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What Happened to Apple?

Apple (APPL) opened nearly $9 lower taking the NASDAQ down 1% and the Dow Jones Industrial Average 40 points. What happened to Apple? Reuters reports how Apple and other tech stocks earned less than expected.

Wall Street declined in late morning trading on Wednesday, with the tech-heavy Nasdaq composite falling more than 1 percent after disappointing results from technology giants including Apple, the world’s largest publicly traded company.

Apple (AAPL.O) shares slumped as much as 6.7 percent to $121.99, a day after the iPhone maker’s revenue forecast for the fourth quarter fell below expectations.

The stock was the biggest drag on all three major indexes and contributed 40 points to the Dow’s overall decline.

Microsoft (MSFT.O) fell as much as 4 percent to $45.35 after reporting its biggest quarterly loss, as the company wrote down its Nokia phone business and demand fell for its Windows operating system.

Yahoo (YHOO.O) was down 1.4 percent at $39.18 after it forecast lower-than-expected revenue for the current quarter as it struggles to revive its core online advertising business.

What happened to Apple seems to be what happened to other tech stocks. Analysts expected bigger earnings and were disappointed. Microsoft was among the losers due to a write down on its purchases of the cell phone of Nokia. What happened to Apple, however, may continue to happen and the history of Microsoft is instructive.

Microsoft

Microsoft went public in April of 1986. It steadily grew and peaked at $60 (adjusted for prior and subsequent stock splits) in 1999. The stock has appreciated 600 fold at its peak prior to the dot com bubble collapse. It fell into the $20 range where it stayed for over a decade. Although it how trades in the $40 range Microsoft is done with its growth years. In fact, there are concerns that Microsoft will not be able to compete in the hand held device market with Google and Apple. The point is that Apple, and Google, have experienced phenomenal growth, like Microsoft, are perhaps due to level out and disappoint analysts. That, perhaps, is what happened to Apple. Apple may need to follow the example of Microsoft and remake itself to maintain its position. Seeking Alpha suggests that we buy Microsoft.

While the sell-side analysts are constantly obsessed with companies meeting quarterly targets, from a long-term perspective, Microsoft is doing everything it needs to do to position itself for future growth. Downsizing and restructuring its phone business is the proper course of action as is shifting focus toward the cloud.

As a result, I remain very bullish on Microsoft, and if anything, investors should use this drop as a buying opportunity.

What happened to Apple was that investors expected too much. This may become a recurring phenomenon and then Apple will need to reinvent itself, again.

Can They Sell Enough Watches?

Although Apple earnings missed expectations sales of the Apple watch were said to have exceeded company expectation although the company was not specific about the results. But Time offers and informed opinion about Apple watch sales.

Apple posted its third quarter earnings on Tuesday, and, as expected, it didn’t give any precise numbers regarding Apple Watch sales so far. It did, however, give us enough data to make a viable back-of-the-envelope guess.

In its latest earnings reports, Apple has broken out the Units Sold and Revenue Made for several different product categories: iPhone, iPad, Mac, “Services” (iTunes, AppleCare, Apple Pay, etc.) and “Other” (formerly Apple TV, iPod, etc). This time around – Apple’s first earnings report in a post-Watch world – Apple included the Apple Watch in “Other.” That hides the Apple Watch’s performance to some degree – but only a little.

A billion dollars in revenue is a good thing but does not make up for losses in other product lines. Nevertheless Apple has billions socked away and can weather any immediate storms. The question is how long can Apple keep growing when it already has the highest market cap?

What Happened to Apple? PPT





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