Volatility

A small point this, but too long for Twitter. 

Apple's iPhone business is very cyclical. This is inherent in the One Big Annual release model: sales jump up for the new model, then fall back as demand is filled. Over time this has been intensified by three factors: 

  1. Apple is getting better at ramping up supply, filling more of the pent-up demand for a new model quickly
  2. As an extension of this, Apple is launching in more countries more quickly
  3. With the great majority of iPhones being bought on 24 month contracts, this tends to become self-reinforcing: people who buy in a launch quarter will come off-contract and upgrade in another launch quarter (assuming Apple doesn't change the phasing)

This is all pretty obvious, but we've seen one consequence of it in the last few weeks in the share price: there is huge variability in reasonable estimates of what Apple sales of the iPhone 5 might be in the launch period - the December and March quarters.

This chart illustrates the point very clearly, showing quarter-on-quarter changes in iPhone unit shipments over time. It plugs in 50m units for December and 40m for March, both pretty consensual and not formal estimates from me: I include them just for the sake of illustration.  

Screen Shot 2013-01-16 at 1.00.47 PM.png

Most company's sales don't look like that: if you have a negative view on the stock, you might propose that sales fell 10%, or 5%, in the past quarter, or grew 5% instead of 10%. But for Apple the question is: were they up 50% or 80%? Did they then fall by a quarter, or by 20%, or 50%, or were they flat? All are, in principle, possible, whereas a 80% increase in, say, Samsung's smartphone sales in one quarter is literally impossible. 

This is really at the root of the volatility: in just one quarter everything might change totally. Apple's phone business depends on one product with one launch: it's hardly surprising people get nervous. 

This is, of course, just one reason for the weakness in the stock in the last few months (I've seen literally dozens proposed, with varying plausibility, and have no intention of discussing them), but it is a key issue and will not change as long as Apple keeps to the annual cycle.