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Summary:

Apple share value dropped by 2.3 percent on Tuesday, and 4.5 percent on Wednesday, marking the largest decline for the company in nine months. All while the iPad 2 sold out in stores and online across the U.S.. So why is Apple taking the hit?

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Apple shares have been pummeled this week, marking their largest decline in nine months. It’s not something you’d expect, given the iPad 2 launch was an unmitigated success. So why are Apple shares taking the hit, dropping 2.3 percent on Tuesday, and 4.5 percent on Wednesday?

Analysts point to several causes. JMP Securities’ Alex Gauna downgraded Apple on Wednesday because of concerns over slowing growth at Apple’s main supplier, Hon Hai Precision Industry (also known as Foxconn), as Android’s huge success starts chipping away at iPhone sales.

Gauna is among the few naysayers who doubt Apple can continue to outperform the market. But Asian firm CSLA counters that the JMP analysis ignores the fact that Apple doesn’t represent a significant portion of Hon Hai’s sales (Apple accounted for about 24 percent of Hon Hai’s total 2010 revenue, according to CSLA). If so, that’s definitely not enough to infer a direct one-to-one relationship between the fortunes of the two companies.

CSLA offers a second, more convincing reason behind Apple’s recent slump. CSLA firm analysts Chitra Gopal and Steve Fox argue (and, to be fair, Gauna also mentions this) that Apple’s heavy reliance on Japanese components is causing investor jitters in light of last week’s earthquake and tsunami. Here’s an excerpt from their full note on the subject (via SAI):

A4 /A5 CPUs are made by Ibiden, and ACF films for displays are 100% sourced from Japan (Sony Chemical and Hitachi). This will affect practically all manufacturing, not just Apple plays. Apple related stocks are getting hit today — I guess one reason could be Apple historically has operated a lean supply chain (carries much lower inventory vs. other consumer electronics/PC makers) — so concerns are the Apple’s shipments could be worse hit.

The Japanese market represents about a 6 percent share of Apple’s overall sales. Obviously, Apple’s sales in the country will be affected following the disaster, and the iPad 2’s launch in that country has been delayed indefinitely. But here’s the rub: The disaster’s fallout is hardly limited to Apple, and it’s hard to see how Apple could possibly be more affected than the majority of its competitors in the consumer electronics and computing market.

So what else could be behind the stock slide? Michael Shulman of InvestorPlace offers four other reasons. Maybe his most salient point is that many simply believe that Apple’s growth will inevitably slow, so why not now? Shulman, for one, isn’t buying it. He points out that Apple owns a fraction of the worldwide cell phone and personal computer market share, giving it plenty of room to expand its business, something it could easily accomplish if it continues its trend of bringing lower-priced offerings to market.

Apple’s stock is up about 2 or 3 percent today as of Thursday morning. Overall, tech stocks are trading low (down half a percent today) as a result of concerns of market instability following the earthquake in Japan. If anything, the clear evidence of Apple’s success with iPad 2, combined with what I think is an undervaluation based on JMP’s downgrading make this a perfect time to buy Apple stock if you’ve been looking for the opportunity.

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  1. iPad 2 production may be delayed over the next few months and cause shortages for Apple’s popular tablet: http://www.ipadnewsupdates.com/ipad-news/ipad-2-shortages-may-last-months.html

  2. Whadya dumb? This “analysis” has already been refuted by reputable financial houses. Drop it.

  3. There are other things to look for. Total shares traded were way up implying that it was not small shareholders selling. Rather, it was fund managers, probably trying to cover their losses in other areas. Further, with the successful introduction of a new generation of laptops, plus the new generation iPad, and the soon to be released iPhone, things are looking way up for Apple. Following the accepted wisdom, “sell on good news; buy on bad news,” the idiots followers are taking that advice.

  4. As usual with AAPL slides over the last few years, there is no real reason. Or call it “profit taking” which kinda ignores the fact that those selling now are foregoing more profits when the stock goes up again.

    No need to get angry. I just buy whenever it drops too much, has served me very well in the past. If you’re a cynic you could argue that it serves the big fund managers just as well – they need somebody to talk the stock down, once that happens they sell, but later when it’s cheap they buy as there was no reason for it to go down in the first place…

  5. mike sanders Friday, March 18, 2011

    I think you should stick to the tech stuff which I enjoy very much and leave the market analysis to those who do it well. I love the Blog and it does not need this extra dimension, there are enough people out there all of them experts by their own account so let them get on with it.

  6. You know why apple fell? no you don’t. it’s all an insiders game, you YOU”RE not invited. So while you think of how maybe investing a little here or a little there to make a few dollars, know the game is rigged, and you weren’t the rigger. SO while you watch the 3 hundred reasons the 300 “experts” think this or that, know that the REAL players are making billions… off of YOU. Fools.

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