Newton's law pulls at Apple

23 April 2012 - 02:09 By Toby Shapshak

Is Apple about to mention that dreaded word on the stock exchange: "correction"?

Toby Shapshak. Stuff editor. File photo.
Toby Shapshak. Stuff editor. File photo.
Image: Times LIVE

After rising about 45% this year, its shares surpassed $600-billion in value just six weeks after hitting $500-billion, making it the most valuable company in the world.

But Apple stock tanked last week.

"Time to cut back on Apple?" asked the Wall Street Journal, adding that, "investors got a scare on Monday when Apple, among the best-performing stocks of 2012, tumbled 4.2%, capping a five-day stretch during which it lost 8.8%. The stock continued its slide later in the week, finishing down 10% on Friday from its all-time high."

The headline on was: "Apple's share price stops defying gravity", reporting that "a five-day losing streak. has led some investors to ask if the meteoric rise in the company's stock price is running out of steam".

Apple has led a charmed life on the stock market in recent years, fuelled by a seemingly insatiable demand for its products - the latest of which (the third-generation iPad) goes on sale in South Africa on Friday.

Expectations, based on previous years, are that it will fly off the shelves like all previous models and all other Apple products.

The world has a love affair with anything Apple, to be sure. It's like unconditional love. Apple can seemingly do no wrong. Its share price rises are often described as "meteoric" and reviews of its products - including in my Stuff magazine - are almost always favourable and positive. So what just happened?

Possible triggers include a malicious software (malware) attack on its Mac computers that infected some 600 000 machines - or one in a hundred, according to some estimates - and Apple and five book publishers were implicated last week in an anti-trust suit by the US Department of Justice, over eBook pricing. There were rumours that Apple might make a cheaper "iPad mini", a product the late Steve Jobs himself canned. Jobs was never averse to dismissing rumours that a product was to be launched: remember how he panned video on an iPod?

Apple said last month that it would pay its first dividend in more than a decade and plans a $10-billion share buy-back. Could that have spooked investors?

Then there is the continuing bad press about working conditions at Foxconn, the Chinese mega-manufacturer of Apple's gadgets; and the green credentials of its cloud-based storage services.

Apple continues to be enveloped by the "reality-distortion field" Jobs used when talking up the company's products and this has seemingly extended to its share price - analysts have speculated it will become the first $1-trillion company after it became only the fifth to cross the $500-billion mark.

There are two things at play here. No one disputes the quality or obvious desirability of its products - just ask FNB, which has sold 1800 iPads a week after it began offering them to account holders. Yes, a bank selling iPads.

The second is the halo-effect, not of the iPod, iPhone or iPad, which is enabling Apple to sell more Mac computers, but around its share price. The reality distortion field is as strong around these shares and the way Apple captures the great capitalist-entrepreneurial dream that Jobs represents. A mythology surrounds the "meteoric" rise of Apple shares since Jobs returned to an almost bankrupt company. He solved the innovator's problem by creating new, wondrous gadgets and steered it into the market-valuation stratosphere.

As much as he deserves the credit, and as good as the products are, the hyperbole apparently couldn't make the fairytale last. Is this a correction or just a blip? As with all things Apple, it's hard to separate reality from hyperbole. That, perhaps, is Jobs' greatest legacy.