BalancedView

Long/short equity, value, contrarian, special situations
BalancedView
Long/short equity, value, contrarian, special situations
Contributor since: 2012
"Shock Exchange... laid out the playbook for Apple to follow in order for the iphone 6 launch to be a success. Apple didn't follow that playbook"
An Arrogant statement..... Provide insights, not self dealing.
Apple - Innovates truly revolutionary concepts. They also take care of their customers and stand behind their products... thus building earned loyalty.
Samsung copies/fabricates the trade secrets Google stole. SS's negative advertising is also quite unappealing to many. It's second rate.... every step of the way.
That my friend is the BIG PICTURE. Many will NEVER buy Samsung due to these inarguable facts - No matter how big the screen or how many buy 1 get one free "Deals" they offer.
Well done. The Ecosystem is deeply undervalued as is the company. With the strongest brand globally, whatever new product they launch next will succeed. Their evaluation process for new innovations has the highest stds unlike their competitors. Apple will continue to deliver.
BV
Though the IDC link provides a factually correct set of information, it is essentially a historical look just prior to the new product release(s).
As the IDC study should be updated in January, we can expect this to show strong Apple growth in iMac, macbook air and macbook pro. The question "DURING" that qtr will then be around what is occurring in China relative to the Chinese New Year and also whether the iPhone mkt share(smartphones) has held steady at above 75% in Japan.
As investors, we should be forward looking in addition to your reference article on the recent past as both views are valid and keep us honest with ourselves.
We'll done! Appreciate the time it must have taken to clearly articulate and educate on this topic.
If Apple is going to vertically integrate it seems their US forward integration advantage should be migrated overseas. Getting closer to their customers via this forward integration (in Asia specifically) would have provided them the insight that a bigger screen was fundamentally required due to number of characters and typing ease and not just a "bigger is better" mentality.
That said, based on the recent past results. Apple will learn & adapt and when they get it right in Asia in 2014/15 they will create legions of devoted fans their also. This expanding loyalty will translate to growing cash flows yielding the next significant stock price jump.
James,
It does not appear you are providing a complete story with your knowledge. Specifically the MIT review you cite clearly states that the cost difference between gorilla glass and sapphire will go from essentially 1:10 today to 1:6 when the new production ramps up. Separately, as many are providing "Sapphire predictions", Mine follow:
Today Sapphire is used on the 5S fingerprint scanner & camera lens cover. Demand outstrips supply thus Apple MUST expand production to not only meet 5S production but in the following product categories:
1) Ipad mini (fingerprint sensor & camera).
2) ipad Air (fingerprint sensor & camera)
3) As apple continues to expand its product portfolio they will have an upper/upper end phone for all new released phones (4", 4.7" & 5.5") that will include sapphire for its entire front face.. These phones will cost consumers an additional $100 with a corresponding component cost adder will below $30 initially and below $10 in two years. This pricing and cost scenario will provide an initial 70% gross margin feature. Not too shabby. And oh yes, they will have exclusivity on this patented low cost production process. So... others will typically follow.. but at a higher cost.
Thanks for your article,
BV
Hi Bill,
Time will tell but I believe you continue to underestimate LO... though your own charts clearly show underlying strength. Ecigs is a significantly healthier alternative to introduce nicotine... it now being equivalent to caffeine in terms of addiction and health impact. Thanks for your article(s).
BV
IS - I agree that Apples downside is limited but not only for the reasons above. I agree the launch performance is a huge tell on future growth and that a PE below the S&P 500 is too low, but the graph looking at US only iPhone/competitor unit gains to me seems a bit limited in scope.
Overall, I agree with your premise and as you am an Apple bull but in addition to the two credible reasons above I might add the following:
1) Stock buyback. (Value investors love this)
2) Consistent and large positive cash flows. (Ecosystem with highly loyal customer base)
3) Enhanced launch footprint. (increases time to sell product as competitor copies apple and does a quick launch=android phones).
4) High Resale prices as a proxy for how Apple stands up against its Android competition. Many pay more for an old iPhone than a new galaxy.
5) Decision (finally) to expand their iPhone product offerings.. Today the 5C (new lower cost construction.. price will drop significantly next launch); Tomorrow(2014) a larger screen (5x7 icons.. about 4.8").
6) Increased distribution channels. Docomo last month and China mobile this quarter (my hypothesis is launch to occur prior to Chinese new year festivities in late January).
Good luck to all,
BV
This transcript is almost unreadable.. Not sure if the CEO John Addison is not providing useful responses or they are not being recorded properly.
S Deol - Agreed. That was the real purpose of the article.. get publicity, obtain a following and then leverage that following to make $$. Unfortunately, it will probably work for him. But, in the final analysis, using that metric and that metric alone is too unbalanced for CNBC to have allowed him air time.
He was dripping with sarcasm.
Ignoring middle finger gestures; Apple should initiate a buyback program based upon the price of the stock (ex: 400-450). This will have the effect of initiating a floor for the stock while increasing the yield.
Today Apple's yield is 2.5%. A 20% buyback(if they could buy this much in that price range) would jump the yield to almost 3%. Then increasing their payout from 20% to 40% further increase the dividend yield to almost 6%.
Result: stock price stabilization with an upwards bias.
Gutone,
Unfortunately, I believe Mark Twain's phrase about using statistics to bolster weak arguments applies to your article. ttp://en.wikipedia.org...
Innovative products by definition capture a higher price initially and then are reduced to maximize margin dollars (profit/unit x # units).
A slight lowering of prices while adding desirable features is not losing pricing power as you believe. It's just brilliant management.
BV
Paul,
You may not have the numbers but being so detail oriented and mathematically inclined (based on your Amazon articles) I would have expected you to make a projection on what is known (not impacted by your hypothesis... ie non VZ iPhone users) and then make an educated guess on what is not known (VZ.. unlimited data plan). Including an estimate of china growth would then allow you to provide a useful potential impact on a percentage of iPhone overall use.
You are making good money off readers.. you should consider providing more/above information relative to your hypothesis. It will make your users stickier vs departing.
I could do this work for you as you suggest (as it's not that much work).. but I think that's not where the responsibility lies.
Good luck and I hope your decision is to continue to grow readership vs the unappealing alternative above.
BV
Paul,
To bolster you article can you share the number of VZ "Unlimited data plan" subscribers there are... and where those subscribers will go if they do in fact leave?
These "departing subscriber" estimates can then be compared to what is going on in China not only with the China Mobile launch (Feb?) but also the stellar growth at China Telecom & China Unicom.. China is where the real game is now being played for Apple Management. If Apple can get govt buy-in (CHL included) then they're in Tremendous shape for years to come.
davel,
Let me clarify my thinking. There is occurring a transition of Apple shareholders from growth funds to now include value funds. This transition needs to be looked at from 1 yr ago vs today. This transition was/is inevitable as companies fulfill their growth potential and mature. Apple has now added a dividend and this dividend will grow over time (todays payout ratio is near 25%). The valuation of Apple in the future (as the percent of value funds grows) will be as much or more due to the dividend payout as their growth. The higher the dividend, the more value funds and the greater % of those value funds will be investing in Apple. Value Funds are significantly larger than growth funds if you look at the market in its totality... Considering pension funds and other big money funds which require less risk this is clear. The dividend provides a floor to a stock if growth slows, growth funds exit when this occurs.
So, my assumption was certainly not incorrect and the PE of Apple (like many, many other companies) has seen a compression of late. It is not the compression that is important over time, it is the dividend yield. If you have a shorter term investing horizon (say a year or two) then you can ignore the dividend but if you are a long term investor the dividend matters much. Over the course of the last 80 years, dividends have provided as much return to shareholders as has stock appreciation/depreciat...
As far as the professionals not believing in the future prospects of apple, that is certainly not the case as they've got $1/2BB invested in the stock. It's more about minimizing their risk. Almost no "professional" would say they do not believe in Apples future, but many would certainly say the upside risk vs the downside risk is becoming less favorable as Apple is required to continue to dominate when it's competitors and governments are all working to prevent market dominance.
Kofi,
Though I wish it were not true, the Apple buybacks over the course of 3 years will only cover the employee stock plans. Hindsight is 20/20 but I would have to imagine Apple management a year ago knew earnings would be unimaginably good given the upcoming product launches and the unquenchable appetite in China, China, China.. Thus, they should have been buying back shares last year. This would have improved the 1.8% dividend return to 2.5% for the same $10BB payout and $600 stock price. Too bad for the long term investors such as myself.
Additionally, I realize they would have only used the US cash unless they wished to repatriate non US earnings and pay taxes first. Regardless, share buybacks should occur when the stock is clearly undervalued as Apple was last quarter with a FPE under 9.0... No need to wait longer when the price is higher to make big buybacks and thus follow the wasteful path of Cisco, Microsoft etc...
RS - Your comment surprises me. I suspect Apple is and will continue to be fine with Amazon distributing their products at the high margins Apple commands.
Amazon is a distributor and a good one at that. But, distributors of others goods do not justify these lofty multiples for decades. Additionally, in the future I expect that Amazon will be required to start shelling out sales tax like all storefront companies in America. This change will narrow their advantage over the likes of Walmart.
Correction - Apple's Yield i was initiated at 1.8% (I only wish it was 2.5%).
Ryan,
I agree with Delta_V above. They seem to be keeping the number of shares consistent on a year to year basis. This employee enrichment activity is exactly what Apple announced in their recent $3BB buyback over multiple years. It is amazing to me that these companies were not willing to reduce the number of outstanding shares. You would think that the Board's might be aware of the stunning growth and that much higher profitably was a given.. they also in Apples case would have known of the increasing pressure from pension, mutual, hedge funds for a dividend increase... and that regarding Dividends it is the yield that counts (not the $size of buyback). Apples Dividend with the same monster $10BB dividend announcement should have provided a yield 4% and not 2.5%... That only would have required buying back stock 1 year ago with cash they had available... This "wait till the stock is higher" to start the buybacks is mind numbingly shortsighted. Just call me annoyed with BOD's who clearly are on the side of employee enrichment vs their fiduciary duty of taking the right steps for the company owners (shareholders).
BV
Vet,
Appreciate your feedback. I'll let you know what I found out from Microsoft investor relations. Have a great Holiday weekend!
Based on the link you provided, a $5/phone royalty may be closer to what was agreed to. This would equate to a royalty of just under .8%. This royalty may go on forever but as pointed out in the article, it may last only as long as apple is unable to figure out how to design around.
xfit - I am curious to know where you obtained your information that Nokia realizes 2% for every Apple iPhone? If this can be verified it will change my investment perspective on a few companies in a big way.
Alternatively, according to Apple's christmas quarter: http://bit.ly/HlWnwd iPhone sales exceeded $24BB. 2% of that would be almost $1/2BB dollar. The above $37mm you are quoting sounds more like the number of units they sold (37mm) in the quarter, not $$.
Also, I too believe that the combined Nok/Msft effort on Lumia will be successful when considering the global rollout. See: http://bit.ly/HdYuzE
but I certainly don't think this takes away from what Apple has, which is one hell of a great stable of products & ecosystem that has a customer satisfaction rating +90% (read repeat customers) to die for.
Time will tell but I wouldn't bet against them. Nokia know phones, MSFT knows software. Their new collaborative phone product suite: Lumia+ will fix most of what they've missed out on recently (app store, touch screen, etc...) . It's doubtful their products will ever have the cache of Apple but they both have a large devoted following that will scarf up the new stuff as they'll finally have something cool worth worth buying. They may do better in Europe than US initially. I project they will leverage their business customers, and further decimate RIMM with a phone offering that is financially tied to their windows products.
Ahh gottcha.
Don't provide him any more publicity and credence than you wish.
I know what you mean. He knows a lot about a lot but can be sooo annoying that my wife mutes the tv when he's on. One thing does perplex me though... If you didn't get your name from him, where did you get the booyah?
I appreciate the kind words. Never thought I would own MSFT until I went thru their filings last weekend. Let's hope we see more of the Q1 spurt as the years rolls on.
sikkabooyah - Did you see Mr. Booyah tonight - J.Cramer? Check it out.... predicting MSFT going to 47!!! http://bit.ly/HItWqG
davesmall - Yes, the stock has been flat since 2002. You need to take a deeper look to see why the next 10 years will not be like the past 10 years. You'll miss out if your only looking at windows and office.
Thanks Zen - As far as owning the stock, agreed. But owning the options is a different game.
gensearch2,
It sounds like you've had your share of hard luck. That's unfortunate and I hope it turns around for you as I do wish you well.
This does not however change my opinion and I'll take a minute to clarify my comment as I believe you may have misunderstood why I have such a complete and utter dissatisfaction with the US education system (and the primary role the Teachers Union has in it). The sole purpose of any teacher should be to educate our kids in a safe and nurturing environment. It is quite important in doing this to know objectively who are better at teaching concepts etc.. to children and who are not. If you know this among other things then you can find a way to provide differentiating compensation for the differentiated value they provide.
The meritocracy I am proposing is central to providing the right incentives to teachers. I believe there are many tremendous teachers out there and also some average and some poor teachers. I am of the strong opinion that those three distinct teacher groups should NOT get paid the same amount. This does not mean that I believe there should be the extreme have and have nots that occurs at many corporations where the CEO can earn 1,000x a capable full time worker. As a starting point I'd say a 2x or even 3x difference would certainly be appropriate and certainly the best teachers should be making more money than an average Principles, Superintendent of Schools or Board of Ed Administrator etc... (Yes, taxes plays into this equation).
To your point, I have taught and I have also been involved in an organized attempt to find collaboration between Teachers, Unions, Administrations and Parents. It was extremely difficult and contentious and in the end some quantifiable success was achieved but during that effort I became convinced that the teachers unions serves only the teachers and not the kids.
My premise in those efforts was that if you put in place a way to measure the students capabilities and those same students growth within important areas then you effectively have a method to help assess the teachers. As we are talking about Apple (originally) I would like to posit that their new iPad that targets education (see link: http://bit.ly/HLSTPH) will probably do much more for the students than any Hard Core Teacher Union representative has done or ever will do.
Finally, I view teachers and teachers unions as quite separate and different. In my dealings with both, there were many teachers who did not appreciate the stance of the union on many issues... but as they were not the majority, their voice did not matter. The Teachers Union certainly has a place to protect teachers that are unfairly targeted (which from your story, sounds like you were) but they should not continue this dinosauristic/socialistic approach to pay.. Just think of what we would have in Major League Baseball if the Players Union acted like the teachers union. You would not get the best talent to even try out. It's that simple.
The Teachers Union MUST change their ways if they care about our children and our country. Then your plea to the SA readership to get involved would have a better chance of being heard.
Igor, I trust your last line was only to start a debate and was not a serious comment.
So Apple is causing a decline in the US education system? Or "more money" will solve the education issue.. You can't be serious. The issue with education can be laid squarely at the foot of Unions. ANY self respecting industry, business or organization must inherently understand that to improve there must be performance based assessments. The best people in most any endeavor want assessments and compensation in line with their relative outperformance. In teaching (talk about living in the past) this approach is discouraged.. by the Unions and the lazy. Name one Industry or Association where a meritocracy does not make it better?
Placing the blame on Apple.. and asking their shareholders to foot the bill for Texas desire to be associated with cutting edge technologies is ludicrous. This is America, a Capitalist country I last looked. But if Texas is silly enough to take your non democratic stance.. I'm sure Florida will love that and welcome Apple with open arms.