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Perhaps It Wasn't Such A Good Idea To Leave The Fate Of The Tech Bubble In The Hands Of Apple
Just before the last AAPL earnings call, we showed something extraordinary: all of the tech sector's growth in Q1 was in the hands of just one company, Apple.
In other words, take Apple away, and the entire thesis for why "the tech bubble is different this time", namely companies that have rising profits, falls apart.
* * *
Fast forward to this quarter, when AAPL just reported earnings that as its stock price indicates, were clearly not in the sweet spot of "priced to perfection" market expectations, driven by weaker than expected iPhone sales, a slowdown in China (which took place before its stock market crashed), a warning that the strong dollar is now impacting AAPL profitability as well, virtually no color on iWatch sales, and finally concerns about the company's guidance.
But the reason why the tech sector may suddenly be getting cold feet about pinning the entire second tech bubble on AAPL, and make no mistake it is a bubble...
... is that as Factset reported, Apple is expected to be the largest contributor to earnings growth for the Information Technology sector for Q2 2015. The blended earnings growth rate (combines actual results for companies that have reported and estimated results for companies yet to report) for the Information Technology sector is 0.2%.
Exclude Apple, and the sector would report a year-over-year decline in earnings of 6.0%.
Which is why the response to all those who say S&P earnings are not negative if you exclude energy, is that if you exclude tumbling energy earnings but also exclude AAPL, S&P earnings are once again negative.
Now since AAPL beat consensus EPS just barely, it meant that this is the 4th consecutive quarter that Apple has been the largest contributor to earnings growth for the Information Technology sector!
And here why both AAPL and the Nasdaq are swooning: as we reported last night, it is all about iPhone sales, and these disappointed.
What is driving Apple’s substantial contribution to earnings growth for the Information Technology sector in recent quarters? The iPhone product segment has reported revenue growth in excess of 50% in the previous two quarters, and is projected to report revenue growth of 51% in Q2 2015. However, year-over-year comparisons for iPhone sales become more challenging in Q4 2015. Unlike the first three quarters of the year, the exclusion of Apple from the Information Technology sector is not predicted to cause a substantial decline in year-over-year earnings growth for the sector in the fourth quarter.
The WSJ adds some more dramatic statistics:
Apple has a big impact on the overall market as well. Since the third quarter of 2011, Apple, for every single quarter, has comprised no less than 3% of the S&P 500's operating earnings, according to data from S&P Dow Jones Indices. It accounted for 2.87% of the index's operating earnings of $25.29 in September 2011, and has ranged higher since then. In the first quarter of 2015, it comprised 5.97% of the $25.81 operating profit. In the fourth quarter of 2014, it was 7.62% of the $26.75 profit.
Think of its this way. If all 500 of the companies in the index contributed an even amount, Apple's earnings would account for about 0.2% of the overall profit. On the contrary, Apple is by far the single biggest contributor to the index's earnings. The next largest contributor is J.P. Morgan, which is contributed about half of that, at 64 cents. For comparison sake, this is what other tech names are contributing: Microsoft Inc. (estimated): 52 cents, IBM: 42 cents, Google Inc.: 38 cents; Cisco Systems Inc. (estimated): 32 cents, Intel Corp.: 32 cents.
The S&P 500 is expected to see second-quarter profits contract by about 3.5% from a year ago, according to data from FactSet. If Apple weren't part of that, the contraction would be significantly larger. Given its market-cap weighting, its contribution to the index's overall earnings--currently estimated at $28.53--will work out to about $1.17.
If you subtracted that contribution, just to show how much Apple matters, the earnings contraction would widen out to about 6.7%.
Here is the most stunning chart showing just how reliant on AAPL not only the tech sector is but the entire S&P:
And this is where China comes in. As we showed yesterday, while China sales rose solidly Y/Y, Q3 was the weakest quarter of fiscal 2015.
Much of this may be due to the iPhone new release cycle, but suddenly the biggest question mark is how will the crashing Chinese stock market impact local consumer end-demand: this is something neither AAPL management, nor Wall Street analysts had factored into their EPS or iPhone sales forecasts.
As we already know, the bursting bubble, which Beijing and the PBOC are scrambling with every passing day to keep alive, has already impacted housing (see China Stock Rout "Rocks" Property Market: "Massive" Cancellations Expected). How likely is it that general spending and retail sales will also be hammered?
And furthermore, the modest miss in iPhone sales happened in a quarter in which China had not yet seen the bursting of its stock bubble: the true collapse happened in just the last 4 days of June and onward in July, i.e., AAPL's last quarter. How "immodest" would it have been had the crash happened in June, or May, or April?
Which means that suddenly not only are Apple phone sales, but also all the hopes of a positive earnings growth in the Tech sector, as well as overall EPS growth for the S&P, pegged on one thing: whether the Chinese consumer will continue buying Apple products at a time when trillions in market cap, i.e., "wealth effect" was wiped out.
We don't know the answer, and neither does anyone else, but we have a very distinct feeling that the tech bubble, which is now reliant almost exclusively on AAPL to keep the "this time it's different" theme alive, is suddenly not all that excited that as its foundation it has an AAPL stock whose fate in turn is dependent on how well a centrally-planning communist party halfway around the globe can keep its own bubble growing in what everyone now admits is a quasi-nationalized "stock market."
The answer, when revealed in about three months, should result in some impressive volatility.
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one bad apple don't spoil the whole bunch, girl.
well,unless......
Probably because you're all so blinded by your hatred of their gay, cockgobbling CEO! you Homophobes!!!
(sarc off)
I said it when Jobs announced that he was terminally ill, that was the end of Apple's reign. Without Jobs there is no guiding force in that company to keep it on track, and push that reality distortion field forward.
I also said give it 5 years and Apple will be essentially dead. Looks like I'm still on time with my call.
Apple would have been dead long ago without that idiotic gimmick of adding color to the outside of a computer
"Looks like I picked the wrong week..."
https://www.youtube.com/watch?v=VmW-ScmGRMA
Isaac Newton moment approaching rapidly.
All it takes is ONE BAD AAPL...
Apple Iphone meet Sony Walkman.
Perhaps we should just be patience, wait and WatchTM what happens
That gives me an idea for a Hollywood script.
edit: response to jenkinsLane
It is insane the amount of money that has been spent on the iPhone in the last couple years. You'd think it would slow down but not yet. Do people finance these phones? I just don't get it.
In most cases, it's considered renting the iphones rather than financing them -- because pretty much nobody keeps one longer than the two year term. And we all know what the smart money says about renting vs. owning...
I don't know if they are doing it already, but when (not if) the iPhone business starts to go south, they will probably just cook the books. As always 99.999999999% of stockholders will not find out until its an Enron/Worldcom-style loss.
iShit Happens.
FED must buy APPLES !
Apple has always relied on the coolness factor, but the real world is worrying more and more about just staying afloat. They are sitting on a mountain of cash, but avoiding the IRS kind of puts a crimp in their style. But not to worry. Christmas will save them as long as there's no weather......
Yeah...looking at your wrist to get the time of day is passe. Jobs would have figured that out over lunch. Little Timmah...just can't provide the insight...no mojo I guess.
I've commented on this recently, but I do research in the tech sector, and if you look at actual shipment data, Q1/Q2 of 2015 was actually a bigger collapse than Q4 2008/Q1 2009.
The saving grace has been gaming the data with cheap products (low prices, but you can maintain unit volumes) and higher prices on normal products (keeps revenues at a similar level). However if you look at historically consistent products (say conventional desktop PCs or even Apple's iPad, which has been around for 5 years) the collapse is beyond evident.
So its the new iLie.
Worked for Samsung, for a while.
Not to worry, Toshiba is doing Apple's accounting
Reviewing data is unfair...and UnAmerican.
Does it feeeeel right? Then everything is fine.
At this point in the cycle of our currency reality is the enemy. Only good news is allowed.
OMG is anyone else feel a very bad feeling about The English economy? Jacob just said that sales at our Amish furniture store have dried up and not many English tourists.
Something is wrong and I have a very bad feeling almost like I think some English will die during the next big crash.
Do you feel it? The feeling of English death?
Tim ain't no Steve....
Apple's CEO is a dud.
Buy S&P all-in now, the ladies are buying the whole thang
Apple crumble anyone?
Ho Li Fuc
iCrap never looked so good! BUY BUY BUY!
All true
But it is also true that AAPL is trading at a serious valuation discount to the SPX while paying a dividend similar to the SPX.
In other words this company who just posted year over year significant sales growth is trading as if sales and earning shrank. It is a relative bargain if sales remain flat. It is a steal if sales and earnings continue any climb at all.
Hysteria or euphoria? You and your capital can make your own decision.
That's because of the massive share buybacks.
If my daughter ran a lemonade stand with 4 shareholders and she borrowed money from me to buy out two of them, that would keep her earnings per share the same even if total sales plummeted by half.
But even a 6-yr-old is smart enough to realize that she now owes somebody for those shares.
That's what people say. But do the math. The buybacks roughly equal one good trading day of volume, and maybe 3-4% to returns. Per quarter
Tech has been disappointing for years, especially in the phone products. Who remembers Nokia, or Palm Pilot, or even Blackberry? Samsung is beginning to eclipse Apple across the board because their products are being perceived as more useful and relevant. Not a great loss if apple, facebook and google were to be replaced by USER friendly products rather than government friendly recording devices.
I think more and more foreign companies and some people want less and less USSA spyware/spy hardware from the En Es Aye. Why would a European or Asian company or any company take a chace on USSA spyware technology? All your secrets stolen in real time.
As the one old mobster in Casino said about "clipping" Stoney - "why take a chance?"
The NYTimes has a propaganda piece on Apple today....that was quick.
In Apple Watch Debut, Signs of a Familiar Path to Successhttp://www.nytimes.com/2015/07/23/technology/personaltech/in-apple-watch...?
it's just staggering how many iphones they sell quarter after quarter ... just who fuck are buying up that shit? it really wouldn't surprise me is aapl is pulling wmt and buying up their own shit and stashing them in warehouse somewhere in china to fabricate their sales numbers ... it's just mind boggling how chinese, making $100 per month, can buy up billions of dollars of fucking iphone when equally capable chinese made phones are available at fraction of cost.
Most men cannot afford them, but Senior Party Members will buy the latest one for each girl in their harem, and there are probably at least 100M "iPhone-worthy" women of negotiable affection in China.
To make matters even more prescient, one of these days the Chinese will have their own "Apple product" able to penetrate all markets at a fraction of Apple's bloated street price.
By comparison look at Fit Bit verses Xiaomi's substitute - same thing - one quarter the price.
And considering US colleges PREFER overseas students for all those EECS degrees and out of state tuition, it is only a matter of years before all the Millennial software engineers' careers are over at age 30 and consumer gear margins drive off with Uber to Airbnb.
If China ever orient itself to a low impact operating system to replace MS, then say goodbye to other other sectors too.
If you wear an I Watch to a job interview you are a shoe in, they usualy invite the head of Human Resources in half way through the interview just to look at your greatness.
Eskimos are claiming that baby seals club themselves if they see them with I watches.
Panties fall off women if they see you wearing one and instantly have three to ten minute orgasmic blow outs.
Wow, that's just amazing. Where can I get one? Is it compatible with my Android and Windows Phones? Hey, why did everyone leave the room?
the thing is - the iphone is still the best overall smartphone out there.
But sure, as Americans are apparently all selfishly "saving" or unselfishly trapped in their homes due to snow drifts, drifts which also took down their ISP.... there's less consuming, so less making of things to be consumed.
True all around.
Why pick on apple?
just makes ZH seem tone deaf re tech and tech stocks, imho...
Back in the day the stock to get into was car manufactors or energy producers, now phones and hipster watches.
I have to laugh seeing Apple and Netflix trading for around the same price per share. Yet, it is my humble opinion that Netflix will NEVER EVER EVAR sniff the earnings per share that Apple is enjoying today. Don't even get me started on the cash pile. Netflix should ask Apple for a loan since they have just about burned through all of their available cash.
I think it is ridiculous to see Netflix trading as high as Apple.