Back in February 2013, Thorsten Heins, then-CEO of what was once the iconic "smartphone" brand Blackberry, publicly lied that its Hail Mary iPhone competitor, the Z10, had "record" early sales. He told CNET [11], that "BlackBerry nearly tripled the sales of its best performance over the first week in the U.K., while it had its best first day ever in Canada. In fact, it was more than 50 percent better than any other launch day in our history in Canada."
Less than one year later, and less than two years after he was hired, the ruse was up - Blackberry's US market share has fallen from 50% to 3% in four years – and Thorsten was fired.
Fast forward to Monday morning, when the S&P500 had just hit its first limit down in history, stocks were crashing, countless ETFs were crashing more as ETF pricing models were corrupt and broken, the QQQs were plummeting, and none other than AAPL was set to open at a price of $92 wiping out tens of billions of market cap overnight.
It is then that AAPL CEO Tim Cook may have pulled a page straight out of Thorsten Heins' playbook when did something nobody expected him to do - he panicked, and emailed CNBC anchor Jim Cramer to do what the AAPL CEO himself admitted the company does not do by providing mid-quarter updates, and assure the CNBC anchor that there is no need to sell AAPL stock.
Specifically he said that: [12]
[12]"I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks."
Needless to say, this stunning intervention by Tim Cook to arrest the plunge in AAPL stock succeeded, and AAPL soared from $92 to close back over $100, a gain of nearly $60 billion in market cap, in turn dragging the entire market higher with it.
Yet what many have found problematic is that in emailing Jim Cramer with what was clearly material, non-public information - how long did Cramer have possession of Cook's email, who did he privately share the information with first, did Cramer trade on the information before going public with it, etc - Cook may have breached Regulation FD.
We wondered as much in our Monday post "Did Tim Cook Violate Regulation "Fair Disclosure" By Emailing Jim Cramer To Save AAPL Stock This Morning [12]." Nearly a week later, there is still no 8-K, even if grotesquely delayed, with what should clearly have been a replica of the statement made by Cook to Cramer.
So we decided to follow up.
What we uncovered may explain why Tim Cook did not want to publicly file his "all is well" email to Cramer: the simple reason is that Tim Cook may have simply been lying in order to halt the rout in his stock, a rout which incidentaly had little to do with concerns about AAPL's Chinese sales and was driven by the latest HFT-facilitated marketwide flash crash as we described previously.
Of course, accusations that Tim Cook is lying should be taken very seriously, which is why instead of relying on Thorsten Heins' pardon, Tim Cook's self-assessment, we went with the latest AAPL channel check out of GFK [13], Germany's largest market research institute.
For those who are unaware, GfK is almost universally accepted as the best source for end-market demand, collecting and aggregating point of sale data from servers at all major retailers, collecting real time consumer data, as well as conducting manual channel checks at smaller retailers. In short: if something is selling with an upward trajectory, GfK will know about it, with about an 80% confidence interval. And vice versa.
Here is the latest GfK data on Apple:
C3Q15 sell-out outlook:
- Apple’s global ex-NA outlook worsened slightly with the additional JUL/AUG weekly data. Units are now forecast to grow +2.6% q/q (prior +3.0%). Softer early AUG trends in China were only partially offset by resilience in Dev. Asia.
- In China, iPhone 6 demand softened in the final week of JUL, and remained at such levels in AUG weekly data (Figure 17). Apple, as a result, is expected to see more pronounced share loss in China than prior expectations, though units are still expected to grow +62% y/y.
- In Japan, iPhone 6 improved meaningfully in AUG despite no material ASP movements. Sony’s Xperia Z4 was most impacted following its short-lived demand uptick in JUL (Figure 18).
- Apple’s 3Q ASP is expected to decline -3.1% q/q (prior -2.5%); +6% y/y.
US iPhone demand
- Apple lost share m/m in final JUL data, with iPhone 6 & 6 Plus unit demand declining -14% m/m. This was worse than the -7% m/m decline seen for the 5s/5c in JUL-14 and was also weaker than GfK’s expectations.
- Apple’s US smartphone share fell, as a result, to a level below that seen LY (Figure 20).
- The downtick was more pronounced for iPhone 6 and drove the 6/6 Plus ratio from 4.2:1 in JUN to 3.8:1 in JUL.
- iPhone 6/6 Plus continues to significantly outperform the 5s/5c launch to date, with units +22%, only modestly below the +24% growth seen through JUN.
C3Q15 sell-in projection:
- 49.4m; +4% q/q; +26% y/y (prior 50.6m, +7% q/q; +29% y/y)
- International sell-out: 37.0m, -0.3% q/q (prior 37.2m, +0.1% q/q); +39% y/y (unchanged)
- US sell-out: 11.4m, +4% q/q (prior 12.4m); -2% y/y (prior +7%)
- Inventory build of 1.0m units (unchanged)
- Shipment ASP projection: USD667, flat q/q; +10% y/y (unchanged)
* * *
While the above data has a roughly 2 week lag, but considering the explosion of market volatility into the past two week period, it is certain that sales , if anything, deteriorated as the Shanghai Composite went red for the year (after soaring 60% two months ago).
So what can we make of the above data? Here are GfK's highlights:
- The Q3 outlook for Apple has softend notably as a result of weaker trends not only in the US, but in China - the place where Cook assured Cramer Apple has "experienced strong growth in its business."
- US unit demand declined 14% in July, far more than the -7% drop a year prior, and weaker than GfK's own expectations. This could point to substantial weakness over the next 6-12 months for Apple, considering last year, ahead of the iPhone 6 launch, the sales decline was about half of the current decline even without a major new phone rollout imminent. This may mean that the upgrade cycle was much stronger and/or shorter until now, and is starting to fade dramatically.
- The data started deteriorating before the recent rout in Chinese stocks and EM currencies (which make products such as the iPhone more expensive). Keep in mind most of the future growth for Apple is expected to come from Emerging Markets and China now that the US only accounts for a third of total sales.
So did Tim Cook lie?
If one uses channel check data to objectively determine end demand, the answer is a resounding yes. To be sure, Cook may be telling the truth in a very narrow sense, if Apple is simply be resorting to the oldest trick in the book at this point: channel stuffing.
The problem with channel stuffing is that it only allows you to mask the problem for 2-3 quarters at which unless there has been a dramatic improvement in the end-demand picture, it re-emerges that much more acutely: just ask AOL which was channel stuffing for months on end, only to be ultimately exposed, leading to a epic plunge in the stock price.
So is AAPL the next AOL, and is Tim Cook the next Thorsten Heins?
It all depends on China: if the world's most populous nation can get its stock market, its economy and its currency under control, then this too shall pass. The problem is that if, as many increasingly suggest, China has lost control of all three. At that point anyone who thought they got a great deal when buying AAPL at $92 will have far better opportunities to dollar-cost average far, far lower.
Oh, and to anyone still holding their breath for AAPL to file a public statement which may well contain an outright lie, you may exhale now.
