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The $10 billion Apple rumor

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Cross-posted from TradingWithCody.com, a service not affiliated with MarketWatch.

Not much mojo to the bounce of the lows so far, but we all know that the market is in the business of fooling the most number of people the maximum amount of the time, so it will come when it will come.

Some of our best stocks, including Apple, Google and F5 have all pulled back from their highs a good bit despite delivering blockbuster earnings and guidance and commentary — that is also part of what the market does. Stocks don’t go straight up, even if earnings are going straight up. As painful as it is, when great companies that are driving technological revolutions are sold off with the broader markets, that is the time to be buying and not selling.

You’re never going to consistently catch a bottom in the markets and certainly you w0n’t consistently catch a bottom in individual stocks either. You have to know when you trade that you will be down on some positions sometimes for a long time before they work out. People who bought Apple in early 2008 at $200 a share later got the chance to buy more Apple  AAPL -1.03% at less than a $100 a share after the Debt Crisis hit. Buying Apple at $200 in early 2008 would have turned out to have been a great trade. But hanging on and scaling into more Apple as it fell would have made the whole trade even better. Learn from history.

Since most of you have better things to do with your time than sniff out every Apple rumor, I thought I’d break down one of them for you.  Here’s a story last week from the Taiwanese semiconductor trade newspaper, Digitimes:

Apple has recently placed huge orders for mobile DRAM memory with Elpida Memory’s 12-inch plant in Hiroshima (Japan), securing about 50% of the total chips produced at the facility, according to industry sources. Apple reportedly will source mobile DRAM chips from Elpida for its upcoming iPad and iPhone series, despite the fact that the Japan chipmaker filed for bankruptcy earlier this year and has been in talks to sell its business, the sources observed.

None of the companies involved has confirmed the speculation.

Micron Technology has been pinpointed as the potential buyer of Elpida. The US firm will cut into the supply chain for the upcoming iPad and iPhone devices through its takeover of Elpida, the sources said.

Moreover, Apple’s strong demand is expected to significantly boost Micron’s presence in the global mobile DRAM market, the sources noted. Acquiring Elpida will allow Micron to challenge SK Hynix, which was ranked second by DRAMeXchange as the world’s second-largest mobile DRAM producer in the fourth quarter of 2011.

According to DRAMeXchange, Samsung Electronics led the global market for mobile DRAM chips with a 53.8% share in fourth-quarter 2011, followed by Hynix with 20.8%.

And since Samsung is the world’s biggest DRAM maker, and a major supplier to Apple, the rumor immediately hit the stock.  From Reuters:

Samsung loses $10 billion market value on Apple order report

SEOUL | Wed May 16, 2012 4:59am EDT

(Reuters) – Shares in Samsung Electronics Co slumped more than 6 percent on Wednesday, wiping $10 billion off the electronics giant’s market value, on a report that Apple placed huge chip orders with troubled Japanese chip rival Elpida.

“Samsung shares were already facing pressure since offshore investors began cutting back on risk during the latest streak of sell-offs, but the news surrounding Elpida was the straw that broke the camel’s back,” said Rhoo Yong-suk, an analyst at Hyundai Securities. “It was just unfortunate timing that coincided with jitters surrounding Greece.”

Samsung’s stock has sunk even a little more since then.  Cupertino’s DRAM orders are only about 1% of Samsung’s revenues but the two companies are in an all out smartphone war and it only makes sense that Apple wants to lessen its dependance on the Korean giant.  Right now Apple pays Samsung about 26% for the cost of every iphone and you better believe that’s part of the settlement talks going on right now.  Samsung even had to change its plans to address this rumor.  From TheNextWeb:

Following Apple defection rumors, Samsung reportedly launched new mobile memory chips earlier than planned

17TH MAY 2012 by 

Samsung has reportedly been forced to push forward the launch of its new 20-nanometer mobile memory chips to calm shareholder fears it lost a major contract to supply DRAM chips to Apple.

According to various unnamed Samsung executives, speaking with The Korea Times, the new 4GB ultra-thin memory chips are going to be used in Apple devices, despite reports that its rival had shifted part of its supply chain to Japanese company Elpida.

The funny thing is, I don’t even believe the Digitimes report.  Their credibility is strained in the tech intelligence community and this all feels like behind-the-scenes Apple vs. Samsung parrying  So when a noncredible but widely read source can move a stock by $10 billion dollars, you can gauge just how important the relationship of Apple to its suppliers is.  So you want to own companies like Broadcom that will profit from the Apple juggernaut over the next decade, rather than get in skirmishes that jeopardize their market cap.

Cody Willard writes Revolution Investing for MarketWatch and posts the trades from his personal account at TradingWithCody.com. At time of publication, Cody was net long Apple.

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Cody Willard

Cody Willard

Founder, CEO & Chairman at Wall Street All-Stars, LLC
Cody Willard is the founder of Wall Street All-Stars and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and writes TradingWithCody.com. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. He wrote a monthly investment column for The Financial Times as well as columns for TheStreet.com and was a regular guest on CNBC’s Kudlow & Company from 2004 to 2006. Cody’s stock picking ideas and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.
Cody Willard
Cody Willard

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