Apple yes, but not quite yet

04/18/2013 3:47 pm EST


Jim Jubak

Founder and Editor,

Apple (AAPL) doesn’t report earnings until April 23—which has put Wall Street analysts and investors deep into reading the tealeaves mode.

Yesterday’s leaves come from Cirrus Logic (CRUS), a supplier of audio chips for the iPhone and iPad. On Tuesday, Cirrus Logic reported that it would take an inventory reserve charge of $23.3 million in its fiscal fourth quarter, which ended in March. The bulk of that--$20.7 million—comes from a single, unnamed, high-volume customer. Since Apple accounts for 90% of revenue at Cirrus, everyone on Wall Street assumes that the customer in question is Apple. It looks like Apple switched to a newer product from Cirrus during the quarter and that Cirrus got stuck with extra inventory

But what’s it all mean? All the interpretations I’ve seen today are negative.

For example, some analysts have argued that Cirrus got stuck with extra inventory of the older chip after the switch because sales of iPhones and iPads had fallen below projections.

Another set of comments has argued that the timing of this announcement from Cirrus Logic suggests that Apple’s next refresh of its iPad product line is behind schedule. In 2012 Apple refreshed the iPad in April.

And I should probably add a leaf or two from China where a relatively low-visibility story in the People’s Daily criticized Apple for selling pornographic applications among the applications for the iPhone. As far as I can determine the charge isn’t true, but it is a haunting echo of the charges leveled at Google (GOOG) when it was driven out of the Chinese market.

The upshot is that Apple, which closed Tuesday at $426.24, closed yesterday at $402.80, down another 5.5%, as the shares broke below important technical support and challenging the psychologically important $400 level, and then broke through that level to $390.89 today as of 3:30 p.m. New York time.

The consensus on Wall Street is that Apple will report a disappointing quarter on April 23. Credit Suisse, for example, forecasts that Apple revenue will fall by 21% from the December quarter and climb just 10% year over year. Margins are expected to tumble and iPhone sales will be weak since it doesn’t look like Apple will refresh its phone lineup until the middle of the year.

Frankly that seems to be about right—as far as it goes. Apple and Samsung are engaged in a game of leapfrog with the company with the latest product release temporarily jumping ahead. Samsung’s Galaxy S4 is scheduled to go on sale next week and that will cut into Apple sales at the high end of the smart phone market.

For me disappointment over Apple’s April 23 earnings will mark the start of a buying opportunity in what has become a stock tied to product cycles. The April results will mark the likely bottom of that cycle and I’d be happy to get the next refresh of the iPad and iPhone at current share prices.

I’d just note that right now Apple trades at the same multiple as Dell. Apple’s forward price-to-earnings ratio is 9.18 (for the fiscal year that ends in September 2013) and Dell’s is 9.05 for the year that ends in January 2014. The PEG ratios (PE to earnings growth) are a bit different for the two stocks, however, with Apple selling at a PE that’s just 47% of its growth rate and Dell selling at 1.09 times its growth rate.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund , I liquidated all my individual stock holdings and put the money into the fund. The fund did own positions in Apple as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at
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