The biggest rally in Apple Inc. (AAPL:US) shares since 2004 lost steam as some investors speculated that the maker of the iPhone may not be able to keep growing at the pace that made it the world’s most valuable company.
Apple has dropped 10 percent since reaching a record on April 9, the biggest (AAPL:US) 10-day slide since August. Fueling the descent were reports indicating a possible shortage in key components for mobile devices and a decline in sales of the iPhone at Verizon Wireless, the top U.S. mobile phone company. Some traders also took cues from trends showing there’s little precedent for surges like Apple’s.
“They are so huge that you can’t get these huge percentage gains forever because at some point sales growth has to slow down,” said Giri Cherukuri, a portfolio manager at Lisle, Illinois-based Oakbrook Investments LLC, which manages $3 billion, including Apple shares. “The question is where are we on that curve -- near the bottom or are we near the top?”
Investors will find out whether the concerns are warranted from a fiscal second-quarter report (AAPL:US) tomorrow that’s predicted to show profit rose 55 percent while sales increased 48 percent from a year earlier, according to data compiled by Bloomberg. Apple is benefiting from the release of the iPhone 4S in China and 21 other countries, and the debut of a new iPad. If results fall short (AAPL:US), the stock decline may resume.
Apple slid 0.2 percent to $571.70 at the close in New York, cutting this year’s increase to 41 percent. The 48 percent gain in the first quarter was the biggest since the last three months of 2004.
What Goes Up
Traders and investors who look to history for a guide see few companies of Apple’s size that have gained so quickly. Rapid ascents by technology bellwethers in the 1990s were often followed by equally dramatic plunges.
Apple’s market value gained more than $250 billion in four months through April 9, more than International Business Machines Corp. (IBM:US)’s current value, data compiled by Bloomberg show. That’s the most since the 1990s technology bubble, when Cisco Systems Inc. (CSCO:US) grew even more, expanding by more than $350 billion in eight months, while Intel Corp. gained more than $230 billion in four months.
Cisco subsequently lost more than $200 billion in two months and Intel shrank by almost $130 billion in a month and a half. Cisco is now about one-fifth its peak value from 2000, while Intel is about one-quarter its former size.
Apple has represented more than 4 percent of the Standard & Poor’s (SPX) 500 Index’s value since Feb. 28, data compiled by Bloomberg show. General Electric Co., Microsoft Corp. and Exxon Mobil Corp. all reached the 4 percent threshold during the past 13 years. None stayed above that level longer than 10 months. Cisco lasted nine days.
‘Really Far, Really Fast’
“It moved really far, really fast,” said Malcolm Polley, who oversees $1.1 billion as chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania.
Bullish share-price predictions by Apple watchers, including Gene Munster, an analyst at Piper Jaffray Cos. who set a $1,000 price target, fueled speculation that Apple would become the first U.S. company worth $1 trillion.
“Psychologically, that’s a huge red flag,” Polley said.
Also giving some investors pause was a report that suggested Apple may face a shortfall in supply of certain components. Qualcomm Inc. (QCOM:US), the largest maker of chips that connect mobile phones to cellular networks, said last week that it can’t get enough of its most advanced chips.
Qualcomm, which already makes chips for some versions of the iPhone, is the leading provider of so-called LTE chips, which enable faster data connections. That means San Diego-based Qualcomm will probably supply that part for the next iPhone version, according to analysts including Munster.
Qualcomm, Verizon Wireless
The shortage of Qualcomm chips may also point to limits in the output of other components of Apple devices. Companies such as Broadcom Corp. rely on the same factories in Taiwan used by Qualcomm. If those plants can’t meet Qualcomm’s needs, they may not be able to meet demand from other Apple suppliers, said Gus Richard, who researches semiconductors for Piper Jaffray.
Another report last week showed a drop in iPhone sales. Verizon Wireless said its iPhone sales fell to 3.2 million in the first quarter from 4.3 million in the preceding period, when the new iPhone 4S was released.
Concerns over the iPhone aside, most analysts are sticking to projections that Apple shares will keep rising. There’s only one analyst (AAPL:US) -- Edward Zabitsky of ACI Research -- who recommends that investors sell Apple, compared with 48 buy ratings, according to data compiled by Bloomberg.
Some fund managers are also projecting that Apple will rally after tomorrow’s earnings report. The company will probably say net income rose to $9.95 a share, the average analyst estimate (AAPL:US) compiled by Bloomberg. Except for one case, Apple has released better per-share profit than analysts were predicting in each of the past 28 quarters, data (AAPL:US) compiled by Bloomberg show.
“I understand the stock’s been weak and it’s getting knocked around on the Qualcomm news,” said Daniel Morgan, a fund manager at Synovus Financial Corp. “On Tuesday evening it will be another slam over the left field wall.”
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