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Is Apple Rotting From The Core?

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Is Apple Rotting From The Core?
 
 

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Is Apple Rotting From The Core?

Apple released results on April 23: The company announced higher dividends, increasing stock buybacks from $60 billion to $90 billion, a 7 for 1 stock split, and higher earnings. The stock shot upward by $44 per share to about $570. Sounds great? Well, on Sept. 21, 2012 it was $705. Therefore, Apple stock is still in a bear market.

For me, the announcements were actually bearish. Instead of technological innovation, the CEO has now learned “financial innovation.” I look below the surface…

Apple had nine consecutive quarters from 2010-2012 of more than 50% profit growth, all under Steve Jobs.

Under the current CEO:

  • Profit growth is now single digit at best, and 7.1% last quarter
  • Apple’s revenue growth: 13.4% in 2013, while industry growth was almost 3 times higher at 38%
  • Revenue growth of iPad:  12.9% in 2013, while tablet industry growth was 4 times higher at 51.6%
  • iPad sales growth last quarter:  down 16% from the previous year
  • iPod sales growth last quarter:  down 51% from the previous year
  • Every product released under the current CEO has been disappointing. Offering different colored iPhones is not a technological advance. Finally, this year Apple was going to have a larger phone that the market is yearning for. That has now been delayed until next year. Apple fans must have lots of patience while all the features are available elsewhere…at lower prices.

This week’s positives in the Apple report are an illusion:

Earnings per Share (EPS): +16%. But total company earnings are only up 7.1%. Why the difference? Because of the share “buybacks” there are fewer shares outstanding.

The CEO has discovered ‘financial engineering’: keep on buying back the stock, reduce the shares outstanding, and the EPS will rise even if actual company earnings do not. Is that why the firm will now increase “buybacks” from $60 billion to an amazing $90 billion?

The 7:1 stock split doesn’t increase value by one dollar. It’s very unusual, the first time in over 30 years. It just gives more individuals the chance to buy and get trapped in this stock.

The Wall Street Apple bulls have talked the past two years about all the great products the company may have in the future. The problem: none of these have come out or have even been announced. Imaginary products produce zero sales.

Even the larger iPhone, which everyone thought was a sure thing this summer, now won’t appear until next year. The competition offers every size imaginable.

Here is my conclusion. You can draw your own. I never try to convince anyone of my view.

  • The stock is DEAD MONEY. It’s been a loser since Sept. 21, 2012
  • The corporate graveyard is littered with companies that went from ‘dominance’ to ‘irrelevance’
  • Apple is rapidly dropping behind the industry in market share and innovation
  • The much vaunted ECOSYSTEM is starting to crumble. The Apple groupies have run out of patience waiting for new features, larger sizes and lower prices…everything the competition has.
  • Apple has 85,000 employees, almost twice as many as Google. It has no manufacturing. What do all these people do? The company has only three primary product lines now:  iPhones, iPads and computers. Each one is very vulnerable to stronger, faster and cheaper competition
  • The Wall Street bulls continue to cite long-term growth of Apple, i.e. the past seven years. They apparently haven’t read the obituaries.

One week after Apple made its top on September 21, 2012 I wrote that I would not buy the stock. I have written several articles since that time with the same message. Today I say that with such numbers, I still see no reason to buy the stock and have many better places to put my money.

I have used what I call the “BD Trend Theorem” which says: “A trend will continue until an external force acts to change it.” Currently, the trend is one of continuing disappointments.

The external force will have to be a change in leadership.

I assume that several large hedge funds, which have significant positions in the stock, will recognize what is said above and take this rally as an opportunity to sell.

Disclosure: I do not own Apple.

Also on Forbes:

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