Apple

The inconceivable just happened:

• APPLE 4Q REV. $28.27B, EST. $29.60B                  
• APPLE 4Q EPS $7.05, EST. $7.31                        
• APPLE SOLD 11.12 MILLION IPADS DURING QTR, EST. 11.5M
• APPLE SOLD 17.07 MILLION IPHONES IN QTR, EST. 20M     :

And for the first time ever, Apple is a mortal company, and instead of sandbagging forecasts, now projects more than the consensus:

• Looking ahead to the first fiscal quarter of 2012, which will span 14 weeks rather than 13, we expect revenue of about $37 billion and we expect diluted earnings per share of about $9.30
• The street: Revenue at $36.776, EPS at $9.017

Sad.

Gone are the days of the continued stellar Apple stock returns in the iSteve era, while investors are now looking for the next Apple. 

There are only two ways for Apple to proceed (as) successfully in the medium term: 1) cut prices or 2) raise the technological bar. Either way, margins get hit. This is the first time Apple has released a smart product to boos from expectations set by the Android camp!!!

We warned you of the crowded Apple trade last week.

Update: Apple.com appears back up for now. Which is more than we can say about Countrywide Financial.

Why is Apple showing signs of fatigue? Something Big about to happen?

As dismal as the U.S. employment outlook seems to be, tech sector led by innovation is one of the very few bright spots left with corporations looking to insource IT and Indian firms coming to the U.S. hunting for IT engineers.  

That's right: nothing like a little virtually unlimited downside just head of the most groundbreaking (if somewhat priced in) announcement in Apple history. We can only hope this recommendation to sell Apple $300 January Puts, with an initiation date of, well today, was purely a function of impeccably bad timing, because if Apple opens tomorrow at the futures closing price of $357, these will be worth $14.21: a rather unpleasant 30% loss in a few short hours.

As the following update from Goldman's David Kostin demonstrates, after dropping to third place with 173 hedge funds owning AAPL (behind Microsoft at 181 and Citigroup at 178) as of March 31, the company that Steve Jobs built was back at the very top of hedge fund holdings with 181 hedge funds holding on to AAPL. The question is what will they do tomorrow and will the first game theory defection bring an end to the fairytale story?

To the Apple Board of Directors and the Apple Community...

First Apple overtook Exxon as the biggest company in America, now its market cap just hit 75% of the market cap of the entire European bank stock index (that's right: one maker of phones and fads is worth almost as much as all of Europe's banks). We expect parity within a few months. Since Apple's cash generation of about $10 billion per quarter, and growing at ~100% each quarter, means that the firm will have more than a trillion in a few short years, and not a penny in debt on the other side, we are going to go ahead and say what everyone is thinking: Steve Jobs for lifetime Federal Reserve chairman.

Here is the updated 13F summary just filed from Third Point as compared to the holdings as of March 31. We leave readers to do their homework on how Dan Loeb is positioning himself per his holdings as of 45 days ago. Stakes completely cut since March 31 include Apple ($69MM), Aspen Tech ($51MM), Carefusion ($20MM), CBS Corp ($25MM), KKR ($20MM), Madison Square Garden ($2MM), PHH ($65MM), Smurfit-Stone ($87MM), Tesoro ($67MM), Textron ($37MM), Viewpoint Fin ($21MM) and YPF SA ($45MM).

If history is any indicator, Google may be poised to hit the ball out of the park with the Motorola Acquisition. Remember Moto has more patents than all phone manufacturers (nearly combined - Nokia, RIM, Apple). Motorola made 1st mobile phone - that briefcase-like device - as well as the first 2nd generation banana phone, then early flip phones. Assume the possibility to break many other vendor strategies, revenue streams and business models with their patents.

One last quick comparable chart indicating the unique position of Apple in the stock market: with $76.2 billion in Cash, Short and Long-Term Investments, AAPL has more money in the bank than 38.9% of all S&P 500 (ex financials) companies, combined, or 163 companies in total. These are the companies with the least cash, ST and LT investments, starting at the bottom and going up until one gets to a cumulative number just under that of Apple. And here's the kicker. These same 163 companies have a cumulative of $412 billion in debt against their $76.1 billion in cash. Apple's total debt? $0.00.

Just a couple of quick observations on how the market is now pretty much "all Apple." Using David Kostin's previously published data, the first chart below shows that Apple alone accounts for a substantial portion of the best margin performing group in the S&P: Information Technology. Indeed, as the second chart shows while most sectors have been cutting their margin forecasts for H2, with a particular emphasis on materials, healthcare and industrials, one sector has been doing surprisingly well: InfoTech. And of this, Apple is the dominant margin leader. As Kostin says, "AAPL was a key contributor to the market’s continued margin expansion." Take away this cult company and the entire market's forecasted margin improvement collapses. Furthermore, as was pointed out previously, and confirming just how massive Apple's role is in the S&P earnings picture, is the fact that  Apple (AAPL) which posted revenues $3.9 billion (16%) above expectations and single-handedly contributed a stunning 40% ($0.23) of the $0.57 per share of aggregate EPS surprise for the S&P 500. Upward revisions to AAPL’s 2H sales and earnings expectations contributed much of the Technology sector’s positive revisions." Lastly, "AAPL currently represents 3.2% of S&P 500 EPS for 2Q 2011." Woe to the market if anyone manages to disturb the precious market ecosystem which now relies exclusively on Apple to be the dominant power pushing and pulling everyone else higher. And as more and more market making power is delegated to the cult, what happens when one day, inevitably, Apple disappoints?