Today we have a perfect example of why Steve Jobs hates bloggers. Do you really believe that the iPhone 5 release will be delayed until the fall, at which time it will be released alongside an iPad 3? Seriously? You think Apple (AAPL) is ready to freeze the iPhone market for three months and cannibalize sales of the iPad 2?
When it comes to Apple news, there is no gatekeeper, no filter and no editor-in-chief demanding reliable sources. It’s a bunch of conjecture supported by vague sources supposedly coming from Apple (yeah, right!) or some unconfirmed (and uncomfirmable!) Chinese supplier. We’ve seen it before and we’ll see it again.
Unfortunately, this wild west of a blogosphere leaves stocks like Apple vulnerable to irrational price swings based on false reports. We all know that Apple trades according to the calendar just as much as it trades according to fundamentals, so any information related to product release dates is capable of moving the stock.
Before we decide what to do about this latest rumor, let's take a moment to distinguish what we know and what we don’t know; then we can figure out how our Apple investment strategy should adapt.
What We Know
Back on February 18, when Apple was trading at $360, a rumor was generated from analysts at Yuanta Securities with alleged supply chain contacts that the iPad 2 would be delayed until June. At that time, Apple stock was ready for a technical correction, and it used the rumor to aggressively sell off. Over the course of two trading days, the stock sold off $20. The rumor was so widely reported that investors were shocked when Apple announced a March event and even more shocked when Jobs (who bloggers had declared had six weeks to live) appeared to announce that the iPad would hit stores on the 10th of the month.
Obviously, that rumor proved to be a joke -- but the dramatic price movement in Apple stock was no laughing matter. When a stock is ready to technically sell off, it will find a reason ... and that false iPad report was too conveniently leaked at the opportune time. It reeked of hedge fund involvement. The proof was in the volatile price action of February 22.
We also know that Apple has never delayed an iPhone release; we know that the WWDC is on schedule for early June; and we know that the quarterly earnings reported in October would pummel the stock if Apple doesn’t have a new iPhone to sell in July, August, and September. A delay of this nature would freeze the retail market, as potential iPhone buyers would wait until October for the new model. Year over year comparisons dictate the Apple calendar. The ramifications of the company veering off course are enormous.
What We Don't Know
The iPhone 5 delay rumors began with a TechCrunch report suggesting that Apple would not unveil its newest iOS in April but would instead release it this fall, with a major revamp that includes cloud-based services. The report also stated that iPad 3 would be released alongside the iPhone 5 this fall. Then, on the heels of the TechCrunch report, Apple officially announced the dates for the 2011 WWDC along with the following statement from VP Phil Schiller:
At this year's conference we are going to unveil the future of iOS and Mac OS. If you are an iOS or Mac OS X software developer, this is the event that you do not want to miss.
Bloggers quickly extrapolated that statement to infer that the TechCrunch rumor was legit, in spite of the fact that last year Apple unveiled iOS4 in April and did so again, with expanded details, at the 2010 WWDC in June. Even though Apple would never mention the iPhone 5 release this early, bloggers are still willing to speculate that no mention of new hardware means that the WWDC is turning into a software-only event.
This isn't all. Bloggers are also speculating about a tweet sent by Schiller on March 13 that mentioned the white iPhone was coming this spring (spring officially ends on June 20). They see this as more evidence that the iPhone 5 isn’t arriving until the fall, as they assume that Schiller was referring to the white iPhone 4, not a white iPhone 5 for a June release. Some are even taking this madness a step further and speculating that iPhone 5 will be delayed until 2012.
And, lest I forget, the latest rumor running through the blogosphere is the typical supply chain story: Sources from the Chinese supply chain say that Apple has not ordered components for iPhone 5, which means the earliest iPhone 5 could launch is late September/early October. It amazes me that with all the supply chain rumors we've heard over the years, Apple has somehow managed to release four different versions of the iPhone on time.
Adapting Our Investment Strategy
The first question you might ask is: "Why does any of this even matter? Apple fundamentals will remain robust no matter when the iPhone 5 is released." While this is true, it is also naive.
As I mentioned earlier, Apple trades according to the calendar just as much as it trades according to its fundamentals. Hedge funds seek to limit the window of time they are at risk in owning any particular stock. They backtest all sorts of catalysts under various market circumstances to determine when the price action is favorable. The last thing a good hedge fund manager wants to do is hold Apple all year long, as such a strategy turns them into a sitting duck at risk of huge losses. In today’s era of volatility and globalization, not many managers can afford to become a "buy and hold" sitting duck.
My job is to alert you to the big money action and help you to profit from it. In order to do this, we have to be completely in tune with the Apple calendar.
Apple’s calm price action over the last few days would indicate that these iPhone 5 rumors did not originate among the hedge funds. If the hedge funds wanted to blast Apple, the stock would be down $20. Although Apple has underperformed the broad market, it was able to withstand the pressure of the iPhone 5 rumor to finish Tuesday in positive territory. $3 to $5 selloffs are typical during this March/April run; anything more than that would have us concerned. Every hedge fund on earth knows that you want to own Apple off the March low; if those guys wanted to spread a false rumor, they would most likely do it when Apple is at a high and ready for a technical correction.
Instead, this latest round of Apple conjecture looks like it’s coming from some no-name bloggers looking to make a name for themselves. We anticipate this rumor is a false one, and we think Apple is going to exceed earnings expectations when it reports in April. iPad delay rumors worked in February because the stock needed a selloff; iPhone delay rumors shouldn’t work as well today, because the stock is still $15 below its high and is trending towards a breakout.
That kind of action is difficult to fight. We remain content to hold our Apple allocations.
Disclosure: I am long AAPL.