For the second straight day, Apple share took a tumble, dropping 15 points and closing out at $330 a share by the end of trading on Wednesday. The 4.46% drop was precipitated by a rare stock downgrade from JMP Securities analyst Alex Gauana who expressed reservations about Apple’s continued ability to grow. Compounding matters for Gauana is the affect the tragedy in Japan might have on Apple’s bottom line.
“There’s a risk of complacency,” Gauana said. “The sell-side has gotten itself into a game of one-upmanship. “Investors should make sure that they’re comfortable with the situation … especially since there’s just so much uncertainty right now.”… “We know that Japan as a supplier matters.”
It’s quite absurd that Apple shares aren’t affected by overwhelming demand for the iPad 2, but a downgrade from a relatively unknown analyst can Apple shares plummeting
Gauna downgraded Apple to “market perform” from “market outperform,” based on signs of a severe slowdown in sales growth at Hon Hai Precision Industry Co Ltd, a contract manufacturer and subsidiary of Foxconn that is heavily reliant on Apple’s business.
In an apparent response to Gauna’s report, Oppenheimer analyst Yair Reiner said Apple’s contribution to Hon Hai’s revenue — about a fifth — was “limited,” and made light of attempts to correlate their performance.
“We don’t know the source of the Hon Hai deceleration,” Gauana explained, “but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, and/or product transition risk around the iPad 2”
Subsequent analysts called into question Gauana’s report, noting that Apple’s contribution to Hon Hai Precision’s bottom line is about 20%. In other words, correlating a slowdown in growth to a slowdown in Apple’s growth is tenuous at best. Besides, each successive iPhone is more popular than its predecessor and Apple’s still struggling to stock iPad 2s faster than consumers want to purchase them.