Some designers are saying that the new look is “over the top.” The same thing was said about Aqua over a decade ago. And in succeeding years, that original UI has continuously been refined to what we see today.
High-quality reporting on today’s events concerning Apple:
CEO Tim Cook, CFO Peter Oppenheimer, and Head of Tax Operations Phillip Bullock testified for the company.
It’s only Tuesday, yet conflicting reports regarding Apple and iPhone 5 demand are flooding the web. The Wall Street Journal published a report Sunday evening, along with Japanese media outlet Nikkei, that Apple had cut iPhone 5 display orders in half while also decreasing other component orders, all in anticipation of a slower second quarter. The WSJ article specifically cites that Apple had originally planned to order 65 million units for iPhone 5 displays.
However, there are a few strange things about the alleged 65 million.
Both the WSJ and Nikkei articles fail to mention that Apple’s iPhone 5 and iPod Touch use the same 4-inch Retina display. Looking at estimates for total iPhone sales during the first quarter, the average is about 50 million units. Let us assume that the number of iPhone 5 units sold is around two-thirds of that, as it typically is. This would be 35 million units. In other quarters, such as the seasonally low second quarter, iPhone 5 units sold will likely be 25 million units (based on Apple’s previous second quarters of their flagship iPhone.) Apple typically sells 4 million iPod Touch units in the first quarter and sales of the iPod Touch generally fall around 50% into the second quarter. With that in mind, we can add 2 million units to the total number of units sporting a 4-inch Retina display that Apple will likely sell in the second quarter.
Taking that into account, the number of 4-inch Retina display units Apple is to likely sell in the second quarter is around 37 million units. Why did the WSJ, as well as Nikkei specifically publish their articles with the mention of 65 million iPhone 5 units? (the WSJ has since removed the reference to the alleged 65 million) Both articles make it clear that the orders concern just iPhone 5 components, not total iPhone 5 and iPod touch orders.
It makes no sense that Apple would order 65 million iPhone 5 units for the typically weak second quarter, especially when Apple knows that their cheaper iPhone 4 and iPhone 4S are cannibalizing some sales of their flagship smartphone.
Many investors were quick to point to China. Apple CEO Tim Cook and Senior Vice President of Worldwide Marketing Phil Schiller were spotted in China (albeit in Apple reseller stores) within the past few months, reportedly to work out a deal to bring the iPhone to China Mobile. Just this past Thursday, Cook met with China Mobile Chairman Xi Guohua to discuss an arrangement. If a deal was agreed upon only to somehow fall through a short time later, if a deal was even reached at all that Thursday, then Apple would have to cut down its order for 4-inch Retina displays, if Apple did place an order for 30 million 4-inch Retina displays at all. However, it makes little sense that Apple would expect to sell 30 million iPhone 5 units in a seasonally low quarter on one new carrier.
Regardless of whether the reports make sense or not, Apple’s stock tanked, closing at $485.92 on Tuesday. Apple’s value has dropped more than $200 per share since reaching an all-time high of $705.07 in September. The initial decline was due to higher margin requirements at clearing firms and uncertain tax rates on capital gains coming this year, which prompted mass sell-offs.
But there’s more to it than that. Independent trader Joe Springer, in November, mentioned that during Apple’s summer stock surge to an all-time high, investors placed an unusually high amount of call options on the stock. There were so many call options on Apple’s stock that there was simply not enough stock to hedge without driving the price higher. Interestingly enough, a mass share of these calls, with a strike price of $550 and higher, will expire on January 19, 2013. Four days from now. The investors that wrote those call options and bought common stock to cover will make a lot of money if those options expire as worthless and Apple’s stock rises after the expiration date.
If Apple’s stock rises to $700 before January 19, the options have an intrinsic value of $600,000,000 (Springer’s math: 60,000 call options X 100 shares per option X $100 intrinsic value per share = 600,000,000), meaning that these call writers will lose out on $600 million dollars. On the contrary, if Apple remains below $550, then surges again back to the $700 range, the call writers will recieve the capital gain from the stock they covered with and the amount for which they sold the option. Keep in mind that this is only with a single strike price that Springer calculated. With the all the strike prices combined, it adds up to billions of dollars - as long as there is a delay in an Apple surge.
The above has led some to believe that the WSJ and Nikkei published the alleged 65 million articles in order to manipulate the price of Apple’s stock in favor of the aforementioned call writers, who would cash in on the billions of dollars at stake, somehow benefitting the Journal. While it is unlikely that anyone is benefitting from publishing the alleged 65 million except for the call writers, it is still, at least, an interesting situation.
To make matters even more interesting, the New York Times confirmed that Apple is cutting back on orders of the iPhone 5, but cited a source and mentioned different numbers. Paul Semenza, an analyst at NPD DisplaySearch, told the NYT that Apple had expected to order 19 million 4-inch Retina displays for the iPhone 5 but cut the order to 11 million to 14 million for the second quarter. Semenza told the NYT’s Brian X. Chen that the numbers came from sources in the supply chain. However, Semenza believes the reduction in orders for displays is related to excess inventory. As I mentioned earlier, the iPhone 4 and iPhone 4S, which use a different 3.5-inch Retina display, could be cannibalizing iPhone 5 sales, thus decreasing the demand for 4-inch Retain displays, and ultimately the iPhone 5 (total iPhone units sold would still meet analyst expectations for the second quarter).
Apple writers and fans went up in arms after reading the alleged 65 million reports and demanded that the company release a reassuring statement in an effort to raise the stock price. Some explained Apple’s silence on the matter with an SEC rule, saying that a company cannot talk publicly about itself in the weeks leading up to an earnings report, as it is in a “quiet period”. However, it is a well known fact in the finance world that companies have been citing rules from the U.S. Securities and Exchange Commission as reasons not to discuss anything related to corporate operations. The “quiet period” rule mentioned is simply a practice, not an actual rule.
Regardless of any of the above, we will not see any comment from the Cupertino, California-based company. Apple strictly follows the teachings of their late co-founder, Steve Jobs, who was never concerned with the company’s stock price.
Assorted Slices is an editorial-based publication covering Apple Inc. and similar topics.