I believe this week's deep correction provides an excellent buying opportunity, assuming there are no "Black Swans" in Apple's near future. I'm not a huge fan of technical analysis, but I do like it for validating price points. I find the 100 day moving average (DMA) interesting on Apple. The price hasn't often approached it, but unlike the 200 DMA, we do see it get there every now and then. It also appears to be a good bouncing average, too. This morning's intraday low got within a few dollars of the 100 DMA (about $620), and this has often meant an Apple price bounce in the not-too-distant future. The only thing I would seriously use it for is validating a discount on recent highs--you can be assured you are getting Apple significantly cheaper than the recent trend price. Obviously, the price can blow right through it, too, so it can always get cheaper.
Click to enlargeAssuming we actually do have a good price, how does Apple's near future look, and what are the key potential drivers for record fundamentals, which will push earnings and prices higher? None is more important (or overlooked) than Cupertino's latest CPU, the A6.
The A6 and Why It Matters
One reason the A6 hasn't gotten much press is because the Iphone 5 has so many new features. LTE provides 10X performance in many cases on data. It is very light, and it has a much improved, though ignorantly maligned in my opinion, charging cord. Finally, the A6 doubles the phone's overall performance. Twice the performance is amazing when you consider it in context. The latest speculation puts the A6's performance in the same class as the best ARM processors, but with even better performance per watt. It is rumored to be on Samsung's 32nm process, which is roughly the same as Intel's Medfield. It can be hard to distinguish CPU specific improvements because the whole system affects performance, and Apple is very good at integrating the whole system. So, we don't yet know the exact capabilities of the A6, but as I stated, right now it appears to be about twice as fast as the A5 in CPU tasks, and about the same on graphics performance as the A5X in the early 2012 Ipad, but it is doing that at phone wattage (usually less than 1 watt). Quite a feat! Let's think about why for a minute. Computers typically jump 20-30% in performance at the same wattage on an annual basis. 25% compounded growth produces huge long term improvement, and investors understand this better than most. Apple has managed 100% on this CPU! That is at roughly the same wattage as the A5, in vivo, so to speak. You now understand why this is a big deal. Here is one of the parts of this article you want to take home: this processor, or a close relative, could be dropped into the current Ipad and we would have twice the performance with the same graphics capability; we would also have longer battery life! You may not think Apple cares that much about the engine running the car, but I think they do, and I think they are keenly aware of the potential threat from Windows 8 and Android based tablets, particularly W8 in the coming weeks. Usually, the bigger battery in the Ipad allows for using a higher clock speed on the same CPU in the phone, so we could see up to three times the performance of the current Ipad's chip, with a smaller jump in graphics speeds, if they elect to use about the same wattage.
Obviously, the question begs to be asked--when will Apple drop a variant into the Ipad? I think sooner, rather than later, and maybe much sooner. It is certainly possible that they could wait until next March, but I think Apple may have been telegraphing something with the choice of dropping the numbers on Ipads. That is what they do with Macbook Pros because they update the internals frequently. People simply identify Macbooks by month and year. I think there is more than a small chance Apple may introduce an updated Ipad in the near future. They could also wait, but the performance jump is inevitable. Here is the second big take home: Apple is singularly focused on maintaining its lead in the "post PC" tablet/pad realm, and the A6 appears as if it will put the Ipad ahead of all competitors for the foreseeable future (next three months and likely longer). This is a very fast breaking game, and another reason why I don't think they will wait until next March. The key is how Apple perceives the current threats. If they don't think Qualcomm's S4 provides a compelling performance advantage over the A5X, we may not see a new Ipad this month, but if they do, this could be one more thing at the outing of the "Mini."
Assuming a media event in the next couple of weeks, we could see an updated Ipad, a new Ipad "Mini," new Desktops, and a new Retina Macbook 13! This would effectively make Apple's entire lineup new in 2012, and especially attractive for the fourth quarter (Apple's first quarter). I don't believe we have ever seen this many new products come out of Apple at once, even if they delay the Ipad update. I believe it will drive a huge holiday quarter for Cupertino's favorite fruit. One thing we can expect is that Apple's A6 will put it at the head of the class in performance. There is one more "White Swan" we need to consider. Apple has also been rumored to be engaged with a revolutionary new touchscreen technology commercialized by Sharp. It is called indium gallium zinc oxide (IGZO), and has several key improvements. The biggest appears to be significantly lower power consumption. Apple could wait for this technology on the next Ipad update. It is also remotely possible that they could have already slipped it into an updated model along with the A6 and a lightning connector. I would call that worthy of Tim Cook's "doubling down" on secrecy comment. Needless to say that the combination would put Apple way ahead of all competitors until at least 2013, and likely much longer! It is also completely possible that Apple has no such plans. This article is intended as speculation for being ready to react to whatever Apple introduces.
Apple's lineup appears to be stronger than ever to me. This article shows some possibilities for where they are likely headed in the future. With the media event rumored to be soon, we can all listen intelligently, and we can know what Tim Cook is talking about, should he have a surprise or two coming. A new Ipad "Mini," along with updated desktops, and a retina Macbook 13 appear to be a lock in this quarter based on multiple and reliable Apple news sites, unless they have hit an unexpected snag. A new Ipad would be a surprise with a revolutionary jump in performance (at least doubled). If we also see a new Ipad with IGZO, it could propel Apple through the 700s like a Saturn 5 booster through the stratosphere! The A6 is now a known commodity, and, in my opinion it bodes very well for the new phone, and a new Ipad, whenever that arrives.
Disclosure: I am long AAPL.