Lack Of Excitement Weighs On Apple (AAPL) Shares

Posted by jbrumley on November 11, 2015 9:27 AM

Apple (AAPL) Hitting a Rarely-Experienced Headwind

Apple (AAPL) shareholders are having a tough week so far, though for understandable reasons. The stock fell nearly 3% on Tuesday alone after a lethargic Monday session, largely spurred by concerns that the once red-hot iPhone 6s has seen a surprisingly sharp dropoff in demand. Fans and followers of AAPL might try to argue that the impeding launch of the iPad Pro (pre-orders start on Wednesday) could reignite the rally that began in October. But, a closer look at the iPad Pro's projections don't exactly bolster the bullish case for Apple.

Tuesday's drop from AAPL was driven by reports from Credit Suisse that Apple had lowered orders for iPhone 6s components by as much as 10%. Based in Credit Suisse's channel checks, analyst Kulbinder Garcha lowered the firm's 2016 sales estimate for the smartphone from 242 million units to only 222 million, which in turn meant Credit Suisse lowered its 2016 earnings outlook for Apple  by 6%.

AAPL Long-Term Weekly Chart
aapl weekly long-term chart

Though well received so far by those who've looked closely at the specs on the upcoming iPad Pro, it's becoming increasingly clear that the device is taking aim at a relatively small market that isn't going to be a game-changer for the company.

While several higher-end tablets have been treated as alternatives to the modern PC (or Mac), up until the iPad Pro, no tablet truly did the job without asking users to sacrifice something... speed, functionality, versatility, something. The iPad Pro, however, asks Mac fans to sacrifice nothing. Even the price tag of around $1000 each (depending on the tablet in question) is in the same basic price range as a decent Mac or similar PC.

Not even Apple, however, is feeling hyper-confident about the wide marketability of the iPad Pro, though. Channel checks for it suggest Apple is only ordering 2.5 million units for 2015.

It can order more in 2016, and will, if need be. It's an enormous risk to not have product ready to sell and ship, though, as that narrow window gives competing devices  like the new Microsoft (MSFT) Surface Pro 4 time to become an alternative to the iPad Pro. It also gives competitors time to copy exactly what makes consumers ga-ga over the iPad Pro, if demand does indeed exceed supply.

Apple knows all of this, however, and the fact that it still only ordered less than three million units of the iPad Pro right in front of the always-busy holiday shopping season speaks volumes about the company's expectations for the device. 

It's the first time in a long time Apple hasn't had a truly great, buzz-creating product to hang its hat on; even the relatively new Apple Watch and even-newer Apple TV are lukewarm products headed into the busy shopping season. For a stock that relies heavily on the market's mood though (whether or not that mood is fair), that's a problem.