As if Apple needed more trouble, here comes a double whammy. First, Apple CEO Tim Cook had to apologize to the Chinese consumers. Second, Apple got a downgrade from a big Wall Street supporter.
A popular new segment on China Central Television highlighted how Apple discriminated against Chinese consumers with its warranties and after-sales service. The Chinese media called Apple ‘greedy and arrogant.’ Cook is trying to take the sting out, “We always pay tribute to China, Chinese consumer is always the most important thing in our minds.”
It is an old saying, ‘You cannot fight city hall.’ Apple was facing the state run media of the second largest economy in the world; it had no choice but to stand down. Tim Cook bowed by apologizing to Chinese consumers, “In the last two weeks, we received a lot of feedback on the Apple repair and warranty policies in China. We not only on these views for a deep reflection, together with the relevant departments to carefully study the "three guarantees" provisions, also look at our maintenance policy of communication, and combed through our management practices to the Apple authorized service provider. We are aware that the outside due to a lack of communication during this process think Apple attitude arrogant, don't care or don't value customer feedback. For any concerns or misunderstanding to consumers, and we express our sincerest apologies.”
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In a second whammy Goldman Sachs downgraded Apple. As Apple fell from $705 to $428, Goldman maintained a Conviction Buy rating on Apple. Now Apple is a mere Buy. There is no new information in Goldman’s report.
Also, Jefferies says that going forward most smartphone growth will be at the under $200 level. Iconcur with Jeffries opinion regarding the $200 level. Apple will have to come up with a product in this price range to successfully compete with Nokia and Android phones in the emerging markets. Herein also lies a cautionary note for BlackBerry bulls. BlackBerry bulls cite the strong launch of Z10 in places like India and Indonesia. However, BlackBerry bulls seem to forget that Z10 is priced too high for these markets beyond existing BlackBerry loyalists.
Jefferies has a target of $420 on Apple while Goldman’s new target is $575.
My method is based on probabilities; the probability of Apple going to $600 to $700 is about the same as Apple falling to mid $300s. Apple is at $434 as of this writing. Therefore based on probabilities, Apple stock offers a favorable risk reward ratio at this time. The key remains new product introduction and an effective strategy at the low end. It is difficult to fathom that Apple executives have their heads buried in the sand. It is more likely than not that Apple executives are well aware of the perils that face them and are hard at work to produce appropriate responses.
About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me:Nigam@TheAroraReport.com and follow me here. Subscribers to The Arora Report are long Apple from $131 and have already taken partial profits on 90% of the position.
