Apple’s Sandbagging Strategy: Let Stock Suffer Now for Big Payoff Later
By Aaron Task,
Excerpt: "Apple shares tumbled Tuesday in the wake of its disappointing guidance. But this is one of those times where you need to separate the stock from the company, which appears primed for stellar long-term growth and market-share gains.
First, the numbers: The company’s fiscal fourth-quarter guidance of $1.00 in EPS and revenue of $7.8 billion were well below expectations of $1.24 and $8.32 billion. Apple also forecast margins would fall to 31.5% in the fourth quarter vs. 34.8% in the third and would continue to fall toward 30% in fiscal 2009.
Declining margins are poison to Wall Street, especially short-term, to momentum traders who had previously been big believers in Apple’s growth story. That crowd is bailing out — as they are wont to do — in reaction to Apple’s strategy, which appears to be a willingness to sacrifice short-term margins in order to gain market share.
As Apple CFO Peter Oppenheimer said on the conference call, Apple plans to "deliver great value to our customers while making a reasonable margin, but not a margin so high as to leave an umbrella for our competitors."
As Henry and I discuss in the accompanying video, this is smart thinking on Apple’s part from a long-term perspective, and poses a direct threat to PC makers, notably H-P and Dell."
