Apple Loses 20 Percent of Its Value in Less Than Two Months

on Nov 8, 2012

Shares in Apple (NASDAQ:AAPL) lost 3.83 percent on Wednesday and fell to $558.00 reaching a five-month low. The stock now trades at 21 percent below September’s all-time high of $705.07 and has lost about $138 billion in market value since then.

Recent changes in management, slower earnings growth, unprecedented competition and a snarled iPhone 5 supply chain have battered investor confidence in the tech giant’s stock.
**Supply Constraints**
Yesterday Terry Gou, chairman of the iPhone manufacturing Foxconn Technology Group, said that its assembly plants are falling behind schedule. “It’s not easy to make the iPhones. We are falling short of meeting the huge demand,” Mr Gou commented as quoted by Reuters.

According to analysts, Apple is also struggling to make enough iPad minis as it sold almost 3 million devices in the first three days after the launch. “Similar to the iPhone 5 launch in September, we believe Apple is facing significant constraints for the iPad mini,” Barclays analysts said in a recent note to clients, while adding that they believe there is still “considerable demand” for the tablet.

**Senior Management Shuffle**
Many investors question CEO Tim Cook’s ability to keep innovation at the level it was when Steve Jobs was running the company. Others worry about talent loss with two senior executives recently dismissed from the company. Veteran mobile software chief Scott Forstall, a protégé of Jobs, was ousted last week in a surprising move seen by many as a mistake.

Apple also parted ways with John Browett, the famous “Tesco academy” graduate and former Dixons executive, allegedly because of his advocacy of changes to staffing, including cutting shift hours and putting a freeze on the hiring of new employees.
**Patent Loss**
Yesterday a federal jury in Texas found Apple guilty of infringing four patents belonging to VirnetX, a US internet security software company, when it introduced FaceTime application to iPads, iPhones and the iPod touch. The tech giant will have to pay $368.2 million (£230 million) to VirnetX despite its denial of infringing any patents: “The VirnetX technology, if used, is a small part of very large, complex products.” said Apple in a statement.

!m[Bearish Moods Push The Stock Down Amidst Concerns Over Supply, Management and Earnings](/uploads/story/745/thumbs/pic1_inline.png)Apple also lost a trademark case against a Mexican technology company called iFone but the Mexican court didn’t impose a ban on the sale of Apple products in the Central American country.
**Betting on Apple**
With its current share price Apple trades at 9.2 times its 2014 earnings forecast of $60.66 and below its average forward multiple of 12.1 times, as of September. The company registered earnings growth of 60 percent in 2010 and 83 percent in 2011 so the projected growth of 13 percent in the current year is somewhat disappointing. As Walter Piecyk, analyst at BTIG Research, points out, it is not logical to expect price-to-earnings multiple expansion when the earnings growth is slowing and competition is getting tougher.
In light of the sliding price some fund managers have said Apple is no longer considered a safe haven by investors. The Funds Growth Fund of America became one of the biggest mutual-fund sellers of Apple stock in the third quarter, dumping from its portfolio some 2.74 million shares or around 35 percent of its holdings.
Other funds remained bullish – ING Large Cap Growth Portfolio doubled its holdings of the stock to over 515,000 shares, while The Columbia Value and Restructuring Fund also increased substantially its slice of Apple to 225,530 shares. According to Thomson Reuters data, the single biggest mutual fund holder of Apple stock was the Fidelity Contrafund with 12.4 million shares.


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