Apple (AAPL) has fallen about 9% since the October 17 high of $426. The sell-off mainly has to do with recent concerns about the company's production of iPhone and iPad devices. Analysts expect that production may have been cut by as much as 4 million devices. These cuts are most likely delays than outright cancellations. One of the key aspects of the delay is that it mainly has to do with supply constraints than a decrease in consumer demand. I would expect the delayed production to be released in Q1 next year.
Apple is currently providing investors with an opportunity to add to positions as the market overreacts to production concerns. Apple is still on track to sell 28 to 32 million iPhones this quarter compared to 25 million in the same quarter the previous year. I don't expect the delayed production to hurt the company in the long term. I suspect the selling mainly has to do with those investors that were looking to profit from the company's expected strong sales this holiday season. Projections for iPhone sales were originally projected at 32 to 36 million units. The recent sales projection change scared a lot of those short term investors into selling.
Here are some more points I like about the Apple story:
- Apple established a new all-time quarterly record with sales of 4.89 million Macs, exceeding the previous record set in the last December quarter by 760,000 Macs, representing a 26% increase over the year-ago quarter's results. Mac sales increased strongly in each of the company's operating segments led by Asia-Pacific with growth of 61% year-over-year.
- Apple set a new record with sales of 11.1 million iPads during the September quarter compared to 4.2 million in the year-ago quarter, an increase of 166%. The iPad 2 launched in 20 additional countries, ending the September quarter with distribution in a total of 90 countries. Recognized revenue from sales of iPad and iPad accessories during the quarter were $6.9 billion compared to $2.8 billion in the year-ago quarter, an increase of 146%.
- Revenue for the most recent quarter was $28.3 billion, representing year-over-year growth of 39%. The year-over-year increase was fueled primarily by strong growth in iPad, Mac and iPhone sales.
- Operating margin was $8.7 billion, representing 30.8% of revenue. Net income was $6.6 billion, increasing 54% year-over-year and translating to earnings per share of $7.05.
I'm bullish on Apple and don't expect this most recent quarter to hold the company back. Apple has a strong pipeline of products and will continue to see strong growth for the next couple years from the newly launched iPhone 4S. The company is running on all cylinders and don't see any reason for that to change just yet. I have to stick with the bullish trend and view pullbacks as opportunities to buy. I view a purchase near the $360 area as an attractive spot to start a position, the $360 area is in the lower part of the sideways range. Apple shares have been in a sideways consolidation since early August.