Sorry!! The article you are trying to read is not available now.

The Real Story on Apple

Print comment Post Comments
The following is a sample report of Sean's TechStrat Report.
You will see a ton of views on Apple (NASDAQ: AAPL) in the coming hours and days and they will likely be either be completely irrationally bullish or bearish. The bears will say that this margin drop is a sign of things to come and that AAPL is set to drop massively as the competition from Google (NASDAQ; GOOG) and Microsoft (NASDAQ: MSFT) finally take a bigger chunk of the pie. The bulls will say that the AAPL report was the most massive sandbag of all time, the EPS won't even come close to the guide (which was pretty bad) that AAPL will continue to dominate in Tablets to the tune of 70-75% share, and that they will still sell the most of a single device in the smartphone category for years to come.

The real story is something in the middle of these camps. In other words, the extreme bulls and bears I feel have lost objectivity on the name.

I can go back years to my "iPad of my Eye" piece and still feel pretty good about my Tablet share predictions. Which is that other form factors will take share. We have seen GOOG's Android grow nicely in fits and bursts. I also think the Windows Tab's Tabtops camp will grab some solid sales and share into that third player category. And I do think the "new PC's" high powered Tabtops/convertibles will bring some growth back into the PC category, which could curtail some high end iPad sales. And here is a key point.

The iPad Mini is a bridge product for AAPL to allow them to maintain a lot of Tablet share while they maneuver another product in to compete with with the coming "all in one" devices. I'm sorry, but the MacBook Air isn't it. It is not Touchscreen and computer device rolled into one. This is going to be a critical product category and AAPL, for the first time in a long time, isn't leading innovation in a category. This is something I've heard from none of the bulls.

On the other hand, the iPad Mini is going to sell very well and the margins are still very good relative to what we see from the competition. Not a margin killing, innovation losing product that the bears are attacking them with.

Essentially, I see the AAPL that I've been describing for some time. A very strong, huge cash stock piled, very well valued company that is no longer leading on the innovation edge. This is an AAPL that can still be extremely powerful and has plenty of ammo to pivot and respond to competitors. And as written I do think it needs to. Thus, it's also not a stock that will likely be "the market leader". I'll say again that I think GOOG is very much leading in innovation and should be seeing better valuation expansion. Time will tell. I'd also put Fusion-IO (FIO) in that camp, but we will likely need to see general market fears ebb to really see a true value on a name like this.

Bottom line, AAPL is still doing very well. One of the biggest problems is that they can't make a key product fast enough and I bet they will likely see more demand than they can meet for iPad Mini's. The offset is they do need to respond with an Ultrabook killer. And lastly, if they do change the TV market with a market leading product, they will have that innovation edge once again. In the meantime, the revenue guide was very good, while the EPS was not. I think we will see AAPL come in with at least $1.25-1.75 above that EPS guide and remember this is still a company producing as much free cash per quarter as many other world leading companies produce in a year or two.

Thus, the answer is somewhere in the middle. The stock is going to be challenged to be "the market leader" and hit those extreme $990-1100 price targets (unless we see a TV hit), but I also don't see the "AAPL crashing to $450 or lower" or its the next RIMM argument. Too much cash and way too much product diversity and engineering R&D talent. Not to mention that in 3-4 quarters that $450 level might not be much more than 2X net cash.

The TechStrat Report by Sean Udall. Sean provides in-depth analysis, strategies and trades across the technology sector. Take a FREE 14 day trial.

Twitter: @UdallTechStrat