Are High Expectations Apple's Biggest Challenge?

by: Larry Dignan June 04, 2008 | about stocks: AAPL    

Larry Dignan

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Apple (AAPL) has notched another milestone in its iPhone international expansion by inking a deal with Softbank Mobile to bring the device to Japan “later this year.”

In a statement Softbank Mobile said:

SOFTBANK MOBILE Corp. today announced it has signed an agreement with Apple to bring the iPhone to Japan later this year.

For those keeping score at home Apple has nearly every country lined up except for China and the terse announcements come almost weekly. Sure Softbank Mobile isn’t exactly NTT DoCoMo, but it’ll do. Now let’s increase those iPhone unit shipment targets–again. Apple’s target is 10 million iPhones in 2008, but Piper Jaffray predicts more than 12 million. Oppenheimer estimates Apple will beat 14 million.

In recent days, Wall Street analysts have been trying to curtail expectations about Apple, its 3G iPhone prospects and what will be announced at the Worldwide Developer Forum on Monday during Steve Jobs’ keynote. But it’s too late. Expectations may already be out of control.

Here’s how the game works: Apple generates buzz, rumors swirl, bloggers chatter, Wall Street gets bullish and before you know it we’re expecting Jobs to not only launch a 3G iPhone, but cure cancer and the common cold too. When Jobs actually delivers another great sermon to the Apple faithful there’s a slight letdown. Why? Folks got too far ahead of themselves in anticipation of Apple’s keynote.

To wit: Bodoglife. com has odds on what Jobs will announce at WWDC. Be sure to take Jason O’Grady’s poll based off of the Bodoglife.com odds.

Ahead of Jobs’ big performance here’s what folks are expecting:

Mac OS X 10.6: The Unofficial Apple Weblog floats a rumor that developers will get a seed version of Mac OS X 10.6, a build that will be focused on security and stability. Given Apple’s penchant for massive patch days a little more stability and security could be warranted.

A MacTablet: Jason O’Grady says that Apple may announce a MacTablet in the fall. Could this little tablet be previewed at the developer forum?

An App Store: News.com reported that Jobs will unveil its App Store and a bevy of third party applications for the iPhone. This tidbit isn’t all that shocking given Jobs basically outlined the App Store timeline last time around.

A 3G iPhone is also expected (with more storage and a thin form factor). If Jobs doesn’t announce a 3G iPhone the world of Apple will fall of its axis. But it’s safe to say a 3G version is on deck. Tech Trader Daily captures some of the angst about these ever-increasing projections for the iPhone. Pacific Crest Andy Hargreaves says the iPhone unit projections have gotten out of hand. Why? Not all of these potential new subscribers abroad will want an iPhone. Good point, but the transition from phone to smartphone is well under way and the iPhone is likely to get people off of the fence faster.

Of course, Hargreaves isn’t too worried since he has a $225 price target on Apple shares. Turns out the biggest threat to Apple isn’t necessarily competition as much as lofty expectations. Can Jobs say something that will propel Apple shares past its previous high?

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This article has 21 comments:

  •  
    Jun 04 04:09 PM
    It's all BS anyways. They play Apple like a fiddle good news or not.
    Reply | Link to Comment
  •  
    Jun 04 04:16 PM
    Sell apple at its high? That depends...

    My take... 20smoney.com/2008/05/2.../
    Reply | Link to Comment
  •  
    Jun 04 04:20 PM
    I agree I have seen 25 articles about iPhone wish lists and now if they dont meet and beat all those then its no big deal. I guess we will just have to wait till they are collecting $10 a month x 20mil users ($1.4bil a year) in subscriber fees alone, and till the iphone has been out for 8 quarters and is fully hitting the accounting statements to see the stock price soar. But I guess that doesn't count what will happen when every country falls inlove with their iphone (85% very satisfied rating) and starts buying macs and ipods.
    Reply | Link to Comment
  •  
    Jun 04 04:30 PM
    Great article, I just bought AAPL shares yesterday at 187 and so hoping for a rise to $225 by the end of summer. I wrote about it more in my blog: www.savingtoinvest.com.... I hope the hype goes on past the announcement next week.
    Reply | Link to Comment
  •  
    Jun 04 05:19 PM
    nothing about me.com?
    Reply | Link to Comment
  •  
    Jun 04 05:23 PM
    I think this blog makes perfect sense. I am bullish and long on AAPL.
    Reply | Link to Comment
  •  
    Jun 04 06:41 PM
    It's a good article, but it makes no sense to say expectations are high. At least the stock price does not reflect lofty expectations. As a matter of fact, Apple is down over 2.7% over the past month. Apple hasn't gone up one iota on the news of new carrier agreements. The agreements started rolling at the beginning of May where Apple began its downward slide to the abyss.

    I've been watching Apple trade every day, and every day for the past month it has traded abnormally weak. Every chance it gets to move up, Apple is sold right into. Even on those big up days, RIMM, AMZN, and GOOG are each up higher than Apple. Take today for instance. The whole tech market is up, and Apple is down. It reminded me of a beaten down boxer who could get up. Every ounce of energy Apple had to move up was met with a blow of selling.

    So. I think its bullshit that people say that things are priced in when Apple hasn't moved on 3G news. Not one bit. Nothing has propelled Apple the past month. Oh ya. And before you even bring it up, Apple's run to the $180's was entirely due to its posting way better than expected numbers at earnings. They beat revenue estimates by $500 million!!! How often can be said for any other company on Wall Street. A $500 million beat is what caused the run to $180.

    It's my opinion that the iPhone hurts Apple's stock price more than it helps. Everyone thinks everything is priced in when good news comes out, but when "bad" news hits, the stock tanks. Thus, Apple does not get the benefit of the hype but gets all of the negatives of the supposed bad news. Case in point, the January iPhone controversy started by Toni Sacconaghi of Bernstein research. Apple tanked a good $30.00 on that non sense rumor. But when Apple signs carrier agreements for the whole month of may with about 40 countries around the world, the stock tanks 2.7% on the month. That's nice.
    Reply | Link to Comment
  •  
    Jun 04 08:46 PM
    Thank Eric Savitz for the Toni Sacconaghi debacle.
    Reply | Link to Comment
  •  
    Jun 04 09:18 PM
    So many good news lately and the stock doesn't move, buyers are waiting.. I wouldn't be surprised if the stock breaks the all time high after WWDC.
    Reply | Link to Comment
  •  
    Jun 04 10:10 PM
    Oh My Jobs! So what you are saying is the new iPhone will emit some sort of radiation that will stop cancer cells on its tracts by stopping their rapid growth cycles on the spot while at the same time downloading my email faster. wow.
    Reply | Link to Comment
  •  
    Jun 04 10:51 PM
    @ Andy Zak

    I fully agree with you. And if you are right in what you're implying, then we won't see much of a climb next week.

    It's a bit obvious that the stock has been played with and that there are a lot of enemies to the company, enemies with a lot of cash, enemies with a lot of influence.

    High or low stock price, I don't think they can stop Apple to make this a new computing revolution, this new handheld computing platform that they are launching next week is even more important to the world as the 1st one with the Macintosh with graphical user interface and mouse, later copied into windows by Microsoft, was.

    Even if AAPL won't climb up much due to lateral tactics or simply an absence of understanding of Apple overall move, it will innevitably be impacted with the revenue coming from the sales on the 700 million to 1.1 billion subscriber market that the iPhone is now going to be sold on.

    The market and its analysts haven't also realized that the iPhone expanding to so many countries directly reverts to Apple Inc. with its Macs and ecosystem expanding into those same areas, many of which it didn't sell anything at all or was all but unknown.

    So this international expansion is really big news and it's going to bring a huge impact on Apple's bottomline. The stock market can't see it now. It will see it when the piles of cash from those international sales start pouring in and Apple doubles its size.
    Reply | Link to Comment
  •  
    Jun 04 11:15 PM
    I have made some large coin on AAPL since it sank to the 120's. Expect some consolidation the first part of summer...but watch out once we get into August, September. AAPL should be flirting with the 200 mark by then with high volume as it sets up for the end of the year. Only a major credit card/bank financial crisis or 150 dollar plus oil will slow it down.
    Reply | Link to Comment
  •  
    Jun 04 11:18 PM
    One Quick Note: Be especially attentive to Eric Savitz's comments on AAPL. His predictions usually flesh out down the road.
    Reply | Link to Comment
  •  
    Jun 05 02:44 AM
    My two little daughters had about $130 each from birthday money, etc. in CD accounts. We switched them over to one share each of AAPL at $125. My dad said that it was an embarrassing trade - only buying two shares; however, now their shares are worth $185 each.

    Sure, with quick growth like Apple has been experiencing, some short-term volatility is somewhat unavoidable. Look at the long term. If I had bought 2,300 of AAPL at the end of 2001 instead of purchasing the computer that I purchased instead, I'd have 46,000 to pay off my education (not bad for a six-year investment).
    Reply | Link to Comment
  •  
    Jun 05 02:45 AM
    I am a huge Apple Fan. I own 1000 shares. I have bought and sold the stock a number of times.. only to wish I didn't sell it... as I wound up paying more money for less shares each and every time. I repurchased 500 shares at 200.. then, moments later I watched my hard earned money disappear...... BUT, this time... fighting EVERY SELL URGE IN MY BODY... I held tight. I even bought 500 more shares near the bottom. I dollar cost averaged my price buy price down to 165. Now I'm in the green..... MY POINT... NO ONE know anything. If everyone knew... we'd all be rich.. no one would lose... and everyone would be an expert..... BUT, the reality is that even the brightest minds in the business.... are only GUESSING. I was an advisor for Morgan Stanley... and the best trained advisors are like the best bookies. It's gambling with knowledge... But it's still gambling....and a hair from left field can send your investment south in a second or north in a nanosecond. No one knows anything. Andy Zaky is exactly right... the price of AAPL moves to idiocrity of meatballs.... even though that's not quite how he said it. Long Live APPLE!
    Reply | Link to Comment
  •  
    Jun 05 08:16 AM
    can some one explain why after the first quarter report card the stock went down when aapl beat all expectations---cause now i don't know what to expect when the topic is about new products
    Reply | Link to Comment
  •  
    Jun 05 08:54 AM
    Hey. Take 3 or 4 steps into your Apple position over 2 or 3 months. If you're watchful and committed, it will all turn out. Now, hold that position for the next 3 years (at least).

    This is the Age of Apple (and Google). The 90s were MSFT's. Apple is dominantly ascendant and, like Woods, Apple has incredible mental game and is determined to stay dominant.

    Apple is in a class of it's own in product innovation, marketing prowess, OS quality, OS security, webstore and product 'stickiness', customer service and support, and leadership excellence. What's not to likke?

    Look at the big picture. Buy into it. Wait. Smile!
    Reply | Link to Comment
  •  
    Jun 05 09:26 AM
    WHAT JOBS AND EVERYBODY ELSE IS FORGETTING IS THAT APPLE IS AND HAS TO BE AN INNOVATION COMPANY.

    THE COMPUTER AS WE KNOW IS DOOMED TO CHANGE. SOFTWARE AS WE KNOW IS DOOMED TO CHANGE. IS APPLE UP THERE WITH THIS? WHAT WILL HAPPEN AFTER STEVE? BALMER, THOUGH A REPLACEMENT FOR GATES, IS A VERY POOR REPLACEMENT. MSFT CEASED BEING AN INNOVATION COMPANY. WILL APPLE FOLLOW THE SAME PATH?
    WHY DID APPLE GO DOWN TO 182 RIGHT NOW BEFORE THE WWAPPLE CONFERENCE? IS THERE SOMETHING COOKING?

    APPLE'S FUTURE IS WITH ITS INNOVATIONS, EVEN BEATING NINTENDO. THEN ONLY IS THERE A FUTURE FOR APPLE AND US THE THE SHAREHOLDERS.
    Reply | Link to Comment
  •  
    Jun 05 11:02 AM
    I've seen so many doomsday predictions. They'll keep innovating and increasing retail locations,but unlike earlier days, they're sitting on a huge pile of cash and the world is finally awake to Apple products. It's a big world, folks, and the party has just started.
    Reply | Link to Comment
  •  
    Jun 05 11:26 AM
    Just give me average annual 25% return (double every 3 years) from $140 for 10 years and I will be quite happy.
    Reply | Link to Comment
  •  
    Jun 05 04:13 PM
    Ha! I heard a janitor tell another janitor "Get that apple stock. It only goes up. Imagine you get it and then in 1 month its triples. thats better than black-jack."
    Reply | Link to Comment
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