Macworld fallout: Shares sink, analyst sounds warning
Several analysts rushed out overnight updates after Apple's surprise announcement Tuesday that Steve Jobs won't be delivering his usual Macworld keynote next month. (See here.)
But Yair Reiner at Oppenheimer & Co. did something we've never seen before.
Not only did he downgrade Apple (AAPL) to "perform," or neutral, but he withheld his 12 – 18 month price target for the stock — replacing it with a big NA — until he gets some questions answered.
"Six months have passed since Jobs appeared at the Apple Developers Conferences looking drawn and unwell," Reiner wrote in a note to clients entitled "One Scare Too Many." "It's past time for Apple to either disclose the state of his health or elaborate a viable plan for eventually transferring power. Until such time, we can no longer continue to recommend Apple as a long-term investment."
Reiner isn't the only one unnerved by the Jobs news. Investors sent Apple shares down nearly 7%, to $88.95 a share, in midday trading Wednesday.
Reiner acknowledges that there could be many reasons for Jobs to pull out of what has been, for the past 10 years, an annual event.
"Maybe he's not feeling well, or maybe he just has nothing to say. Whatever the reason, the unexpected announcement has underscored the greatest risk to Apple's long-term success — its dependence on Jobs' health and its apparent lack of a succession plan."
"It's not that I have any inside knowledge," he told Fortune. "The problem is the absence of any sense of what happens when he leaves."
"In that context, I don't know how I can continue to recommend the stock on a long-term basis."
Why is everyone over-reacting to the MacWorld announcement?
Don't people remember that 2009 is the 25th anniversary of the Mac??? Would you care to place a large wager that the anniversary will be the actual time of any big announcements?????
Just as Ken C said, Steve Jobs does not take orders from so-called analysts, probably because the first four letters describes their behavior.
Since Apple has a nice hoard of cash, and no debt, they can easily ignore mere analysts. How much debt does Riener have? What, no comment?
Regarding Jobs' medical condition, the man is over 50, and all people over 50 have the physical ailments that it takes way longer to rest up from physical activity than it did when they were in their 20s. Jobs' surgery has removed a lot of his body's physical strength so he has to manage his time much more carefully. Perhaps now long trips require more stops for stretches, jet lag requires more time for adjustment. And there may be a problem for him making sure medical attention is adequate for his needs, so far from home and medical professionals familiar with his medical history.
Regarding a succession plan, Apple probably has one. I figure that Jobs is well aware he could be disabled or killed by an idiot running a red light. Living in a large city, I seen red-light runners at about 5% of the intersections, and I mean the ones that sail through 5 or more seconds after the light turns red.
I sincerely wish that Steve Jobs is healthy and OK.
However, I cant fail to notice that just like any religious movement, the members of Apple can not comprehend the mortality of their messiah. Instead, they pick on the messengers, they find their own Judases, etc. And above akk, they keep the mantra "Steve is irreplaceable".
As I always say, people who go to Mac from PC are said (by Applehead bloggers) to have "converted"…
I do hope that Steve Jobs is fine.
In making the announcement of Apple's intent to scale back on trade shows, and oh by the way, Steve Jobs won't be giving the Keynote at Macworld 2009, Apple spokesman, Steve Dowling said, "We have lots of ways to reach customers. Trade shows are a minor part of that."
Is there any wonder why the Public Relations business is held in such low esteem ?
Ah, excuse me, Apple PR Flak, but this isn't just any trade show with Biff somebody giving the usual "Hi, how are ya'" spiel, it's Steve Jobs at Macworld, and the Keynote address literally heard around the world.
If this is to be the last round up, Trade Show-wise for Apple, fine, but this sort of Public Relations foot in mouth move is disturbing when it comes from a business so attuned to the customer and fan base and how best to present itself.
Yair Reiner is clearly looking to top the Biggest Ass of an Analyst In The World™ list.
"One scare too many"
"We can no longer continue to recommend Apple as a long-term investment"
"[ Apple's ] apparent lack of a succession plan"
“The problem is the absence of any sense of what happens when he leaves.”
"I don’t know how I can continue to recommend the stock on a long-term basis.”
Wow–I've never before seen such a concentration of cluless and/or malicious statements from an analyst. You're the best, Yair. You go, girl…
"But Yair Reiner at Oppenheimer & Co. did something we’ve never seen before."
If Reiner and Oppenheimer are not successful at pushing Steve Jobs into "disclosing all" perhaps some of their clients will move to firms that can see past a simple announcement
I'm always amused about how an analyst's absence of knowledge about Apple's succession plan is turned by that analyst into Apple's "lack of a succession plan".
Publicly stated succession plans are horrible ideas in most cases.
A company is typically better served by allowing the CEO's underlings to fight a Darwinian ordeal to determine who is the best. In the meantime, the company gets all of their best efforts.
Once you anoint someone as the successor, the company will almost certainly lose candidates #2 through #n who'll head off to greener pastures.
reinharden
Let's not forget that Mr Jobs is a Pancreatic Cancer patient (not the virtually lethal one, but still a major killer). As a result, he had a "Whipple Procedure" done to him, commonly described as a living autopsy which involves the removal of the distal segment of the stomach; the first and second portions of the duodenum; the head of the pancreas; the common bile duct; and the gallbladder. Most of his internal GI organs have been removed. He is literally a walking shell with profound nutritional and absorption problems. This, coupled with his risk of cancer recurrence, is why all investors should be concerned.
Jobs is Apple. That being said, he is just one part of the company and it's cutting edge products.
Whatever the state of Job's health, Macworld was allot of fun but not needed with this huge growing company. Think iPhone in China. Things will move forward and Apple will grow-Jobs or no Jobs!
Whatever the spin is, the one thing is proven – Steve Jobs is irreplaceable. If he will not be able to stay – the company will have very hard time after the current line of products become obsolete. In this industry it can be less then 5 years.
Oh, wow! Isn't it hilarious how the sensitive, pouting, feather shirt Apple fan-atics soil their nappies at any hint of Apple/Job's morbidity/mortality. One would have to be a brain dead investor NOT to be rational, synoptic, and coherent about possible risks to Apple's ongoing success particularly with reference to significant new product lines and some well documented schedule of governing succession. Clean your pants, fan-atics, and mind your manners.
I've reported this person and Mr. Reiner to the SEC. I suggest others do the same. I cannot believe his sort of innuendo should be tolerated. I hope there is nothing nefarious associated with it. Oppenheimer should be ashamed – they continue to disappoint.
“The problem is the absence of any sense of what happens when he leaves.”
What an idiot. Clearly without "one more thing", they will reverse their growing market share, stop selling iPods, the entire senior staff and board will resign – and they'll buy $25B worth of lottery tickets.
Is it really that hard to go to the Apple campus and look for Steve Jobs to see he is doing just fine? So what if he isn't making it to some PR events … people I know who work for Apple see him walking around the campus all the time and he appears to be just fine.
Steve Jobs decided to skip the Stevenote at MacWorld for the same reason there were a number of other presenters at new Macbook announcement this year – he's not going to run Apple forever. The public has to start associating successful Apple products with the rest of the successor team, or when his inevitable exit comes Apple stock will tumble like a drunken circus barker. Besides, Apple is making 100% the right decision.
Yair Reiner is an idiot.
Apple has always outperformed expectations and is one of our only GOOD companies in America that is still innovative and that makes a good product that people want.
It's people like him that are clueless and drive good stocks down because he has no idea how the company runs or works.
How about reporting on Microsoft and what a PoS operating system it is, how their management staff is completely out of touch with reality of what the consumer wants, etc instead of making pointless articles about Apple if it doesn't have Steve Jobs. Apple will be fine.
BLAH-BLAH-BLAH
Don't recommend Apple Mr Reiner. And those who listen to you will loose out on a company that will weather this economic crisis better than anyone else in tech.
And as to the health of Mr. Jobs, his medical history is none of your damn business. As to Apple's"apparent lack of a succession plan,” that too is company information that is best held private.
As for those of us with faith in Apple's abilities, hang in there. In the end the profits will speak for themselves and Reiner will be proved a pompous fool.
Gee, how about $25B, a healthy product line, marketshare growth and a competent staff? What's with these boneheads like Reiner!
Yair Reiner is bloated with self importance and should be removed from his job.
His tantrum will affect prices, which is his obvious goal, and he should get a smackdown from the SEC.
I am not the biggest Apple fan, but as a shareholder I am fine with this decision as it's always seemed odd to (potentially) delay high-end holiday purchases of Apple products because of the promise of new and improved products everyone assumes will be announced at MacWorld soon after…
Apple does so well with it's technology and products. But at the corporate end it seems like its one blunder after another, whether the stock options fiasco, unanswered issues re SJ's health, succession plan, change in plans for the keynote speech shortly before the event, press statements that lack clarity, if not credibility – it sure seems like a lot of unnecessary and avoidable confusion.
The sad thing is, it's Apple's shareholders that take the beating because of this stuff. Let's hope new products and a better economy in 2009 get the stock moving in the right direction again.
I am not the biggest Apple fan, but as a shareholder I am fine with this decision as it's always seemed odd to (potentially) delay high-end holiday purchases of Apple products because of the promise of new and improved products everyone assumes will be announced at MacWorld soon after…
Analysts never cease to amaze me — and it's always the incompetent ones – like the Oppenheimer analyst — that panic because they don't know how to do their job . . .
Steve Jobs is fine. Any analyst ought to be able to make a phone call or two and obtain real-time information — even if the word is only floating around the Apple campus in Cupertino — on the state of Jobs health. We make those kinds of calls all the time . . . What a dufus . . .
The panicking analysts are either truly incompetent or they're crooks. The inference you'll be able to draw as to this point should become clearer within the next day or so.
Add this to the "scare book"…
Apple makes $206 profit per iPhone.
I discovered this by isolating iPhone earnings within the financial statements, which has been virtually impossible…until now.
Let me preface this analysis by saying that I was only one cent off of Apple’s Q3 net earnings and 3 cents off of Q4 (when you take into account that I was still using 885m as the sharecount, not the 907m…I need to find out where to get the correct info next time, but the net was the same regardless).
Bragging Point: That puts my last two estimates, combined, closer than Andy Zacky’s by 33% (I’ve only been off by a combined 4 cents regarding earnings over the past two quarters vs Andy’s 6 cents). Don’t get me wrong, Andy has the best analysis on the street, but brag I must.
OK…on to how I got to $206 as the profit from each 3G iPhone in Q4.
In disclosing the additional income and profit that it could only include in the non GAAP figures (1.14B net GAAP, 2.44B net non GAAP), when one assumes this difference is primarily iPhone profit (Apple TV and iPhone Apps could be a contributor, but would still make only a percent or two difference among the figures I will outline below), one can manipulate the information provided to come darn close to figuring out the net for each iPhone we see walking down the street.
Given/Assumed:
1- iPhones sold in Q4 = 6.9m
2- 2.44B – 1.14B = 1.30B net iPhone profit not included in GAAP statement
Profit Recognition goes as follows:
July Sales: 1/8th of net profit of iPhones sold in July are recognized for the quarter
(recognized for July, August, September = 3 months of the 24 months recognition is spread over)
August Sales: Net/12
September Sales: Net/24
Here are a few sales scenarios, meant to shed light on how, based upon the 6.9m iPhones sold, there is a small range under which profit per iPhone falls. I show greater detail in the two scenarios in which the most and the least iPhones are recognized in full (this is not necessarily how they are accounted for on the balance sheet, but is an equivalent measure that makes visualization a bit easier than dealing with so many fractions of the two year recognition period) in order to show the range. The others come so close to .6m iPhones that I rounded to one decimal instead of extending to two.
Scenario 1
July: 2.9m sold = 362,500 iPhones net recognized in full (equivalent)
August: 2m sold = 166,667 iPhones net recognized
September: 2m sold = 83,333 iPhones net recognized
Total recognized = 612,500
Total unrecognized = 6.9m – 612,500 ~ 6.3m
Unrecognized net/unrecognized iPhone Sales = 1.3B/6.3m = $206.39
Scenario 2
July: 3.2m sold = 400,000 iPhones net recognized
August: 1.8m sold = 150,000 iPhones net recognized
September: 1.9m sold = 79,167 iPhones net recognized
Total recognized = 629,167
Total unrecognized = 6.27m (going out two decimals for highest unrecognized total for variance purposes)
Unrecognized net/unrecognized iPhone Sales (units) = 1.3B/6.27m = $207.34
Scenario 3
July: 2.4m sold = 300,000 iPhones net recognized
August: 2.3m sold = 191,667 iPhones net recognized
September: 2.2m sold = 91,667 iPhones net recognized
Total recognized = 583,334
Total unrecognized = 6.32m (going out two decimals for highest unrecognized total for variance purposes)
Unrecognized net/unrecognized iPhone Sales (units) = 1.3B/6.27m = $205.70
Scenario 4
July: 2.7m sold = 337,500 iPhones net recognized
August: 2.2m sold = 183,333 iPhones net recognized
September: 2.0m sold = 83,333 iPhones net recognized
Total recognized = 604,166
Total unrecognized = 6.3m
Unrecognized net/unrecognized iPhone Sales (units) = 1.3B/6.27m = $206.39
Scenario 5
July: 2.7m sold = 337,500 iPhones net recognized
August: 2.5m sold = 208,333 iPhones net recognized
September: 1.7m sold = 70,833 iPhones net recognized
Total recognized = 616,666
Total unrecognized = 6.3m
Unrecognized net/unrecognized iPhone Sales (units) = 1.3B/6.27m = $206.39
Given these scenarios, one can determine the iPhone net profit recognized is likely no less than 570,000 and no greater than 640,000 for the quarter. Therefore, the unrecognized iPhones should range from 6.26m – 6.33m.
The most iPhones that could possibly be recognized would be .125 (3 months in quarter / 24 months in recognition period) x 6.9m iPhones, which is 862,000, and would require all iPhones to have been sold in July, which didn’t happen. The least that could have been recognized would be 371,000 (1m were sold in first 3 days, as per Jobs’ statement). I don’t want to delve too much into statistics, but to fall out of the 570,000 to 640,000 range of recognized iPhones would be improbable, assuming the iPhones were recognized according in the full month in which they were sold and not to the day.
This results in a net profit range of $205.37 to $207.67. This can vary depending upon expenditures related to the iPhone, future decreases or increases in component costs, dollar exchange rates, etc., but at least represents the snapshot on October 1st, 2008.
Therefore, $206 net profit per iPhone is a good…no, VERY good estimate. I look forward to some good constructive criticism, and some good bashing
J.R.F
Disclaimer: Long too much AAPL