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How Apple invites facile analysis

Conjecture and misunderstanding can trump actual knowledge when it comes to evaluating a company; the hubbub surrounding Apple is a case study.

March 22, 2013|Michael Hiltzik
  • Tech conjecture on Apple has been little more than myth-making. Above, iPads for sale in China.
Tech conjecture on Apple has been little more than myth-making. Above,… (Tomohiro Ohsumi, Bloomberg )

For those of us not directly invested in Apple, the stock's trajectory over the last six months has been a thrill ride to rival anything you'll find at Magic Mountain.

Since hitting an all-time peak of $705 in mid-September, the shares have been on a long slide, reaching $419 before recovering a bit to almost $462 last week. At the peak, learned Wall Street analysts were speculating about how high Apple could go and whether the sky really was the limit; at the current trough, they're all but proclaiming the end of the Apple era.

Here are the questions on everyone's lips: Who's right? And where does it go from here?

And here are the answers: I don't know. You don't know. Nobody on CNBC knows. And if they try to tell you they do know, run for the hills with your hand on your wallet.

What we can say, however, is that the sentiment and stock action related to Apple offer a perfect study in how conjecture and misunderstanding can trump actual knowledge when it comes to evaluating a company. When the company is as much the focus of worldwide attention and as uncommunicative about its own plans as Apple, the effect is even sharper.

The peculiar stock market action and the vacuum in information have combined to generate a wave of news articles and market reports suggesting that Apple has lost its zip and is running as fast as it can just to keep up with Samsung, the maker of its own line of popular smartphones. Yet the notion that Apple is "ceding its crown" (Reuters' words) in smartphones to Samsung or anyone else, however, is wrong or, at the very least, hopelessly premature.

I should stop here to declare my interests. I don't own Apple shares. My household is 100% Mac, including three MacBook Airs, but we're atypical Apple customers. None of our four smartphones is an iPhone. We don't own iPads or any other tablets (Kindles don't count); I'm still waiting for Apple to make the case that I need one. I've written about Apple in all its various incarnations since 1995. In that time I've read a lot of valid reporting about Apple, and a lot of hooey. The hooey usually gets more widely circulated.

A few notable points should be kept in mind when pondering Apple's stock market behavior. One is that the slide in its shares coincided with a period in which it became the most profitable company in the United States, and by no small margin. In the last quarter of 2012, Apple racked up more than $13 billion in net income. The next two names on the list were ExxonMobil and Chevron, oil companies that rise and fall with the price of crude. To find another industrial company you had to go to No. 4: Microsoft, which reported profit less than half of Apple's.

Over the longer haul, Apple's profit growth has been stupendous. In 2009 its bottom line was $5.7 billion, the following year $14 billion, and in 2011 it was $26 billion. You won't find a company Apple's size with a trajectory anything like that. Until the September 2012 stock peak, profit growth and the stock price moved in parallel, although profits grew rather faster than the shares.

Yet it's fair to say that on the way to the peak as well as to the trough, the punditry — indeed, even the purportedly "factual" reporting on Apple — has been little more than myth-making. Financial commentators need stories to tell or their audiences get jaded. The prevailing yarn about Apple through mid-September 2012 was that it was a juggernaut. Could do no wrong. Would eventually grow to consume the entire Earth and everything on it. Yet even stories of world domination begin to pale after time, so this one was duly succeeded by another: Apple knocked off its perch. Its best days were visible only in a rear-view mirror. No longer "cool."

One persistent variety of magical thinking confuses the real Steve Jobs with the haloed version that exists, if anywhere, only in Ashton Kutcher's publicity file. It's fashionable to think of Jobs as a visionary executive with an invariably "laser-like" focus on the user experience, who was never wrong, who would never have deigned to pick fights with Apple's lowly rivals, etc., etc.

The subtext of all these assertions is that Jobs' successor, Tim Cook, has done all these things so he must be failing. Myth-making requires a short memory: All these assertions about Jobs, and many more invoked as a reproach to Apple's present-day regime, are demonstrably wrong.

The main focus of the latest crop of facile but questionable Apple analyses is on the rise of Samsung, which last year shipped 216 million smartphones, including its high-end Galaxy models, compared with Apple's sales of only 136 million Apple iPhones. (The figures are from IDC Worldwide.) In the same vein, Google's Android operating system, which powers the Galaxy phones, widened its lead in market share over iPhone, capturing nearly 70% of the smartphone market in the fourth quarter of last year, according to the Gartner Group, compared with Apple's 21%.

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