Apple's Tim Cook Is No Steve Jobs

 | May 03, 2016 | 10:30 AM EDT
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This commentary originally appeared on Real Money Pro at 8:44 a.m. ET on Tuesday, May 3. Click here to learn about this dynamic market information service for active traders.

Apple (AAPL) chief Tim Cook appeared on Mad Money last night for a lengthy interview with Jim "El Capitan" Cramer, but his interview did nothing to dissuade me from my fundamental short thesis for the stock.

Shares have fallen for the past eight sessions, stockholders are justifiably concerned and AAPL remains one of my favorite shorts on my "Best Ideas" list.

It seems like I've for some time been a lone wolf in adopting an ursine view of Apple's sales-and-profit outlook. In fact, I've been consistently criticized and attacked for holding a negative view of the world's most beloved company. (For example, a Fortune magazine writer last year leveled an ad hominem attack on me, although the publication quickly rescinded his most serious accusations.)

I noted in yesterday's opening missive that Warren Buffett and Charlie Munger of Berkshire Hathaway (BRK.A, BRK.B) responded well to questions put to them at this weekend's shareholders' meeting, but that the queries were weak and non-revelatory.

By contrast, "El Capitan" asked hard-hitting questions last night that Apple's CEO mostly whiffed at by delivering rather vague, glittering generalities and standard responses.

Of course, good investing stories don't need to be sold -- not by Cook, and not by Carl Icahn or any other current or former large Apple investor. And while iconic stocks die hard, paradigm-shifting businesspeople like late Apple CEO Steve Jobs are next to impossible to replace. We all remember Jobs, and one of last night's messages to me was that Cook is no Jobs.

The current Apple CEO emphasized a long-term, bright outlook for Apple -- but frankly, I've never heard a top manager not say that his or her company's intermediate or long-term outlook looked bright. But the business landscape constantly changes in the interim as new competitors line up and the threat of commoditization surfaces.

Apple faces some unique threats, like the Chinese government's business attitude and uncertain regulatory atmosphere. That was Icahn's alleged reason for selling his large AAPL stake, but Cook glossed over such threats.

The CEO did admit that the company's near-term outlook is deeply dependent on one product, the iPhone 7 series. But nothing I heard changed my view that Apple's product-upgrade cycle will now elongate after the unprecedented success of the iPhone 6. That was likely Apple's last important product upgrade, and the company seems unlikely to ever repeat that success.

Cook's answers to Cramer's questions also often fell flat in substance. For example, he replied to questions by saying things like: "I think that in a few years, we will look back and people will say: 'How could I ever have thought about not wearing this [Apple] Watch?' ... People love our products."

As to new-product opportunities, Cook seemed to subscribe to the notion that if Apple builds it, customers will come -- even though the high-end smart-phone market has become mature.

The CEO also said investors shouldn't just look through the lens of the United States, and that the overall market doesn't have to grow for Apple to succeed. Instead, he said investors should be more attentive to "switchers" from Android phones.

Frankly, I remain unconvinced. I see Apple's competition as mounting in intensity -- and representing a threat to sales, pricing, profits and margins. Stated simply, I don't see any present innovation or prospective creativity at Apple that will bring Cook's statements to reality for either the iPhone or the Apple Watch.

My column Apple in Wonderland last week underscored and expanded on my concerns. As I wrote:

"I was long been struck by the herd's brainless bullish consensus on Apple (AAPL) prior to yesterday's weak earnings.

As of last Friday, 44 out of 50 analysts had "Buy" ratings on the stock, while the average price target was more than 40% above AAPL's current price. The crowd thought the quarterly results that Apple reported last night would be slightly disappointing, but that the stock was still a long-term buy. ...

Only a few contrarians stood out, and frankly, I'm proud that I'm one of them. Despite what the AAPL bulls say, the tech giant faces all sorts of problems.

For openers, Apple is levered to its product cycle -- and in all likelihood, the iPhone 7's introduction (the company's next important upgrade) will be a disaster. After all, the iPhone 7 doesn't seem to have any important new features that will accelerate customer upgrades. (And Apple has basically guaranteed little consumer interest by leaking all of the iPhone 8's specs.)

AAPL also basically had just one chance to boost sales by increasing the iPhone's screen size, and that's already happened. Any new features that Apple seems likely to add in the foreseeable future are already available on rival phones that sell for less than half of what an iPhone costs.

Meanwhile, Apple Pay and the Apple Watch have failed to move the revenue needle much for a company with $200 billion in annual sales. And as I've written previously, I see no other new products over the near term that appear likely to do so, either.

Other issues I see for the stock:

-- Apple is levered to global economic growth, a variable that I'm not encouraged by (as you can gather from my commentary over the past six months).

-- Management concerns could surface. For example, major insider selling recently by the company's chief operating officer, chief financial officer and others should raise analyst questions. Executives don't blow out their stock in the belief that the company is facing just one soft quarter.

-- Supply-chain figures are deteriorating for most of the company's products,  from the iPhone to the iPad to  the Apple Watch. (See earnings reports and commentary from Glenn, H&M Global, Rosenblatt and JBL.)

-- There are signs of heavy product discounting in China. I've seen reports on new low-end phones appearing at lower-than expected price points, as Apple has to sell more than 50% more units to make up for iPhone 8s. AAPL also recently cut the Apple Watch's price.

-- Innovation is slowing and competitive threats are mounting. The latest new-product launches represent a good example, but even last year's launches weren't very impressive. The iPhone 7's upcoming launch will likely be a non-event at best. Checks point to Samsung's new phone taking market share away from Apple's wares. ...

My core investment thesis remains intact: It's unlikely that Apple's profits will exceed peak 2015 levels for years to come.

Of course, the bulls will emphasize the increased buyback authority announced yesterday, but isn't that further confirmation of "Peak Apple"?

-- Doug's Daily Diary, Apple in Wonderland (April 27, 2016)

The Bottom Line
After the interview, Jim wrote in the column Apple, Stay or Go? that:

"I have been a big believer that there cannot be a bottom until we get some analyst capitulation. We get that, then we get give-ups, we get give-ups and we don't go to Gilead-like levels.

Without give-ups, though, I think you get more of what we have had even after the Icahn interview because without more buys-to-holds there's no upgrade firepower.

I have seen this movie before. We need abandonment and spurned love before we really get to terra firma. I don't see it yet, but I sense we soon will."

I agree. Apple's shares have not yet met terra firma, and with last year's record earnings not likely to be eclipsed for years, the stock's outlook looks poor to me from both a relative and absolute standpoint.

Indeed, Facebook (FB) and Amazon (AMZN) are already challenging Apple's position as the world's most popular company.  For many like myself, Apple is already a distant third.

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