Apple Inc. (NASDAQ:AAPL) dropped 4.51% yesterday in a fall that put it below the $600 barrier it broke less than a month ago. The drop leaves the company opening at 580.13 today a number it has not seen since the middle of March. The company’s stock was on an historic meteroic rise in a year it opened at $411 but yesterday’s losses will cause much questioning of that increase and holders of the shares will be reassessing their investments.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
But since last week’s release by BITG Research cut its advice on Apple from Buy to Neutral as the analyst, Walter Piecyk, said that carriers may begin to stop subsidizing the iPhone at the levels they currently are. Much of Apple’s success in recent years has come from the company’s advantageous deals with carriers that allow it to sell phones to customers below manufacturing costs.
As upgrade rates increase in the smart phone sector it will be less profitable for carriers to subsidize phones in the same way and they will have no choice but to abandon such deals. Piecyk’s release says that is likely to happen later this year.
Because of that change the Analyst has dropped his forecast for the company’s iPhone sales to 27.5 million in the third quarter of this year. That would result in the company having an overshoot in revenue of $1 billion a drop that would leave the firm overvalued.
The analyst said that emerging market demand and an expansion in the countries where the iPhone is available would increase sales this quarter and take away the effect of the changes in subsidies.
If stricter upgrade rules from major carriers do effect the firm as Piecyk suggests they will it will be some time before the company’s investors readjust to the realities of an Apple share that may not go up forever.
The report has shaken the markets and it will be interesting to see what happens today. The company’s stock needs to readjust but for now the $600 barrier has to broken yet again by the company and it is all but certain that growth in the price will be stymied by yesterday’s growing pains.
Apple will announce its earnings for the the quarter ending in March later this month. The company will have to allay investor fears over yesterday’s fall.