When Apple's Rumor Economy Turns Against It
Apple used to use its secrets to its advantage, letting the rumormongers do all the hyping, but now that the whispers have less gushing things to say, rumors no longer help the company's stock price. Take today's Apple rumor: anonymous sources told The Wall Street Journal demand for the iPhone is down, and the unsubstantiated claim sent the stock below $500 briefly this morning, an 11 month low of $498.15 more than $200 off the stock's all-time high back in September before the iPhone 5 launch. See, rumors must be mongered. In the past, that has meant speculation about the next gadget of our dreams. But, ever since the launch of the latest magic-phone to come out of Apple, the Apple hype-cycle has gone dark. iPhone 6 rumors are scarce, with the less exciting talk about a cheap phone dominating the conversation about new Apple products in the pipeline. So here to fill the void left by apparent design mock-ups and other iPhone dreams, comes this talk about waning demand. And just like that the secrets that once buoyed Apple's sock sent its per share price plunging on the rumor of fading iPhone popularity.
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This rumor problem isn't a one time thing either. In fact, this is the third time since the iPhone 5 launch that demand fears have spooked traders. The little Wall Street Journal story with intel "people familiar with the matter" seems to have been birthed from other stories from the last month reporting a similar rumor. The suggestion of falling demand first surfaced from "sources" about a month ago. Back then, the idea also pushed Apple's stock below the $500 mark. The talk hasn't gone away, since. And now that The Journal checked with its sources, the fear is back.
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Demand rumors also hurt the company's stock just after the phone launched. The record-breaking 5 million phones sold during the gadget's debut weekend disappointed investors because of rumors that it had to do with shrinking demand for iProducts. Apple CEO Tim Cook suggested that was not the case, chalking it up to supply issues. "Demand for the iPhone 5 has been incredible," read the statement. "We appreciate everyone's patience and are working hard to build enough iPhone 5s for everyone." Foxconn later confirmed that. But that didn't stop the rumor from coming back again.
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Despite this new pattern, Apple has stayed secretive. Besides that statement from Cook, which came long with the phone sales announcement press release, the company hasn't spoken to the rumors. Generally, this strategy works for the company. Though, sometimes fake rumors can hurt the company's bottom line. But the incredible new technology following a product launch generally distracted people and investors from all the unfulfilled promises. This time, however, because of shifted expectations, this gadget didn't induce that kind of awe. And with few exciting new rumors of the iPhone 5S (or 6) to play that role in the hype-cycle, negative speculation has caught the eye of investors.
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As for the validity demand rumor itself, these suggestions might have some truth to them; Apple has had trouble winning over new Asian markets. But the talk might add up to something more nefarious. The Securities and Exchange Commission has before suggested that such "channel checks" could fall under insider trading, according to a 2010 report from The Wall Street Journal. At that time, the Journal wrote that the SEC was looking this very grey area. It doesn't look like anything came out of that. But, the timing of these rumors is curious. Apple will report last quarter's earnings next week, including how holiday sales of the iPhone 5 did. If you remember, last year, Apple had a very monster quarter after the 4S launched. If it doesn't excede or match that, you can bet investors will start to bail. A little preparatory intel on falling phone demand, however, gives some a too-convenient early out.
