The Big Question Ahead for Apple Inc. (NASDAQ:AAPL)

Apple Inc. (NASDAQ:AAPL) shares took a pounding on Monday in response to guidance from a major supplier for its 3-D sensing technology involved in one of its newest models. However, the question is really about whether or not the company understood the risk apparently unearthed by this guidance in the guidance that it gave it self during its earnings report about 10 days ago.

But, more than that, this shift really gets right to the heart of something that we discussed in our recent coverage of the stock: where we stand in the evolutionary path of this company. For example, this company has been predicated upon a device product cycle that has begun to run up against its Malthusian barriers. If you jump on a subway or a bus to get around town, and you look to either your left or your right, you will see at least five iPhones. And that’s if you live in Nigeria or Bangladesh or Belarus or the tiny island of Nowhere.

Apple Inc. (NASDAQ:AAPL) is going through an evolutionary transition, as noted above, likely from the lower margin device manufacturing space to the relatively higher margin cloud services space. Not only is this a potential ramping of margins in terms of ROI, but it is also likely a potential ramping over time in the price to sales ratio earned by investors for ownership of shares of the stock.


Reading the Tea Leaves

Technically, the stock is quickly approaching a test of its rising 200 day simple moving average. That comes roughly in confluence with support at the range highs logged over the summer from May to July in the neighborhood of $190 per share.

The very long term trend line defining the action for this stock will not be tested unless it falls about another 5% into the $180 per share area.

As we discussed above, the real question here is about whether or not the company knew, when it voiced its guidance for Q4 just a matter of 10 days ago, that it was about to call Lumentum and tell them to massively reduce their unit supply volume for iPhone parts.

It seems relatively unlikely that the company would’ve had no awareness of such a dramatic change for such an important part of its product equation such a short time ago.

That brings up the interesting possibility that this downshift in expectations was actually figured into the company’s guidance already given – and therefore already figured and discounted into the market as of nearly 2 weeks ago – ahead of its massive decline today.

If so, then investors looking for a bargain may be staring right at it at the largest market cap stock on the planet.

Apple Inc. (NASDAQ:AAPL) generated sales of $62.7B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 17.3% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($66.3B against $116.9B, respectively).

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