MorningWord 8/24/16: Apple (AAPL) – Went to Spam

by Dan August 24, 2016 11:05 am • FREE ACCESS

By now you have probably read a handful of articles recapping what happened in financial markets a year ago today.  While we are on anniversaries, today also marks the 5 year anniversary of Tim Cook as CEO of Apple (AAPL).  There have been no shortage of discussions of Cook’s job at the helm, comparing and contrasting to his predecessor Steve Jobs. In many ways this is unfair to Cook. But an event a year ago today, when AAPL’s stock appeared to be ground zero for the stock market rout (AAPL opened down 10%, losing nearly $60 billion in market cap) was possibly a seminal moment for the CEO. Cook emailed CNBC’s Jim Cramer while he was on the air in an effort to calm investor fears. It was tweeted by Cramer’s co-cost Carl Quintanilla:


What’s interesting about this note was that it was not a stretch (with a little more than a month in their Sept quarter left and the expected release of the iPhone 6s in weeks) to go out on a limb and highlight current performance in China. But those massive triple digit year over year sales increases from a year ago (albeit from a low base) in China, are now double digit yoy and sequential declines, while the contribution to the company’s overall sales from China have decreased meaningfully from 25% in fQ2 to 21% in fQ3:

In fiscal Q4’15 (Sept qtr) sales in China were 24% of the total, down 5% sequentially, up 99% year/year, vs 22% for the whole company.

In fiscal Q1’16 (Dec qtr) sales in China were 24% of the total, up 47% sequentially, up only 14% year/year, vs 2% for the whole company.

In fiscal Q2’16 (Mar qtr) sales in China were 25% of the total, down 32% sequentially, down 26% year/year, vs down 13% year/year for the whole company.

In fiscal Q3’16 (June qtr) sales in China were 21% of the total, down 29% sequentially, down 33% year/year, vs down 15% year/year for the whole company.

As the financial press compares AAPL’s nearly 100% gains since Cook took over to the 100% gains of the S&P 500 (SPX), and the tech press considers innovation and health of product pipeline, investors should keep in mind what’s changed in the past year. If the stock opened down 10% during the next stock market rout (from what is basically the same level it did exactly a year ago), what would Tim Cook point to now to calm investors? 19% services growth in the quarter just reported? 15 million Watches sold? Return to single digit iPad growth?

Tim Cook may have set a dangerous precedent a year ago today. He’s taken over as a steward of a mobile empire (to be fair, one he helped create).  But the company has not created a meaningful product hit since Cook has been at the helm, and it seems that their “advancements” to existing products merely irks their fiercely loyal and patient installed base (see upcoming exclusion of the headphone jack to iPhone 7).

As I mentioned this Spring:

For the time being, what we mostly get from Apple are overproduced and under-delivering product launches (see their March iPhone SE & Watch band event, really??). They’re still trying to capture the magic of Jobs’ launches. But the big problem is that Apple’s last hit product, the iPad, came under Jobs, launched 6 years ago. Granted, since Cook became CEO in 2011, the company has doubled their sales from just over $100 billion. But that was Jobs’ $100 billion from his 10 year plan.

There is little doubt that AAPL’s bounce from the low $90s in late June broker the pattern of making a new lower low, holding at key technical support and breaking above important technical resistance that was the downtrend that had been in place since August of 2015. But the stock’s inability (for now) to break the pattern of lower lows may be viewed as troubling in the near term:

AAPL 1yr chart from Bloomberg
AAPL 1yr chart from Bloomberg

If the company is ever to catch investor magic again it needs an exciting new product or a detailed vision of the company’s next 10 years. And if we were to see another broad market sell-off I don’t think an email pointing to China growth is going to do the trick this time.