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January 29, 2009

Apple Acting Better

Apple is now up about 10% this year and almost 20% from just before it reported its December quarter. I think there a few things at work and that the stock still has "all clear" for another 60 days. That means I think AAPL can be a market leader and outperform the market over that time frame.

First, the good December quarter and more importantly the acceptably weak guidance reminded investors that AAPL is operating quite well in a tough environment. It also provided downside support for estimates eliminating the risk, for now, that numbers keep tumbling. Second, the great quarter on an operating level was evidence that for awhile at least AAPL can survive and thrive without Steve Jobs. I understand and respect the Jobs risk in the shares but I also think the focus on Jobs led many investors to ignore a talented bench that has been responsible to the incredibly consistent operating performance. With Apple in a product extension mode as opposed to a new product platform mode, the timing is as good as it can be for Jobs to be away.

As for Jobs, I stand by my earlier assertion that form a trading perspective the risk is now more balanced. Most people I talk to do not expect Jobs to be back. If he does come back in June or announces he is on schedule to do so it puts the shorts at risk. That is a change from where we were in 2H08.

The quarter had some blemishes. Most concerning is that iPhone sales were light. Desktops were weak but that is less of a problem given an old product line and market shift to laptops. The issue of margins also still overhangs the 2009 outlook. For now, however, I think the coast is clear. These issues will matter again as get deeper into current quarter and worries arise about current demand trends. I don’t think those worries happen for a couple of months so Apple goes higher.

Posted by Steve Birenberg at January 29, 2009 09:37 AM in AAPL