Well, actually on two blips.
The first is the blip—cost to investors about $6.3 billion on a $6.93 a share drop in Apple (AAPL) shares on July 13—created by research from Consumer Reports that argues that the iPhone4 dropped call issues are the result of a hardware problem.
The second—less visible in light of the furor caused by the Consumer Reports story—is a loss in market share for the iPhone in the three months that ended in May 2010. Research in Motion’s (RIMM) Blackberry was the leading smartphone in the period with a 41.7% share according to comScore. Apple’s market share fell to 24.4%, down from 25.4% in February. Google’s Android platform picked up 4 percentage points to a 13% share.
The cost to Apple of replacing iPhone4 phones, if the problem is a hardware issue, is about $100 million, Sterne Agee estimates. That seems like a small bite of Apple’s $13 billion to $15 billion quarterly revenue run rate
But a bigger problem than replacement costs is the effect that the bad publicity might have on sales just ahead of the back-to-school and holiday shopping seasons. Apple will need to scurry to get the problem resolved in that time frame, especially given the complexity of Apple’s out-sourced supply chain for the iPhone.
The drop in market share, on the other hand, is likely to fix itself.The best guess among Wall Street analysts and industry observes is that the drop in Apple’s market share in May was a direct result of potential iPhone buyers putting off purchases as they waited for the release of Apple’s new iPhone 4 models.
If market history repeats itself that dip will be followed by a surge of purchasing as the new models hit the stores.
francolargo, Ged, and all,
I made a mistake above: Apple will hold the news conference to address the iPhone 4 issue on Fri Jul 16, NOT Thu Jul 15.
francolargo and all,
Apple is holding a press conference later today 07/15 Thu 1 pm ET to address the iPhone 4 antenna issue. Wonder what the fix they announce will be?
Ged,
I think selling some AAPL to buy another promising stock is reasonable, but I’d say wait until Apple announces their fix later today (Jul 15) and get the market’s reaction. If Apple comes up with a good, cheap fix (not too hard to do), AAPL might take a strong up bounce and get you a good sell price. Sorry I don’t know enough about ARM Holdings to have an opinion on buying it at a high P/E.
While AAPL has hit a blip, the share price for ARM Holdings – which designs processors for iPad and iPhone, and for other vendors devices – is at a 12 month high. I’m considering selling some AAPL to finance the purchase of more ARM shares. I am aware of ARMs high P/E ratio, and would appreciate any insights the community has to offer
For perspective, not knowing about the sensitive spot on the metal surround, early bloggers and reviewers reported significant *increases* in AT&T signal ‘penetration’ with the new iPhone compared to version 3. So Kev’s idea of a band-aid fix (figuratively and literally?) seems plausible. Agreed, it has to be an ELEGANT band aid and work the first time! It’s all about image. …but behavior of antennas truly IS tricky, and the large plastic apple logo in many AAPL products with aluminum cases is supposedly for wireless signal reception. My Mac Pro, without such a plastic ‘window’, has spotty bluetooth performance 🙁
MSN today has a report of a survey about iPhone and Blackbarry. It said users overwhelmingly favor iPhone.
Disclosure: I own all stocks mentioned above.
Its trading in a pretty tight range right now. If you buy it, I would put a stop loss around 246.
Hmmmm…I bought an IPhone 3G from AT&T less than two months ago and love it but that’s because I can watch the stock market and surf the web most anywhere! 🙂
Ed & cfarrar… but the iPhone is not supposed to be used as a phone. It is an elegant piece of art.
All kidding aside, even if I could buy an iPhone (no AT&T wireless=noiPhone), I have a hard time with the data usage charges. When the iPhone comes to Verizon, I will be tempted, but probably will not jump b/c I can’t justify paying that much per month for a phone. Maybe Verizon will surprise me and have a reasonable data charge.
Full Disclosure: I own VZ and VOD.
EdMcGon is spot on. Even when used inside a protective rubber sleeve, ie, no finger contact with the antenna band, the iphone 4 suffers so many dropped calls as to be worthless as a phone.
Run26.2,
ROFL!!! That was classic snark! I love it!
Everyone else,
Back to the question of Apple. Just speaking for myself, I would never buy an iPhone, but not because of Apple. Rather, it is because of AT&T. I have an AT&T cell phone, as well as their DSL service. Neither one works as consistently as they should, but the cell phone is absolutely AWFUL! If AT&T can’t give me good coverage for a simple cell phone, why on earth would I think of getting a more expensive cell phone with them?
My view: AT&T will be the death of Apple, unless Apple can expand their providers.
I think that going into this coming Christmas or shortly after would be a good exit point for AAPL longs (including myself). A Verizon iPhone announcement should have occurred by then and caused a good up move for the stock. In addition, expectations for strong Holiday sales should add to the stock’s upward momentum through Dec 2010. Starting next year, though, I think the positive catalysts are going to be viewed as more minor compared to debuting a Verizon iPhone and a strong first Holiday season for iPad sales.
Meanwhile, in the short term, I do hope Apple quickly figures out a cost-effective fix for the antenna issue. Instead of a massive recall (which is extreme and I think costlier than it needs to be), a free transparent sticker with a nice Apple logo that covers the lower left corner ‘dead spot’ could be a good option for a fix. Whichever they think of, I do hope they test this fix thoroughly before pushing it out there – a mistake on the fix would be worse and could jeopardize the back-to-school sales as Jim pointed out.
How dare such a rag as Consumer Reports question Mr. Jobs? I mean it’s not like they took down all the threads on the Apple site that mentioned their research and *gasp* a potential problem. Oh wait, they did. Guess they have learned something from the Chinese.
Did they hire BP’s PR firm?
tivoboy,
I would time the long calls differently. I think you can count on a bump after earnings next week, so Aug. contracts. Plus, I think you can count on a bump in Jan. because by that time the VZ iPhone should have been announced (if not shipping). Meanwhile the iPhone/iPad OS and the iPad itself may be turning into the platform AAPL needed to revolutionize business applications that used to rely on distributed PC hardware. AAPL seems a stronger buy than ever… But if your play is options, careful entry is an absolute must – I’ve done well with AAPL options, and might play earnings next Tues. if AAPL dips under $250. In my probability analyses AAPL doesn’t really impress but RIMM remains a strong candidate for short plays.
I definitely think we’ll see LOWER numbers/pricing in the near term, but definitely still a long term buy. I’m more looking at Nov 300$ calls at this point.
I put the recall costs at 10% of Q3 earnings, which is NOTHING in the grand scheme of things for apple. JUST DO IT ALREADY!