding hand of CEO Steve Jobs at the helm? The question had been asked before, but it gained additional urgency following news Jobs would be taking a leave of absence from the company to focus on his health. (See: Apple’s Jobs to take Medical Leave of Absence .)

The company's shares gyrated wildly at the opening on Tuesday, January 18, swinging from $344.76 to $324.60 before clawing back most of the decline to close at $340.65. Investors, it appears, believe too much in Apple to let even the negative news of Jobs's health problems sink the stock.

Still, investors are paying closer attention to the issues that could drive valuation up or down at Apple, according to Brian Marshall, an analyst at Gleacher & Co. Marshall, who is positive on the company, identified three reasons to be bullish on Apple's stock price and three factors those who are negative (bears) might be considering. Here they are starting with the bulls:

Three Reasons to be Bullish on Apple

  1. iPhone ramp is in early innings:
  2. With the iPhone now available in about 90 countries (compared to 80-plus in June 2009 and 6 in June 2008), the global ramp has just begun and Apple now has 165 international carrier partners (Research in Motion has nearly 600 carriers).

  • Best technology company:
  • Apple continues to gain share across its major product lines. Its business model is becoming stronger over time as well [and] the company benefits from an increasing richness of its revenue mix and when average selling price (ASP) cuts come, customers typically migrate up the “SKU stack” and buy higher priced items with higher associated gross margins.

  • The Bank of Apple:
  • Apple continues to generate tremendous amounts of cash flow from operations and its current net cash hoard (i.e., total cash minus total debt) now stands at $51 billion (or $55 per share) — the single largest in the technology industry by far.

    Three Reasons to be Bearish on Apple

    1. Margins have peaked:
    2. Apple’s gross margin reached 41.8 percent in September 2009 and based on management's guidance, gross margins are expected to decline significantly to approximately 36 percent in December 2010. This trend should continue as pricing pressure will intensify going forward as the company aims to maintain its market share in a competitive environment. ASPs will simply decrease faster than cost of goods sold, thus negatively impacting the gross margin.

    3. iPad will cannibalize the Mac/iPhone family:
    4. The iPad has successfully integrated the functionality of a slimmed down notebook into a media player form factor and has effectively rendered a significant portion of the Mac (and potentially the iPhone) product family obsolete. This presents a serious problem as iPhones and Macs generated 65 percent of Apple’s total revenue in 2009.

    5. Stratospheric carrier subsidies unsustainable:
    6. It is estimated that Apple receives approximately $450 from AT&T Wireless on the activation of an iPhone as part of a carrier subsidy program. It is also estimated that Apple receives an average subsidy of approximately $300 from its international carrier partners as well. These subsidies are well above average of what other vendors (even RIMM) collect. After the introduction buzz of the iPhone has worn off and the subsidy agreements expire, the wholesale ASP of the iPhone will likely take a significant step down.

    12 comments on “Bulls & Bears on Apple

    1. Anand
      January 19, 2011

      Nice article,

        I guess lot depends on who the future CEO of APPLE takes up the challenge and guides the company. He may be as good as jobs or may not be. The key important thing for the companies to grow and thrive in this competitive industry is “INNOVATION”.  Apples IPHONE, IPAD demonstrated this. But will they do it in the future is the key.

       Apple might have tremendous amounts of cash flow, but that will give the company just that extra advantage nothing more than that. Take for example case of NOKIA, it had lot of cash in its kitty but it failed to catch on with “ANDROID MANIA” and failed to put on good performance. 

       Sometimes I feel personalities should not be bigger than company. Do you feel the same ?

    2. saranyatil
      January 19, 2011


      i would take a diplomatic stand on this issue, definitely personalities also make a huge difference to the company especially when it comes to Steve. as u mentioned about nokia because of the decision of their previous CEO the compant was at stake hence later he was fired too so always CEO s roles are very important in placing the company in the right direction.

      with regard to mind set of people in the share market they always feel Apple is doing good because of Steve, initially there might be a drop in share prices but once Apple shows growth in all the fields the situation may give a turn coat scenario.

    3. Anna Young
      January 19, 2011

      It was sad to hear that Steve Jobs, a person with so much talent has to leave with great reluctance a company that he co-foundered; though it is to my understanding that it is the day to day running of the organisation that he would no longer be involved with but he will still be able to take part in strategic decisions affecting the direction of the company. 

      However, I believe that Apple Inc is a strong organisation and that 'the changing of the guard' does not necessarily mean the ship will sink. Although the loss of Steve Job's acumen may be disadvantageous in the murky waters of the business and technology world, Apple will go forward in strength, its foundation is solid enough.   

    4. DataCrunch
      January 19, 2011

      Increased competition should be included to the “Bearish” section.  Almost every consumer electronics company has already started and will be releasing tablets in 2011.    Many of the smartphone manufactures and mobile OS companies are starting to catch up to iPhone’s features and functionality.   

      Apple will still be a major player in this space for quite some time even with increased competition and mobile software developers will still be developing iPhone/iPad/iPod apps, along with other devices.  Interestingly, I believe Mac sales should continue to do well as more and more software developers are building Apple apps, and the Mac is the best environment to build those apps on.  

    5. eemom
      January 19, 2011


      I totally agree with you.  One has to believe that Jobs has developed the Apple management team to carry on his legacy when/if he has to step down.  No CEO / founder that obviously cares about his company will let it depend solely on him, especially with a lot of known health issues.

      I don't see a hick-up for Apple in the near future as far as its leadership position in innovation.  Like the article and others mentioned, profits or more competitiveness with its products will be what Apple has to contend with.  However, I would guess that Apple has already planned for that, so we'll see what the next innovation will be.


    6. Ashu001
      January 19, 2011


      I don't know if you read this post ,but this is awesome piece of work.

      Its been a well-known fact among many Investors how Apple has time and again sand-bagged expectations.But to see it being demonstrated in such clearcut and emphatic fashion is an absolute eye-opener.Stunning to say the least.

      The Whole Apple shareholder scheme feels nothing but a Ponzi scheme(Lets not forget there are no dividends to speak of),and if for any reason the Ponzi stops,its going to crash like a house of cards with retail investors suffering the most(once again)….Thank God,I Don't(& Won't ever) own Apple stock.Let the Hedge funds play out their own little game here…



    7. Parser
      January 19, 2011

      Investors have to fight with three reasons for and against the purchase of Apple’s stock. Let me look at the some aspects to bearish on Apple.

      1. As long as these margins are profitable a squeeze is typical across the industry.
      2. There were voices that iPod would cannibalize iPhone having all the same features except of making standard phone calls. iPod can make phone calls using Skype and other apps. iPad, on the other hand, could compete with the MacBook Air. The concept of iPad with its processor and SDK is very different from the computer it could compete with. It is a different market niche created in such a way that those who have need for a computer and a quick access iPad will have to buy both.
      3. The subsidies can be dealt with by going to competing carriers therefore increasing volume lowering production costs etc.

      General statement would be that Apple has to keep innovating and creating technological art, just like they always were, but now are recognized for it. Investing in Apple's stock seems to be more convincing at least for next few years. 

    8. Anna Young
      January 19, 2011

      Parser, I agree the house that Steve Jobs built at Apple was not constructed out of a deck of cards. This appears to be an enduring business — for the foreseeable future. So what if Apple misses a step or two and its stock price declines sharply, the company would still be worth a lot more than many of its rivals. Let's look at some numbers: Apple's latest market value is $312 billion compared with $38.5 billion for Nokia, $33 billion for Research in Motion and approximately $10.7 billion for Motorola Mobility.

      Apple could buy any of these rivals without borrowing a dime from any company. It had $59.7 billion in cash, short-term and long-term marketable securities as at the end of the December quarter. I am not long or short on Apple's stock currently but this company makes products that people want to buy. The bulls have it, again for now.

    9. Mydesign
      January 20, 2011

            Boloji, jobs health conditions and his medical leaves are much highlighted news in business sector.  Apple is the brain child of job and he had done a good work for the industry, like other CEOs contribution for their parent organizations.  Under the able leadership and guidance of Job, Apple performed well both in innovation side and marketing the products.  I think whatever the works and products delivered by Apple is because of its combined team work and of course job also played a key role for it, by leading the team in a market driven way.

            I think Job's post is not permanent always and he may replace by some other efficient peoples either by today or tomorrow. In such a situation, I don’t know why market sector is so much worried about his health condition, in terms of business.  Of course we are very much scared about his medical situation with a humanitarian concern and wish him a speedy recovery.

    10. tender vittles
      January 20, 2011

      First let me say that we wish Steve Jobs the best of luck in his medical challenges that he is facing and look forward to seeing his triumphant return to Apple.

      Here's the thing, Jobs returned to Apple in 1997. Hwe was ousted in 1985 in a board room take over. The yo yo they left in charge when he left essentially had no idea what he was doing or what Apple was all about. He worked it like any other business. “Enhancing shareholder value”. WHile important, this does create market segments, design products or entice people to buy those products. The company's stock price and overall decline showed the wisdom of that adventure.

      While Jobs was gone he started Next. The the OS in that machine forms the underpinnings of the company's product line today in iOS4. THen he started this little company called Pixar which is the most successful computer generation imagery company on the planet. He came back to Apple and got back to work. In the 13+ years since his return Apple has hit several homeruns. Not just into the stands. But right out of the park. The core of the company at this point is strong. They have smart people working there who understand the basis of the company.

      The DNA of Apple has been established. The vision is not just Jobs'. Apple will go on without Steve if that is how it turns out. But I believe that as long as they can stay focused on making the best products on th planet, innovating and creating new market segments and intelligent market shaping…..they will succeed.

      Now if they can just keep the MBA crowd away from the controls.


    11. stochastic excursion
      January 21, 2011

      Here's a case in point where it pays to be prudent with investments in high-profile companies.  Apple's value as a company is driven by a lot of factors, not least of which is that it was a start-up on the ground floor as PC's were first being made. 

      This kind of stable value, though, has little bearing on whether you can make money buying and selling Apple stock.  Unknowables, such as the health of the person responsible for recent successful product development initiatives, drive these kinds of growth and cutbacks in the near term.

      Here's a disclosure: spectacular growth is usually short-lived.  If you have a little money to throw away there's no harm in jumping on the bandwagon.  Then again, I could think of some other investment opportunities that might be worth your while…

    12. Eldredge
      January 24, 2011

      If the management team at Apple is worth their salt, they would have recognized during Jobs last absence that they need to build their innovative expertise. Hopefully, they have accomplished that goal.

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