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June 30, 2005
Holding Apple Despite Concerns
Apple shares have struggled for the last few months due to fears of slowing demand for iPods due to competition. Yesterday, those fears got some fuel when the supplier of flash memory drives for the the iPod Shuffle dramatically lowered its current quarter sales outlook. This has led investors to believe there may be too much inventory in the distribution channel. This news came on top of a negative article in Barron's over the weekend noting the iPod could face serious competition from music enabled cellphones.
I am holding AAPL depspte some anxiety. The comapny reports earnings on July 13th. I had been fearing that the quarter could not possibly live up to expectations given the bar was set so high. This is what happened last quarter. However, with the stock toward the bottom end of its recent range, I think the street may be able to find satisfaction in the numbers. Assuming iPod numbers are just inline, the tell will be sales of computers. Based on industry reports, I think Mac sales will be surperb and investors will finally transition from a music-centric veiw of Apple to a holisitc view of the entire company. If that happens, the shares offer considerable upside. I am willing to make that bet as of now.
Earlier this week, AAPL announced upgrades to the iPod line, incorporating color screens and podcasting (a form of internet radio broadcasts). I've already downloaded the new iTunes and checked out some podcasts. Not surprisingly, it is a smooth process with the podcast directory on iTunes being easy to use and having loads of content.
As mentioned above, I'm a nervous long on AAPL. I fear there is no way the quarter can satisfy the Street, but I think the company is very well positioned and the stock is not as expensive as folks think, with over $8 a share in cash to be on the books as of June 30.
Additionally, I think the Barron's article could be a sign of "group think" toward AAPL. Everyone is skeptical and waiting for the company to screw things up again. And, at least of late, the fears about iPod competition are starting to repeat themselves. Not a lot of new ground being broken in recent research and commentary.
Posted by Steve Birenberg at June 30, 2005 02:18 PM
