Stocks Rise as Investors Fret over Weak Apple Inc. iPhone Demand

By Demitrios

Stocks ended slightly higher in today's trading session. The S&P 500 and the Dow Jones Industrial Average both posted small gains after falling by as much as 0.37% in early trading:

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Individual stocks on the move today included the most valuable one on the planet. Consumer tech giant Apple lost 3% -- or roughly $20 billion in market capitalization this session. Meanwhile, cloud computing and hosting services provider Rackspace Hosting clawed back some of its 2015 losses with a 12% jump on the day.

Apple iPhone worriesApple was the Dow's biggest loser, with the stock slipping on worries that customers aren't snapping up its latest smartphone models, the iPhone 6S and iPhone 6S plus. Credit Suisse analyst Kulbinder Garcha today lowered his 2016 iPhone shipment estimate from 242 million down to 222 million units after supply chain research suggested that the tech giant is slowing down its ordering pace for parts. "Apple has lowered its component orders by as much as 10% according to our teams in Asia," Garcha wrote in a note to clients.

Credit Suisse also cut its earnings estimate by 6% to $9.81 per share while warning that, "the continued weak supply chain news could weigh on Apple shares for the next few weeks/quarters."

Image source: Apple.

There's no doubt that this single product has an outsized importance to Apple's business. In fact, iPhone growth accounted for much of the company's $51 billion of sales gains over the last four quarters. So it's worth investors' keeping very close tabs on iPhone demand.

But supply chain rumors aren't reliable indicators of global sales. And, worse still is trying to predict how Wall Street might react to those rumors over a period as short as weeks or quarters. That's why investors are better off waiting for official reports from CEO Tim Cook and his management team. So far, we know Apple posted a strong launch for this year's iPhone model, as added features like 3D Touch, the new A-9 processor, and an upgraded camera generated record global sales at release.

Rackspace's speedier growth Rackspace Hosting's stock jumped by 12% after the cloud computing and hosting services provider posted its third-quarter earnings report. The headline numbers were strong: 11% sales growth and 12% adjusted EBITDA gains. Both the top and bottom line figures were above recent growth trends and ahead of the guidance that management provided last quarter.

Profitability also improved as monthly server revenue hit a new high. Rackspace's 11% operating margin was its best result on that metric in over a year. "We're proud of the financial results that we delivered in the third quarter," CEO Taylor Rhodes said in a press release.

Executives see steady gains continuing into the fourth quarter. They upgraded their sales outlook, and now expect $521 million of revenue at the midpoint of guidance ($4 million above last quarter's guidance). Yet it's too early to say that Rackspace is on track for faster, more profitable growth. The third quarter benefited from the timing of a few large enterprise deals, for example. And that's why management is projecting a relative slowdown in both sales growth and profitability next quarter.

Still, the company is encouraged by the new customers it is winning for innovations like its support for clients using Amazon'sAWS cloud service. That offering is "allowing us to expand our [total addressable market] and go out and find customers who we may not have been able to serve before. So, we believe that these are positive early signs," Rhodes said in a conference call with analysts. Investors chose to agree with that optimism today, but the stock still remains 35% lower on the year.

The article Stocks Rise as Investors Fret over Weak Apple Inc. iPhone Demand originally appeared on

Demitrios Kalogeropoulos owns shares of Apple. The Motley Fool owns shares of and recommends and Apple. The Motley Fool recommends Rackspace Hosting. 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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