Apple: Expecting Short-Term Weakness

Apple (AAPL), once a must have stock in any portfolio, is now the latest company to begin showing some sings of serious near-term weakness. Their latest quarter, all things considered, can only be considered lackluster at best. On the bottom line, the company earned $1.19/share, well above analyst expectations of $1.07/share. (See conference call transcript.)

The problems, however, began with Apple’s forecasts into the next year. Apple stated that margins would fall from the current 34.8% to 31.5% in the next quarter. As if that wasn’t enough, the company said it would see gross margins of about 30% in 2009. These figures are all well below what analysts had been predicting into the next few years and the stock has reacted appropriately. Steve Jobs’ current health is an entirely separate matter.

This latest earnings contribution from Apple just goes to show that in a recession, very few companies can continue on business as usual. With that being said, we expect Apple to see some immediate short-term weakness. Let’s take a closer look at the chart:

Apple is currently testing what has been very strong technical support at that $160 area. We believe, however, that it is only a matter of time before this support area is lost. The stock has already lost support at the 200 day moving average and is currently in the midst of a three-month downtrend.  

The picture looks even more precarious when we look at a chart of the NASDAQ:

The NASDAQ just recently bounced off of technical support at that 2200 area up to its current standing at 2280. The NASDAQ, however, is currently overbought and with that 200 day moving average already headed south, the picture looks quite gloomy indeed. Poor earnings from tech heavyweights Google, Microsoft, and Intel lead us to believe that the NASDAQ will again test that 2200 support area. We believe that this technical support level will fail and that tech will continue to see weakness throughout the rest of 2008. 

And yes, we believe Apple will be there too.

Disclosures: none

Comments

[BeenWatching]

What a joke !!! Sorry but Apple will skyrocket. Nice try but no cigar. We're not buying your bull but we are bullish and we're not selling so that you can buy low. We're called long-term investors. Get used to it.

[Appleshuttle]

Lackluster?? Are you kidding me? Earnings grew superbly despite Apple
deferring much of its lucrative iphone earnings over the next two years
instead of when it is earned through sales.

If you had done your homework you'd know that Apple always guides
low on both earnings and margins including this past "lackluster" quarter where it beat its margin guidance by several points and its earnings guidance by over 26%. If it does have lower margins going forward, it will be because they have introduced new products with
lower margins and will add to earnings as a new category.

Since when is growing their core business(the mac) at several times
the growth of PC's and having a record June quarter considered lackluster? Do you consider the sales of the new iphone lackluster?
Should the lines for the new iphone be 10 hours long instead of 5 hours 2 weeks after introduction before you consider it robust?

The next time you value Apple look at its cash on hand, its low PE vs.
the growth its had each quarter for the past few years and is likely to have in the future and ditch your meaningless vodoo charts and using
Apples guidance to determine value..when that guidance has been extremely conservative for every quarter for years now.

[dr who]

andy i have only one thing to tell you: stay out of the sun buddy.
as to your article, there isn't one valid point to start from. the whole piece lacks import, but one final thought....

if you are one of the millions of apple's new customers, thank you for your contribution to earnings. if you still lust over an apple product while using a competitor's junk collection of circuitry, then i understand your frequent use of the concept of 'low', 'lost' and 'weak' technical support

[taojones]

the choice of words from pundits always causes trouble if you don't see where the silver tongued devil is sending you if Colon Powell had called the baggy of baking soda and the crappy picture of a truck an "exhibit" instead of "evidence" we woild not be stuck in the briar patch right now. When a record quarter and lines of people at your outlets for weeks is "lacluster" i begin to think your keyboard must be a PC piece of junk and the b and l keys are sticking cause i see "Blockbuster"... here

[Mike M]

Andy, you are an idiot !!

[Jared]

You certainly bring out the best in fanboys, Andy. LOL!

I hope you're right. I would love to buy shares at $120 or cheaper.

[mrtaxx]

Apparently the writer like many others didn't read or listen to Apples conference call or read their financials. I've read similar articles from just about every article written on Apple for this quarter, that Apple had a bad quarter. Apple had a great quarter, it beat almost all analysts estimates handily. Apple beat on all metrics of income and units sold, and sold more iPods and Mac's then just about any analyst estimated and had their best quarter in their history, again. Why does Seeking-Alpha let such inaccurate articles be written. On sales they beat on earnings they beat by 11%, their margins were down a little which is to be expected from a company that continually innovates, then again what's wrong with almost 35% margins.

Where they missed was that they guided lower on the NEXT quarters analysts estimates probably because of costs for R&D, but this next quarters miss had NOTHING to do with the current quarter just reported. Learn how to read conference calls and financials before writing incorrect articles. Perhaps the writer has an alterior motive.

[tom1234]

aapl --sandbags forecasts --all the lemmings will agree --aapl also sandbags reported earnings --the wall street lemmings must know this ---so what are you basing this article on ? artificial reportings !!!

[tuskagee]

"Their latest quarter, all things considered, can only be considered lackluster at best..."

huh?

[taojones]

perhaps we should not dignify Andy's idiocy with our attention.

[.crazylegs..]

Andy, ever heard of the elasticity of demand? perhaps they sense a HUGE opportunity to grab mkt share while 1. Vista flounders and 2. microsoft won't deliver another OS until 2010. SO maybe they will lower prices and sacrifice margins for a huge increase in volume. This makes perfect sense given the large number of clues that were given on the conference call. It also makes perfect sense that this quarter will be weak (relatively speaking, of course, still up 25% YOY) while they "transition" to this new strategy.

[.crazylegs..]

Guys, give this kid a break, it's his opinion, which I believe is wrong, and all reasonable and rational economic thought would lead one to the opposite conclusion from him, BUT - from his BIO:

At twenty years of age, Andy has much on the road ahead of him. Currently, in college, he is in pursuit of his stockbroker’s license with a goal of a full time career in the securities industry. He currently works as a licensed financial representative at the Northwestern Mutual Financial Network.

[lau921]

Sorry, but you are sooo full of CRAP!!! Get a new job!!!!

[digivision]

Lackluster.. mhh..

when did you start following Apple a day before the earnings??
but damn I hope you're right, you can't never have enough Apple shares when they are on sale

[Rawky]

decreased forward margins + MUCH higher volume = increasing profits + increasing marketshare

(wait until you see what Apple is working on)

[BS Detector]

Mumbo-jumbo.

[mollytjm]

so, this article was written on a Dell, right? still using Vista? have you seen the lines of people outside Apple stores?

well, the bigger news is the line of developers wanting to work with Apple.. why? because they see the jammed stores of people buying everything Apple. they see the awards for excellence, design, innovation, and tech support and they want to be part of something great that's happening.
this is a long term, value stock that has made $ for it's investors and will do so again.

[Jon T]

The internet echo chamber working to full effect hear.

All these twats who mindlessly repeat what they hear.

Apple has a record quarter, offers sensible guidance demonstrating good growth (to be handsomely beaten as normal) and people think it's all weakness? Mind numbing.

[Jon T]

OK I'm not an idiot too. I know the difference between here and hear!

[rd4sndk]

At best the Apple should not have suggested 10% lower margins without backing that up with expected higher volumes. Hedge funds love this type of disperity which is fodder for shorting the stock. It's apparent that, longs are not selling which leads me to the conclusion that there are a lot of short sellers out there. Irroneously they link the lower GM to the economy. What a idiot thing to do, given that we're most likely moving out of a recession and by early next year we'll see signs of economic improvement. The greatest threat to the economy is oil which is used in almost every aspect of the US economy. It alone is probably 50% of the current economic down turn. But Oil prices are down 20% the past 2 weeks and falling even further. Demand destruction is accellarating and supply is increasing. There's no place for oil to go but down. This entire contrived oil imbalance has finally ran its coarse; eventually the truth always win. Fortunately for us (unlike the oil barons) the future for oil prices is lower given the shift in America and other western countries will to become energy independent. The Saudi's are probably shaking in thier sandles. In an ironic since, the hedge funds may have done America a good think by given focus to the huge 700Billion of cash leaving US soil for foreign countries. The light is on this little hidden win fall and the exterminator is cranking up the gas can.

Apple's problems is not the economy and the earnings results from Apple proves it. Forward guidance from Apple is worthless other than providing some insight into the direction of new product releases. Any one that suggest otherwise is just providing cover for hedge fund shananigans.

[Partners inGrime]

"...begin showing some sings of serious near-term weakness."

The only singing will be Apple all the way to the bank.

[ragz88]

People like Andy shouldn't be given this kind of power. Worthless commentary only brings Seeking Alpha down. Cut him from the line up.

Andy needs to go change jobs because the last thing we need in this world is another worthless analyst giving his even more worthless opinion.

[Brewer]

Lackluster? Bzzzzzzzzzzzzzzzt! Guess again! It was the highest quarter in their HISTORY!

"The problem began" uh, what? This was not expected? Give up and go back to work on your joke book.

Next iProduct will be great, I'll be it's hear by September.

[XamaX]

Come on, guys, he might not have a clue about Apple but he seems clued up in regards to TA.

And looking at MACD plus Nasdaq it seems we might be in for a downfall. It wouldn't be that suprising since we're in the deadest period of the year.

If I have learned something, given the Bear + summertime market conditions, we should only see a major for Apple past mid-August - just go look at same time last year and you'll see what I mean.

So, if it doesn't cross 162 resistance it'll probably be dragged down by the Evil Empyre to its next support so that it hits the bottom and starts its big fast climb back to 200 maximing the funds and 'smart' investors profits.

Please don't just buy and irredutably sit on your beloved AAPL shares, you can make money on the way down as much as up, that's the way the stock market works. I know, I lost a bundle in Jan! Still, I think it was not in vain for I may have learned from it...

Sell high, buy low, find the best timing to go in and get out and you that love Apple more than anybody will make a boat load of money from its ups and downs while still being LONG (but not dumb). Don't let the heartless SOBs that don't give a rat's S about Apple make all the money! You deserve it better - and then you'll be able to buy the best toys Apple makes.

Written on an iPhone 3G :D

[M2]

Andy,

You should have more market experience and knowledge before you start posting your opinions on a site such as Seeking Alpha. It is the PRUDENT thing to do (you should already know this). It's one thing to have your own personal blogging site, but it's another when the site is highly visible.

Not all readers of this site are market savvy and make take your opinion as if it's coming from someone who has decades worth of experience.

How long have you been trading? have you worked in the industry? The only way to gain market knowledge is time and a few hard knocks. Then you'll realize if you have what it takes to make and manage money.

[spaceage]

Man, you guys are hard on this guy.

Andy--I would submit to you that support is at $146, not $160s. We tested that level last week the day after earnings, and it was established in mid-April (and one could argue setup with the gap down day in Jan). I do think we will retest that level before heading higher, mainly due to overall poor market conditions and partly due to seasonal weakness for tech/aapl.

Also, for all the bashers out there--there is an issue with slowing growth RATE of earnings. The fact they beat their sandbagged estimates for the quarter is a lot less significant than the fact that the year over year growth in earnings was only about 30%, which is a significant slowing from recent qtrs. If this keeps up, it will be difficult to hold the forward PEs we've been seeing in this stock. Long lines in stores and all the other "feel good" carping means nothing if the company can't grow earnings at a rate commensurate with the PE they've been graced with.

[Infiniteloop]

Sorry Andy, but you need to refresh your Econ 101. Demand Elasticity and right-side shifts in the demand curve will offset lower margins. If demand grows 25-50% YOY but margins are cut only 10% what is the end result?....... Earnings (Profit). Not to mention eventual Economies of Scale reducing costs over time driving margins higher, not lower.

And I am at a complete loss to see how AAPL had a poor quarter, as I have been a CFO for 10 years now and know great Q's when I see them. Thousands of companies would kill to have AAPL's Brand, margins, revenue, and earnings.

Try not to let the media do your thinking for you and trust in your education. The media tends to have ulterior motives in their reporting and will always look for the negatives in everything. They also lack the financial education to understand what they just reported on. That's why they are journalists and not CFO's.

[macglenn]

Spaceage, This quarter we will not see much revenue from Apple's iPhone leg due to deferred accounting. Peter Oppenheimer guided at 1.00 per share for Q4 2008, what he did not say, was, that is the number for the iPhone division's deferred revenue! ;-)

I estimate 6 million units this Qtr times 200 bucks in profit equals 1.2 billion in pretax, and i am assuming Apple is making at the very minimum $200 per unit in subsidization from any and all vendors. It will be very easy for Apple to earn a solid $1.00 per share in deferred revenue.

[Stock Fiend]

Wow, Monday doesnt seem to be the talkative day on this thread. Now I know what happens when you think your comment is the universal ultimatum - You get shit on. I'm glad to see that not everyone on this comment thread is a Seeking Alpha contributor, otherwise that would obliterate the integrity of the site. Everyone on this comment thread just needs to stick to what they are good at - Losing Money. In regards to Andy, keep it up.