AAPL Concerns

Many institutions are concerned about AAPL's fortunes and a potential revenue miss. Specifically, that iPod sales are slower than expected and the new Mac sales are strong but cannibalizing existing products.

Citigroup blames it on “iPod seasonality and iPod channel inventory drawdown ahead of new product intros in [the September quarter.]”
Merril Lynch has also trimmed the targets. In fact, the analyst slashed sales of the iPod by 1M units. That's a fall to 'merely' 22% growth. “As iPods decelerate, the Apple story becomes more dependent on upside to Mac estimates, which we see as plausible.” To balance a fall of ~$250M+ in sales, at least 100,000 units upside must be seen in the Mac. That's not quite 10% growth. Ok, I can see it. I do think Apple was faster to spot the rapid digital video interactive element of the net. They are capitalizing on it.

But as usual - I have a problem with the numbers. With iPods growing 22% and PC sales at 10%, what part of this story supports a 30 P/E? Indeed, these analysts have reduced sales expectations by $1B and earnings by 5%. Ahem. Slowing growth and falling earnings. Actual negative news, not rumored negative news, is what matters. As Apple shifts back to being a PC company, it will do well, but the PC market is slowing. Slow plus slow = soft stock price.

I own Jan Apple Puts ($50) and I am staying with them. When I bought them in February, I predicted that Apple would begin to stumble by the June quarter. I was 100% correct about the iPod slowdown, but the Intel chip move dulled the impact.

Meanwhile, I can't believe how incredibly incompetent the competition is. How hard is it to create an iTunes library? GOOG, MS, YHOO? Why is it so hard to get a better iPod? SONY? SNDK? Why aren't we seeing equally good do-it-yourself video editting programs from the Windows world?

Stock thoughts:
AAPL is neutral at best
Beware MRVL and SNDK in the face of iPod slowdown. 1M fewer iPod units will hit them hard. Go long SNDK late in the Summer because the flash iPod will get a big boost around Xmas and a Flash chip shortage will loom.
STX is also going to be hit, but I think a boost in server demand will offset it (servers for storing and handling the boost in video transmission).

By Xmas, I like SNDK, MS and STX. MS has a one-two punch with the anti-APPL moves (i.e. iTunes competition) and with the eventual release of Vista. STX benefits from Vista as well. SNDK will benefit from the iPod moves and from cell phone moves.

The next wave of mobile entertainment is here. Text blogs are being bypassed by video blogs. Th etools have yet to hit th emass market, and as they do, more storage will be needed both remote and locally (STX and SNDK). Easier transfer and mobile enjoyment will also become essential.