When the Apple Rumor Mill Gets Carried Away

The Apple rumor mill never sleeps, constantly feeding investors with a barrage of new information that may be positive or negative and may be true or false. I monitor the rumblings and try to help you make sense of it all, Foolish readers. But it doesn't help anyone that sometimes the speculative cycle simply gets carried away.

Many reputable news outlets have a wide network of "sources familiar with the matter" that disclose tips to reporters. However, most of these reporters are there to do just that: report. They're not equity analysts, nor do they play them on TV. They don't do WACC calculations or perform a deeper analysis of domestic iPhone data.

Sometimes reporters in the broader tech press jump to conclusions, especially if it makes for a catchy headline. Most of the time it's hard to conclusively say that a reporter is just being a little... overzealous. This time we can.


Sound bites bite
Yesterday, Bloomberg ran a report claiming that Apple supplier Pegatron's sales were under pressure as "iPad Mini demand falls." That part, which also lent to the headline, is pure speculation. Reporter Tim Culpan quoted Pegatron CEO Jason Cheng in what was seemingly the executive calling out the iPad Mini specifically as a soft spot. Assuming that Pegatron wants to remain an Apple supplier, it's unthinkable that it would blatantly break Apple's oath of secrecy by blabbing to the press.

This is a textbook example of a reporter taking a quote out of context and misappropriating it to get a specific angle. It's often hard to tell when this is happening, but Cheng personally set the record straight.

In a follow-up email to Apple 2.0, Cheng said that Pegatron provided guidance for the second quarter, with all consumer electronics expected to post a sequential decline. Pegatron only discloses broad categories and doesn't detail "numbers for specific products nor customers." Cheng recalls "one reporter from Bloomberg" grilling him for detailed numbers on specific products, but the CEO "clearly refused" to elaborate further.

The quotes within the article were indeed said, but taken entirely out of context, as Cheng was referring to the broad category that includes tablets like the iPad Mini, but also products like game consoles and e-readers. Cheng said nothing about weak iPad Mini demand. Sadly, "Pegatron Discloses No Details on iPad Mini Demand" isn't quite as interesting of a headline.

Culpan was trying to connect the dots for a scoop, even if that meant inaccurately jumping to conclusions.

Stop me if you've heard this one before
There are plenty of other examples of reputable outlets making similar assumptions. For example, The Wall Street Journal reported on iPhone component order cuts in January, citing "weaker-than-expected demand." That report was rather scary and knocked shares down quite a bit, even though the numbers didn't add up.

A month later, Financial Times said Foxconn was implementing a hiring freeze, which was presumably related to "weakening demand for some Apple products." That headline also took a bite out of shares. Turns out the hiring freeze was actually due to more workers staying on board due to improved working conditions and wages.

When display panel supplier LG Display reported the smallest profit in several quarters and forecast that second-quarter shipments would increase by a modest 5% to 10%, Reuters posited it was because "demand for iPhone and iPad screens from Apple weakened." LG Display is one of Apple's main panel vendors, but the company's dominant product category is TVs (where Apple has yet to enter) at 46% of sales last year.

That's why investors shouldn't pay much attention to dubious supply chain rumors, even from reputable outlets. Each incremental data point may be worth acknowledging as a sliver of the broader picture (if it's even accurate), but don't buy or sell based on these types of reports. Most reporters are reporters, not analysts.

Got Apple? Get smart.
There's a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

The article When the Apple Rumor Mill Gets Carried Away originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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