Big Money Starts to Dump Apple - A Rational Move As I Warned of Margin Compression on CNBC Hours Before Apple Announced Compression

ZeroHedge reports that Ken Heeber, has nearly emptied his coffer of Apple stock: Abandon Apple Ship? Ken Heebner Dumps Almost Entire Apple Stake

In a just released 13F filing, Ken Heebner’s Capital Growth Management has disclosed that he has reduced his holdings in Apple almost to zero. After holding 1.15 million AAPL shares as of June 30 (which made him holder #100 in the name sorted by size), Ken Heebner who is a regular guest on CNBC courtesy of his bullish tendencies, sold virtually his entire stake, leaving him with just 111,000 shares.


I’m not going to got through a whole bunch of “I told you so’s”, but Heebner knows how to count, and probably sees the margin writing on the wall: A Quick Peek Into the REAL WORLD Logic That Went Into Building the BoomBustBlog Apple Model: It’s Called Compression!!! Tuesday, October 19th, 2010

Add to that the fact that he probably realizes.  Of course, like me he may have seen After all, Reggie Middleton Wasn’t the ONLY Openly Apple Bear in the Blogoshpere, Was He?

Heebner is not the only one reading BoomBustBlog and/or deciding to leave the Apple cult, as excerpted from the “Peek Into the REAL WORLD Logic” link above:

“The rising popularity of devices using Google’s Android software may hurt Apple in the long term, said Michael Obuchowski, chief investment officer of First Empire Asset Management, which holds Apple shares. “Everyone is closing in and it’s a huge question of how they are going to respond,” said Obuchowski, whose firm oversees $4 billion. “I’m really worried about Apple; I’m not convinced that I’m going to hold Apple two years from now.””

“‘Commodity’ Experience
Jobs dismissed the threat of rivals. Apple’s approach of designing the software and hardware for its devices results in a better user experience, he said. By contrast, Google gives Android free to handset makers including Motorola Inc. and HTC Corp., creating a “commodity” experience, he said. “We are very committed to the integrated approach, no matter how many times Google tries to characterize it as closed,” Jobs said. He said Apple is outselling BlackBerry-maker RIM and he doesn’t “see them catching up with us in the foreseeable future.””

Notice how he failed to say Apple was outselling Android. This is material, because they were materially outselling Android 2 and 3 quarters ago. Androids growth rate is simply phenomenal, and its business model may prove unassailable unless Apple makes some drastic changes (ex. allowing cloning) – changes that I doubt management will be willing to make. Jobs also (understandably) failed to mention that the “commodity’ Androids materially outperform the iOS products in terms of features and functionality. This is pretty much in direct contravention to the concept of the term “commodity”, isn’t it???? I don’t think many Samsung Galaxy S, Droid X or HTC Evo owners will characterize their devices as “commodities”.

“Munster, who estimated Apple would sell 11 million iPhones, said last week that supply shortages likely held back sales of both the smartphone and iPad. The cost of making the iPhone may be increasing, said Andy Hargreaves, an analyst at Pacific Crest Securities in Portland, Oregon. The device accounts for 43 percent of Apple’s revenue [and much more of their profit!!!]. ‘‘We saw what we think is a pretty remarkable increase in iPhone costs,” and that’s fueled concern over margins, Hargreaves said in an interview with Bloomberg Television.”

Good to know he’s been reading BoomBustBlog. Remember, supply shortages can very well stem from competition for suppliers and supplier’s attention. Is it Android again??? Here’s a hint… Does the sole patent holder and sole manufacturer of Apple’s branded IPS Retina Screen plan to become one of the most prolific Android phone vendor’s in the world? If so, where does that leave Apple? Margin compression!!! Or worse. Read up on your proprietary Apple content BoombBustBlog subscribers!

“Verizon Phone – Even so, competition is increasing. The Android operating system was the most popular smartphone software in the U.S. in the second quarter, according to Gartner Inc. Samsung, HTC, Motorola and Dell Inc. are among the companies using Android in tablet computers to rival the iPad. Hewlett-Packard Co., the largest computer maker, is developing a tablet computer.
Apple may get a sales boost by expanding the availability of the iPhone in the U.S. Verizon Wireless may begin selling it in January, two people familiar with the matter said in June.”

You can bet your left nostril hairs that the deal Verizon cut is NO WHERE near as sweet as the one AT&T gave Apple. What does this spell? Margin COMPRESSION in the quest for wider distribution to prevent Android (to late) from gaining critical mass and taking over.

There’s just so many reasons for the big Apple dumpt. Of course, there is no reason to liquidate nearly all of such a large position for liquidity reasons unless you feel it has run its course, or worse. Then again… What do I know?

Below is a graph showing the longer term trend of Apple market share in the smart phone space. It illustrates the explosive growth Apple has had through its iPhone series, and it also shows some seasonality (ex. lull before hardware upgrade season, etc.). As you can see, the growth trend, viewed either directly or as a moving average, shows marked downward momentum. Of course, it is highly unreasonable to expect a company to continue to grow at the pace that Apple has, but that is exactly what many Apple valuation models that I have come across have – literally hard-coded in. This is folly, in my opinion – particularly considering the effect of the Android competition that is already showing up. If you look closely, Apple’s smart phone market share is already showing NEGATIVE growth!


Since I know that the chart may be a little difficult to read at the tail end encompassing several years of data, I have taken the liberty to drill down to the past year to get a closer look. Remember, Android sales didn’t really get started until 8 months ago, and the big surge didn’t occur until the Evo/Droid X/Samsung Galaxy series were launched in June, July and August – most of which is not captured here. The same is to be said for Apple and the iPhone 4.

Click to enlarge to printer size!

Despite increases in both the overall mobile market and more importantly, the smart phone contingent’s penetration of said market:

  1. Apple’s smart phone shipments are showing a negative growth trend
  2. and more importantly, Apple’s smart phone market share is experiencing a very sharp downward trend as shown by both direct observation and that of the 2 period moving average

I am bullish on certain tech companies, but I am bearish on the US equity markets in general, as I warned in my latest Google Quarterly opinion: File Icon Google Q3 2010 review for all paying subscribers (click here to subscribe):