Apple: I Thought Tim Cook Was a Supply Chain Genius

There has been a lot of positive commentary regarding the new iPhone 7. However, as my readers would know, I have been bearish on Apple (AAPL) due to the prospects of the iPhone 7. It has been difficult to remain bearish on Apple amid the widespread euphoria and exuberance surrounding Apple and the iPhone 7.

In fact, the bullish commentary has seen Apple enjoy its best week in almost five years with the stock gaining roughly 11%. Although I, along with several other analysts, expected the iPhone 7 to be a flop as compared to its predecessor the iPhone 6, but the early numbers from carriers like Sprint (S) and T-Mobile (TMUS) suggests that the iPhone 7 will be the best selling iPhone till date.

According to their statements, pre-orders at Sprint have increased 375% Y/Y in the first three days of initial reservations while T-Mobile notes it has realized sales that "shatter all previous iPhone pre-order records at T-Mobile." T-Mobile further cites 4x order volume from Friday through Monday compared to the next most popular iPhone and record single day sales of the devices on Friday over every smartphone it has ever offered.

Naturally, following this report, many firms followed up by upgrading Apple’s price target, further fueling the euphoria.
Apple: I Thought Tim Cook Was a Supply Chain Genius
Image by ToomaCZ / Pixabay
However, if Apple is really selling the iPhone 7 at a breakneck pace, why did the company not reveal the weekend sales figure for the first time in its entire history?

If the sales were actually as good as the recent report claim, there was no way Apple would have kept the numbers hidden. Although the company did justify its decision by saying “these initial sales will be governed by supply, not demand, and we have decided that it is no longer a representative metric for our investors and customers.”

However the reason that Apple’s sales will not truly reflect its “strength” due to supply issues doesn’t make sense to me. Before Tim Cook became the CEO of Apple, he was often touted as a supply chain genius and he is still considered a genius. However, doesn’t it seem odd that a supply chain genius would fail to analyze the true demand before the launch of a major product?

Although it is possible that Cook made an error of judgment since he is human after all, but the chances of that happening are pretty slim. Cook is the CEO of the world’s biggest company and he botched the launch of the company’s biggest product. A mistake like this at the world’s biggest company would usually result in a sacking and would be highly uncharacteristic of Cook.

However, I think Apple intentionally undersupplied the iPhone 7 (due to the weak expected demand) in order to create the illusion of strong sales. The strategy clearly didn’t work as there were pretty small lines at retail stores during the launch.

Hence, I think investors shouldn’t get caught up in the euphoria and should consider shorting Apple for the short-term to benefit from its eventual pullback.
Published on Sep 22, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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