Apple's worst day on Wall Street since 2008 leads to wild speculation on reasons
Apple stock took its biggest one-day slide in four years Wednesday, dropping 6.4 percent to lop off nearly $35 billion from its world-leading market capitalization.
Apple stock sank on heavy trading, with more than 37 million shares changing hands despite an average volume of about 22.1 million, following the sale of large chunks of stock by Apple executives including Eddy Cue. The most interesting aspect of Wednesday's dive, however, was the myriad possible reasons analysts provided for the sudden drop.
-- Theory No. 1: It's the dividends, dummy. As The Mercury News reported Tuesday, large tech companies such as Oracle (ORCL) and Cisco (CSCO) are handing out their dividends for next year early to avoid possible tax hikes on the cash as a result of the "fiscal cliff" changes that could take effect at the end of the year. Apple, which started paying dividends to stock holders in 2012, declined to do so, so investors may be taking their profits now to avoid larger tax bills in 2013.
"As soon as funds became convinced that (Apple CEO) Tim Cook wasn't going to participate (in the special dividends), they began transitioning out of Apple for the short run," Economic Timing's Jason Schwarz wrote Wednesday.
-- Theory No. 2: There are technicalities involved here: Piper Jaffray analyst Gene Munster noted that Apple performed what is known in trader circles as the "death cross," when a stock's 50-day and 200-day moving averages cross. "Based on our conversation with Piper Jaffray Technical Analyst Craig Johnson, we believe that for this technical indication, most of the damage has been done to Apple, but there could be a worst-case additional 10 percent move to the downside which could be the next meaningful area of support," Munster noted.
It was also noted that a recent scandal involving the purchase of Apple stock that landed a trader with fraud charges has led some funds to increase their margin requirements for Apple, which is the amount traders must pay in order to make short sells or perform other intricate trades.
-- Theory No. 3: Those rumors out of Asia: Taiwan news source Digitimes reported that Apple has cut back on its orders for components, suggesting that the company is slowing production in the first quarter of 2013, which could damage Apple's earnings for that quarter. Munster had this first on his list of four possible reasons Apple tanked Wednesday, but instantly shot down the idea that it would hurt Apple, saying that the company's drawing down production after a quarter in which it launched a new product and ramped up for the holiday season would be normal. "We believe this 20 percent decline is to be expected coming off of a launch quarter and do not believe it is an indication of how units might trend in March," the bullish Apple analyst wrote.
-- Theory No. 4: Apple's growth is slowing, its product refresh isn't innovative, and the competition is growing. This theory has been growing for months, and can be summed up with the phrase "Steve Jobs isn't walking through that door." Wednesday's "evidence" for this theory, and reasons it would rear its head in a one-day drop, included AT&T possibly revealing its iPhone sales would increase "only" 5 percent year-over year; Nokia striking a deal with China Mobile -- the world's largest mobile carrier -- to sell its newest smartphone in the world's most populous country, a deal Apple has not cut ; Apple's latest product refresh being underwhelming; and a drop in tablet market share.
Brian Battle, director of trading at Performance Trust Capital Partners in Chicago, told Reuters that the China Mobile deal "is not going to be a short-term trend. This is a management test, of how well they can perform without Steve Jobs," then moved to the last reason on the list in the previous paragraph, stating that "They need another new product that hits it out of the park. Without that, they could get a gradual grind-down in confidence."
Any or all of those theories may have played into Wednesday's fall, Apple's largest one-day percentage decrease since the Great Recession was in its heyday in 2008. Then again, it could just be the vagaries of the marketplace, where Apple shot to the highest market cap on record earlier this year, then dove into "bear market territory" just months later.
"Apple stock is significantly more volatile than its earnings and innovation stream," Hudson Square Research analyst Daniel Ernst told Reuters, later adding "It makes no sense. There are lines around the block for their products all around the world. No other company has that."
Apple stock declined $37.05 to $538.79 on the day, with its market cap -- the total value of all shares -- staying higher than the vaunted $500 billion mark, at $506.8 billion.
Citigroup counteracts Apple's drop, tech stocks are mixed
Apple's decline did damage to indexes that include the Cupertino tech giant, with the Nasdaq falling 0.8 percent, the Standard & Poor's 500 gaining 0.2 percent -- far less than the Apple-free Dow Jones, which grew 0.6 percent -- and the SV150 index of SIlicon Valley largest tech stocks plummeting 2.4 percent.
"Today's move is because of index weightings, with the Nasdaq down because of Apple's decline," Rex Macey, chief investment officer of Wilmington Trust, told Reuters. "The S&P is up because Apple isn't as big a weight in that index, and the Dow is up even more because it isn't there at all."
The broad-based S&P managed to avoid large losses because it also includes some of the day's best performers, including Citigroup, which was almost the exact inverse of Apple -- gaining 6.3 percent on the trading day. The New York-based financial company announced Wednesday that it would cut more than 11,000 employees in the first big move for its new CEO.
Other technology stocks were mixed. Netflix (NFLX), which had a huge bounce Tuesday on news of its deal with Disney, settled back down with a 3.8 percent dip despite promises it would not raise subscription rates to cover the cost of the deal. Intel (INTC) also dropped one day after large gains on Wall Street, which were fueled by a stock-buyback plan. The Santa Clara chipmaker fell 0.6 percent after Raymond James cut its rating on fears of low margins and an outsider CEO, though outgoing CEO Paul Otellini said Wednesday that he expects Intel to look in-house for his successor.
On the positive side, Hewlett-Packard (HPQ) continued to bounce back from its Autonomy- and earnings-fueled doldrums, following Tuesday's 5.1 percent increase with a gain of 2.1 percent Wednesday. Zynga also bounced back from extreme losses in the wake of its breakup with Facebook, gaining 3.1 percent after the Wall Street Journal reported the San Francisco social-gaming company had a new deal with a cable-TV-related company.
Instagram cuts Twitter integration in possible move toward monetization
The Zynga-Facebook split was overtaken by a new social-networking rivening Wednesday, as Instagram began the process of removing its photos from Twitter.
Twitter announced Wednesday morning on its Status Blog that Instagram photos would likely appear oddly cropped because Instagram had disabled its integration with the San Francisco microblogging service. Instagram co-founder and CEO Kevin Systrom verified the change later in the day at a Paris technology conference, saying that eventually, Instagram would only allow Twitter to provide links to users' photos, which would lead to Instagram's own sites.
"We believe the best experience is for us to link back to where the content lives," Systrom said in an official email statement provided by Facebook.
"We don't have any specific plans to share about advertising yet," Systrom said in an interview with Reuters TV on Wednesday, but later added "Even from the beginning when we started Instagram, we realized we had to build an independent business, and even within Facebook, we realize we still have to contribute to the business."
Facebook stock rose 0.9 percent Wednesday to $27.71, though that gain may more attributable to the stock's move into the Nasdaq 100 index, announced late Tuesday afternoon.
Silicon Valley tech stocks
Down: Apple, Netflix, Palo Alto Networks, Workday, Jive, VMware, Oracle, Nvidia, Yelp, Applied Materials, Intel, Tesla, Google
The tech-heavy Nasdaq composite index: Down 22.99, or 0.77 percent, to 2,973.70
The blue chip Dow Jones industrial average: Up 82.71, or 0.64 percent, to 13,034.49
And the widely watched Standard & Poor's 500 index: Up 2.23, or 0.16 percent, to 1,409.28
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