Apple being the most valued company in the world with a current market capitalization of more than $600 billion has tons and tons of research being written about it daily. While I could be all quantitative and give out figures like margins, revenues, growth rates etc., I have written a more qualitative note with reasoning why Apple makes a good short at these levels. While I am not sure of the timing, I think its a good level to short the stock. The primary reasons are:
a) Sell Side and Buy Side Heavily Long – Almost all sell side analysts and there are tons of them, who are bullish on the stock. Hundreds of hedge funds and mutual funds are also long on Apple. Of the 50 sell side ratings, over 90% of the analysts have rated it a Buy.
b) Competition – The competition in the technology industry is intense and can dramatically change the dynamics in a very short period of time. Look at how quickly companies like Palm, Motorola and others have been consolidated. There are numerous competitors of Apple that are continuously popping up in surprising places.
c) Peak Margins – The prices of competitive phones and tablets are much lower and their features are rapidly converging with Apple products. The recent launch of the Google tablet and acquisition of Motorola by Google indicates that the Apple-Google war is heating up. Apple will have to decrease the prices of its products eventually to compete with other products. It has mostly saturated the market for premium products.
d) Android is gaining marketshare rapidly in smartphones – Android is the most used smartphone operating system now and has gained marketshare rapidly. Being Free, is one of the most powerful competitive advantages it has.
e) Patent Battles with Samsung, Google, HTC are not going to help – Apple is fighting a lone battle against the numerous companies in the “Android group”. At best it can hope for a stalemate.
f) Valuation is rich – When measured in standard ratios like P/E and P/CF, Apple might not look expensive, but the stock is valued richly compared to normalized ratios.
g) Steve Jobs is no longer there – Almost everyone agrees that the current management does not measure up to Steve Jobs. Its difficult to see how Apple can continue to roll out blockbuster products like the iPod, iPhone and iPad without the genius of Jobs.
h) Size is an issue – The massive size of the company and all the ills it brings like bureaucracy etc. make it difficult for Apple to grow rapidly. The huge size of Apple makes it difficult for it to grow rapidly.
More Stuff to Read on Why to Short Apple
The number one smartphone brand in China turns out to be Samsung. The Korean giant maintained its overall leadership position in China, with a 17 percent market share, according to Canalys.
But it’s important to note that Samsung’s share in China declined in Q2, as volumes were flat. Meanwhile, several local vendors are closing the gap, according to the market research firm.
ZTE, Lenovo and Huawei – all based in China – were the second-, third- and fourth-place vendors, ahead of Apple, making up a third of the market, the report says.
The three Chinese vendors achieved growth of 171%, 2,665% and 252% year-on-year respectively. Collectively, domestic Chinese vendors shipped 25.6 million units, representing 60% of the market. By comparison, international vendors grew by a more modest 67% to 16.7 million units.
Apple cannot compete at lower price points
Li Xing, 35, lauding the Xiaomi phone’s signal capabilities at the launch event, said: “I preferred not to use Apple because I didn’t want my phone to be a luxury product, it’s just a phone.”
The MI2, which goes on sale in October at 1,999 yuan ($310), has a quad-core processor, 8 mega-pixel camera and a voice-assistant similar to Apple’s Siri.
“Other phones are just phones, but a Xiaomi phone is very human-friendly,” said Chen Zhen, 31.
Apple releases a single iPhone model a year at a price – around $800 – equivalent to about two months pay for an urban Chinese, who make up half of China’s 1.3 billion population. Analysts say the real growth in China is in cheaper smartphones where a wide variety of models at different prices appeal to first-time buyers.
“Apple isn’t going to rule China, simply because of the limited models they have and the price points they target,” said TZ Wong, an analyst with IDC. “Based on these two factors, we do not think Apple will be the No. 1 smartphone player in China.”
Apple’s smartphone business now generates more revenue than all of MSFT’s software businesses, compbined. Taking note of this, it is impossible not to consider Apple a smart phone/tablet company. Apple’s primary profit machine sales were off the charts. Apple is, from a revenue and profit perspective, essentially a smartphone company (subscribers). So, what happens when your primary product, revenue and earnings driver is banned from being sold? Crash???!!!
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