Apple's A Short In Light Of Sales Data

Piper Jaffray was out yesterday afternoon with comments on Apple (NASDAQ:AAPL) after NPD released its monthly sales tracking data:

The firm notes that analysis of iPod NPD unit data for the months of Jan & Feb leads them to expect an iPod range of 10m-11m for the Mar-07 quarter (PJ model calls for 10.3m iPods and they believe Street consensus is ~10.9m). After the first month of March quarter data (January), they had been pointing to a range of 11m-12m units. Data for the month of February, however, fell slightly from January, for both Apple and the market overall, which is inconsistent with what they have seen in previous years from January to February.

While iPod units fell slightly m/m in February, this downtick was in line with the overall MP3 player market. iPod market share was unchanged from January to February at ~70%.

Piper says they believe investors should supplement these data points with other information. It is also important to note that international iPods are not captured in this data, international had a material positive impact on iPod units in the December quarter. Maintains Outperform and $124 tgt.

Notablecalls: The call hit around noon and looking at yesterday's chart one can certainly spot the damage it did to the stock price. Must say this is something I have been suspecting for quite some time. The upcoming iPhone is hurting iPod sales. Not to mention the fact almost everyone already has an iPod. I think some pretty sizable short positions were put on following Piper's call yesterday and while there will be some bounces, AAPL's a short here.

UPDATE: Couple of more comments today on Apple:

- Prudential completed a tear-down analysis of the Apple iTV, which was released into the North American market last week.

The iTV looks like a scaled down PC. Intel's Crofton MPU (looks like a Dothan) and Calistoga chipset drive the device, along with NVidia's GE Force Go 7300 GPU. Broadcom's 802.11n WLAN chipset is in the version theypurchased, as is Realtek's Audio Codec and Fast Ethernet LAN controller.

On the memory side, Nanya and Samsung are the largest suppliers of DRAM, while Toshiba supplies a 40GB HDD. Other components are from Linear Tech (analog), Marvell (HDD SoC), International Rectifier (FETs), Cypress (Clock Chip and flash controller), Intersil (CPU voltage regulator), and Texas Instruments (analog and HDD motor controller).

While the Apple iTV is a high-visibility design win, they do not expect it to change the economic fortunes for most of its suppliers. PEG's Senior IT Hardware analyst, Jesse Tortora, who covers Apple, is forecasting only 800,000 and 1.8 million units to be shipped in 2007 and 2008, respectively.

- Morgan Stanley comments on PCs saying unit demand rebounded in February after a meaningful slowdown in January due to consumers waiting for Vista loaded PCs until late January. Total U.S. PC unit growth rebounded to a healthy 23% YoY in February, in-line with December 2006 growth. AAPL is the only vendor that appears unscathed by the Vista transition. Continued Mac momentum and strong double-digit iPod growth in the Q give them confidence that AAPL will beat expectations in the March Q.

AAPL 2-day:

AAPL 1-yr:

Comments

[Julian Ivan...:]

Oh yeah, short AAPL because iPod sales are slightly lower than the higher-than-consensus figure PJ originally had, for one month. Geez... get a grip. What about Mac sales? What about the fact that the iPod still dominates all the charts? What about the new aTV? There's no evidence of loss of market share to other players, which you'd expect if there was a slowdown in iPod sales. AAPL still stands to grow earnings some 30-40% this year, yet prices in a mere 20%.
Notable calls makes another un-noteworthy call on AAPL, yet again. Notable calls last said "short AAPL" at about $85. Some call that was.

2007 Mar 29 08:11 AM

[Al Willis:]

Shorting AAPL? Yeah, good luck with that. Do you know how long we've been hearing that everyone that wants an iPod already has one?

2007 Mar 29 08:21 AM

[Macbth:]

Maybe iPods sales are down slightly because the consumer is waiting for the iPhone.
When was the last time someone made $$ on shorting Apple? Never? – maybe in the 20th century

2007 Mar 29 08:28 AM

[Julian Ivan...:]

Mac sales ahead of estimates. Still want to short AAPL because they may have sold 500k-1m fewer iPods than someone thought?

Apple Inc.-AAPL MAC sales tracking ahead of estimate through 2 months-OP@PACS
----------------------...
Thu Mar 29 08:45:21 2007 EDT
Pacific Crest notes that NPD data shows Mac sales growing 5x the market growth rate in February, ahead of their estimate. They note iPods sales are tracking in line with their Q2 estimate.
----------------------...

2007 Mar 29 08:51 AM

[Julian Ivan...:]

"Everyone who wants a mobile phone already has one. Nobody is going to buy phones any more." - do you ever hear that?
No.
Do you hear: "everyone who wants a car already has one. Nobody is going to be cars any more?"
No.
So why would you say it about iPods?
Dumb.

2007 Mar 29 09:15 AM

[East Coast:]

Hey hey, Tommo UK is back on the Mac articles...just when we thought the apple fanboy core would be toned down

2007 Mar 29 10:57 AM

[East Coast:]

People made money shorting apple at the beginning of 2006. A simple look at a chart is all you need.

2007 Mar 29 10:59 AM

[Malkiel:]

LOL, Boneheaded short selling and frantic short covering seem to have been a big driver in stock prices during the second half of 06. I say, short away! Short selling is how nature redistributes wealth from greedy people who aren't smart enough to have deserved it in the first place back to the patient value-investing masses...

2007 Mar 29 11:23 AM

[David Lentz:]

Fellas!

Let the clueless drive the price of AAPL down by noting a possible lightness in sales of one of their four or five (Mac, iPod, software, AppleTV, iPhone) major product lines while ignoring completely all the others.

It's a BUYING opportunity! Earnings move stock prices when they arrive as upside surprises. (Admittedly, they work even better at moving the stock when arriving as downside surprises)

I have never understood how "analysts" can evaluate a company like GE, which has a vast array of product lines, and yet cannot grasp that Apple does more than sell iPods.

2007 Mar 29 11:52 AM

[Tom B:]

I bought a bunch a while ago at $18-ish. I bought a bunch more, recently, at $85. IMHO, "up" is now good. In my view, a doubling from current levels in the next twelve months would be very achievable, even with a recession brewing.

2007 Mar 29 01:09 PM

[David Jackson:]

To the previous commenters on this article (Tommo UK, East Coast, Malkiel, David Lenz),

We'd like to remind you of the ground rules for commenting on Seeking Alpha: discuss the article and criticise it, but please <b>don't insult or criticise the author or other commenters</b>. Criticise ideas, not people.

There's a good reason for this. The comments on Seeking Alpha add huge value due to the intelligence and efforts of you and the other commenters. If we let emotions drag comments to the level of insults, Seeking Alpha will become like a certain well-known message board that is dominated by mud-slinging.

We care enough about this to enforce this policy by suspending comment rights of offenders.

Best,
The SA Editors

2007 Mar 29 05:23 PM

[Lars Hyman:]

I bought Apple at $ 20 - 3 years ago..
When it doubled, I sold.Obviously too soon
I bought again: now I will just
keep the stock until I can realize my dream:
retiring in Bermuda...

Lars

2007 Mar 29 07:05 PM

[David Lentz:]

There's a sound logical reason to short AAPL over a very brief period of time -- due to mutual funds and institutions loading up on it as we approach the end of the quarter. Good old-fashioned "portfolio trimming". There's a reasonable bet that these parties will, after bulking up on AAPL (and other booming stocks) to make their portfolios look better than they are, will unload these overstuffed positions in April.

So I wouldn't be surprised to see AAPL decline into the high 80's early in April -- but it has nothing to do with a decline in sales of any product, or with the actual sales and earnings of the company.

And this potential decline might be very short-lived, especially if Apple's earnings blow past Wall Street "estimates" once again, and Apple announces a plethora of long-awaited hardware at the NAB (National Association of Broadcasters) at about the same time.

And then there's the seasonal "sell in May and go away" pattern of stock price weakness, afflicting more or less all stocks, that is likely to present additional buying opportunities during the summer doldrums.

But to portray AAPL as a "short" due to a 9% downward adjustment in projected iPod sales for the current quarter, is just silly. There is no evidence -- nor does Piper Jaffray claim that there is -- that Apple is losing market share in iPods, or that its overall business is slowing in any material way. Piper Jaffray maintains its 'outperform' rating on Apple shares with a $124 price target.

Here's a link to a more complete report on what Piper Jaffray said in their statement about their reduction in projected iPod sale.

Additionally, the 800,000 AppleTV unit sales projected by Jesse Tortuga seems to be a bit light -- assuming the stories of the initial production run being sold out in 5 weeks (long before the first unit shipped) have some credence. One way that some credible data might be obtained here is to decode the serial number encoding and check the serial number on an AppleTV at any Apple store, which should provide some reasonable guidance toward actual sales volumes -- certainly better than by polling a set of retail outlets and making projections based on such unverifiable data. In any event, better numbers will be provided at the Q1 earnings conference call in April. In another reported statement from Piper Jaffray (who can be as wrong as the next guy), they expect AppleTV unit sales to amount to 2 million units in CY2007. 2 million is a bit more than 800,000. One of these (at least) is going to be wrong.

Finally, my apologies to anyone injured by my characterization of them as "clueless" for pitching AAPL as a short candidate.

My notion of a short candidate would be a company like DELL, which has genuine problems with cooking the books, rather than a company whose overall performance continues to improve, with no evidence that overall performance is either slowing or turning lower.

While stocks of booming companies do get ahead of themselves from time to time and are jolted back into line, these corrections are not usually seen as grounds for a short sale. Maybe day traders short stocks when they get ahead of themselves, but longer-term investors typically short stocks whose fortunes are seen as having turned south for a protracted period of time. A projected quarter's reduction in one product area of less than 10% from previous projections, with their market share of that product area being unchanged, does not seem to me to indicate any significant change in the fortunes of the company.

And given that the iPod market share was reported unchanged in the same Piper Jaffray report, I have difficulty seeing any evidence that the iPhone is hurting iPod sales, unless it is also hurting the sales of every other device in the MP3 player marketplace as well. In any event, even if this were taking place, these would only be deferred sales, not lost sales. Looking in the entrails of the data presented and claiming to see a short sale situation seems questionable to me at best, and suspicious at worst.

2007 Mar 30 11:17 AM

[David Lentz:]

Sorry -- my link tags didn't make it into my previous comment. Here they are:

Link to page on Piper Jaffray adjustment of projections -- superfluous confirmation of the info reported at the beginning of this article:
pcquote.com/module/art.../

Link to page presenting Piper Jaffray estimates on AppleTV CY 2007 unit sales:
www.macnn.com/articles.../

2007 Mar 30 11:23 AM