David Tepper runs Appaloosa Management, one of the largest and most profitable hedge funds. Apple Inc. (NASDAQ:AAPL) has been one of Appaloosa’s biggest holdings in recent years.
On Wednesday, the fund’s 13F filing revealed that Appaloosa had sold a lot of its Apple stock last quarter — about 40% of the fund’s position. But Tepper might just be getting started.
In an appearance on CNBC Tuesday, Tepper talked Apple Inc. (NASDAQ:AAPL) — what the company needs to do, and what would make him sell his Apple shares.
Revolution or evolution
Trading in the mid-$400s, Tepper views Apple Inc. (NASDAQ:AAPL) as just another tech company:
“It’s OK right here — just another thing in a tech basket…Should more or less perform with the market.”
Strategically, Tepper thinks Apple is sort of sitting at the crossroads. Either the company needs to hurry up and release the next big thing, or, if it finds that it can’t, it at least needs to improve on its existing products, and develop its ecosystem.
“I’m waiting to hear…do they have something revolutionary?…Or do they have something evolutionary?..If they don’t have something great and fantastic, make a bigger screen for goodness sake. And by the way, while you’re making a [bigger screen]…promote the ecosystem…make a cheaper phone…that ecosystem can have a very high multiple.”
Even if — as some of Apple Inc. (NASDAQ:AAPL)’s critics allege — the company’s innovation died with its iconic founder, Tepper still thinks Apple can be a good company based on its existing products.
“If you don’t have the Steve Jobs around to do the revolutionary sort of thing…Do the evolutionary thing and you can still have a very good company that gets better.”
But even though Tepper thinks Apple Inc. (NASDAQ:AAPL) is OK right now, the status quo can only maintained for so long. Come fall, Tepper has a more binary view of Apple. The company needs to be ready with something by September, and if they aren’t, watch out.
“If they don’t do either [evolve their products or create something revolutionary], we got a problem…So, in September, if they don’t have either — boy I hope I don’t own the stock or [if I still do] I can move fast.”
What can Apple do to evolve?
Tepper’s suggestions for Apple are hardly mind-blowing. Analysts and commentators have been pushing for Apple Inc. (NASDAQ:AAPL) to release both a larger and a cheaper iPhone for quite some time.
The benefits of both are obvious. After SAMSUNG ELECT LTD(F) (NASDAQOTH:SSNLF) released the its Galaxy S3 with a 4.8-inch display, nearly all phone major phone manufacturers have followed suit — that is, except Apple.
Although the iPhone 5’s screen is a bit longer, Tepper hardly sees that as evolutionary.
“They haven’t done the evolutionary thing either…SAMSUNG ELECT LTD(F) (NASDAQOTH:SSNLF) comes out with a big screen…I’m still waiting!…Do something!”
On earnings calls, Apple CEO Tim Cook has repeatedly shot down the notion that the company picked the wrong screen size for the iPhone 5. In particular, during Apple’s most recent earnings call, Cook reiterated his belief that the iPhone 5 has the “best display in the industry,” and that Apple would not ship a larger phone until it met the company’s standards on other metrics — resolution, color quality, etc.
That said, it doesn’t mean Apple won’t eventually offer a larger iPhone — but will the company have one ready by September?
Is a cheap iPhone coming?
The same can be said for a cheap iPhone. Some analysts have called for a low-cost iPhone to be released this summer, but thus far, there is no indication that such a device is forthcoming.
The other factor to consider is, how cheap is cheap?
During Google Inc’s (NASDAQ:GOOG) developers conference on Wednesday, CEO Larry Page remarked that the average Indian consumer spends $50-$100 on their smartphone.