Like many investors, I’m an Apple Inc. (AAPL) shareholder … but I’m an open-minded, often skeptical one.
I don’t seek to confirm my bullishness with every article I read or write: I’m more than willing to admit that Apple is fallible and the iPhone usurpable.
And despite still believing in AAPL stock, I’m skeptical as a long-term investor. I’m skeptical because Apple’s growth proposition rests almost entirely on the shoulders of the iPhone right now.
The smartphone market is rapidly maturing, and Apple’s largest untapped market, China, is suffering a very public deceleration in growth.
I stand by my article from two days ago, but I have far less conviction than I did then.
In fact, I can honestly say that today I’m having the the queasiest feeling I’ve had in years about AAPL stock. That’s because, as the Wall Street Journal reports, “Apple has cut its order forecasts to iPhone suppliers in the past several months.”
When you’re the most valuable and most profitable company on planet Earth, cutting forecasts for your flagship product will raise some eyebrows. Especially when the Chinese government, bad poker face and all, reacts to it.
China Subsidizing Foxconn
Foxconn, the Chinese manufacturer that assembles iPhones for Apple, just received a $12 million subsidy from the city of Zhengzhou to minimize layoffs at the city’s Foxconn plant, which employs more than 200,000 workers. That $12 million was more than 50% of the funds Zhengzhou allotted for 135 different companies as a part of the city’s unemployment insurance program last year.
Apparently city officials knew something was awry when Foxconn began letting employees go earlier than normal for the Chinese Lunar New Year, which doesn’t start until Feb. 8.
In years past, letting workers go at this time of year was literally unheard of. Foxconn notoriously had to install suspended safety nets around its facilities so employees couldn’t sneak off to escape the grueling work environment and jump to their deaths — a practice that was becoming all too routine.
Thankfully, that’s no longer an issue, although Foxconn laborers may still get the short end of the stick, as many of them could lose their jobs due to surprisingly soft demand for the latest and greatest iPhone models. Japan’s Nikkei newspaper reported earlier that AAPL may end up slashing its iPhone 6s and 6s Plus production by 30% in the current quarter.
I’ve had my doubts about Apple’s ability to innovate under Tim Cook, who at times seemed to be cutting corners and devaluing the priceless Apple brand for the sake of quarterly margins. Cook is no bozo, but he hasn’t exactly become well-known for thinking outside the box, either.
Still, numbers don’t lie, and with revenue rising 22% year-over-year in fiscal Q4 to a whopping $51.5 billion, it’s tough to argue that Cook is destroying the company.
But if the latest figures from Nikkei are even close to being accurate, and if the Foxconn layoffs are indicative of anything broader and uncontainable, AAPL stock could get seriously rocked for the first time in years.
Keep a close eye on any developments here; as an Apple investor, I know I’ll be watching very carefully myself.
As of this writing, John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.