Optimism on Apple turns to despair as bearish view prevails right now

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Despite reporting an 18% jump in revenue to $54.5 billion and net income of $13.1 billion for the period ending December 29th 2012, Apple sold off 10% in after hours trading on Nasdaq.

Investors love affair with Apple seems to be coming to an end despite the gigantic cash pile of $137 billion and huge revenue stream. Worries about commoditisation of the smart phone market, increasing competiton from Android phones and pressure on margins as the company invests in marketing its new products and in production capacity continues to weigh on sentiment – profit margin has dropped from 28.2% a year ago to 24% in the latest results.

The current quarter doesn’t look much rosier, with the company issuing an outlook for the March quarter below expectations – revenues of $41-43 billion, versus analyst estimates of $46 billion.

Apple was always about leading in consumer innovation and the the CEO Tim Cook badly needs a game changer to revitalise positive sentiment. The edge that Steve Jobs gave the company in turning the best ideas into the best products seems to have dissipated for now with the focus on minor upgrades such as Iphone 5 or entry into competitor spaces such as with the iPad Mini. They have effectively created the tablet and smart phone markets but cheaper competition from the likes of Samsung is starting to eat into market share.  There has been much talk about the company entering the TV market…but all is quiet for now.

Apple still is a great company, much loved by gadget geeks, so let’s see what it can pull out of the bag – a new TV, a blow out step up for iPhone 6? For now, a return to the $700 level may be some time away with the shares closing at $460 last night. The lesson, as ever, is when you seemingly get to the top, staying there is tough. Where the hedge funds were piling in during 2012, they seem to be selling off hard right now. On an earnings per share and cash balance basis, Apple is incredibly cheap, but just as sentiment drove it above $700, panic may drive it down to silly levels. Since Apple is unlikely to be dead in the water, I’m looking at picking up some shares as the sell off takes hold, may not be such a bad idea.

Contrarian Investor UK

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