Bert Danner

Bert Danner
Contributor since: 2013
The link to the article I mentioned did not come through above:
http://seekingalpha.co...
Hi Tim, Excellent Article, rare on SA these days. I believe you have hit the nail on the head with CM. The only thing I could add is that having two P&L's allows Apple to separately show the higher volume / lower margin China business from the lesser volume / higher margin Developed market business. This should help the financially challenged see that each strategy is highly effective when executed correctly. I also liked the EV/FCF calc, which is the easiest way to see that someone could buy Apple and use Apple's FCF repay the loan in less than five years. After that, they would have NO cost basis and enjoy a cash return of $70+ Billion per year. On what planet is that possible ?? You might like an article I wrote some time back: seekingalpha.com/artic...
All the best, and congratulations on a great article! -Bert
Thanks Paul, for another well thought-out report. I appreciate the longer-term perspective and whole-heartedly agree with your reasoning. A lesser known fact is that Apple's fastest increases in profitably have occurred, and been in proportion to, the steepest declines in the company's stock price. All the best, Bert
Go Fat Banker - Telling it like it is!
Hi, I like the way you think! Great to read a hopeful idea while Wall Street loses its mind to the "angry crowd" mentality of 24/7 Apple bashing. Thanks, Bert
Hi Robert, smart, sensible, article. I think you have it right. There really has been no change in Apple's fundamentals on an intermediate or long-term basis. They are transitioning to adding "premium" lower priced/margin products. Thus they accept lower margins in exchange for eventually higher volume as they complete their domination of the "high-end." The iPad mini first, and soon a new "China Mobile" iPhone looks likely. The lack of understanding surrounding Apple is what allows for such crazy volatility. You are right to recommend capitalizing on it. All the best, Bert
Great piece. I think you have captured the essence of success in a software platform. Apple's expanding ecosystem of developers and platform users engaged in mutually beneficial commerce is growing exponentially. Their full hardware integration, variety of computing devices, and personalized customer support make Apple's ecosystem an obvious choice for anyone considering their future purchases. Did you see my detailed article on mobile platforms? You might find it interesting: http://seekingalpha.co...
Mike, enjoyed your article, your insights are great. I think you nailed Apple's lack of interest in operating systems for feature phones, even the more advanced ones run by Android. I too believe the initial, and on-going mission for Apple has always been to extend platform computing to mobile. I am still waiting for an analysis that compares market share between iOS and Google Android - with all the Android feature phones removed! -Bert
Hi JMM, thanks for the mention. We are of the same mind regarding Android. Every time I read pro-Android comments, I always notice the comment author does not see a fundamental difference in Android's value proposition when compared to a classic software computing platform such as Microsoft Windows, OSX, or iOS. Android's business model is different. Software computing platforms are designed as businesses who's purpose is to add value for customers, developers, and service providers. Android is designed to optimize the particular device it runs on, to run Google's services, and to sell Google advertising. Seems to me the proposition being put forth by the pro-Android camp is the same logic as this TV analogy: "Customers will always prefer TV with commercials, designed and run by and for advertisers; rather than TV without commercials, designed and run for the purpose of being self-supporting through customer/developer commerce. I just don't see Android as an attractive or viable long-term value proposition for consumers.
-Bert
Thank you for your considered thoughts. The article addresses the commercial interactions between the developers' applications and services, and the platform customers. Your focus seems to be on the programming and technical aspects. If I were describing a platform lacking in robust commercial interaction between the customers and developers/service providers, as I believe is the case with Google's Android, our logic would align.
To highlight how much we agree: To the extent inexpensive "smartphones" are used primarily as advanced feature phones, there is little network effect. As mentioned, only when mobile devices are used as software computing platforms does the network effect become meaningful.
The thesis proposed in the article is that consumers are becoming more comfortable IT users and are expanding into ecosystems comprised of several mobile devices, with perhaps a laptop/computer in the mix. Consumers will use more and more mobile applications and services, and will demand seamless interoperability for present and future devices. Including, as an example, live background data synchronization with the current state of the data preserved, so they can seamlessly switch devices and continue activities where they left off. In other words, we are very quickly moving from a single-device paradigm with little network effect, to a more sophisticated paradigm where the platform with the strongest network effect wins! -Bert
You are correct. Taken out of context that sentence is elitist and sounds demeaning. I apologize for any offense. I simply meant to describe something like the early TV market where some people wanted free TV and watched commercials, and others paid providers to watch commercial-free TV. Neither choice was better than the other, just different. -Bert
Maybe we are not so far off in thinking. Only Steve Jobs could have created Apple. I have closely followed the life and work of Steve Jobs since the early '80s, and believe the key is that after Jobs came back to Apple, he knew: 1) that Apple could not survive without him, and 2) that he may be gone again someday.
So he did what any great empire builder would do. He built a company that has so imprinted with his DNA in the culture, the employees, the business practices; even the very way every employee envisioned the mission and essence of the company. He created a self-reinforcing system that ensured his gifts would survive him.
Steve Jobs greatest creation was not the devices, it was the building of Apple, a unique business able to disrupt it's own product lines to invent and create new categories of products. Jobs spent twelve years mentoring Tim Cook, Jony Ives, and the other executives to make sure Apple would continue to successfully prosper without him. -Bert
J.M. Good Point-
The theme of this article was comparing platform dynamics amongst reasonably similar buyers in today's market. Having managed IT departments through the 1990's, it was clear that the IT department was a monopsony. We were the only buyer in size for PC's in the early years. The only other participants were hobbyists. The Windows monopoly was created by the decisions of IT departments. The non-hobbyist consumer had virtually no voice in the early evolution of the PC industry. And by the time non-hobbyist consumers were a meaningful buying segment in the PC market, the industry was already completely locked up in a relationship between IT Departments, Microsoft, Intel, and OEMs.
I may have to write a article about this because it is one of the bigger misunderstandings in circulation when the two time periods are compared. -Bert
Apple SVP of Worldwide marketing Phil Schiller gave an interesting interview to Chinese newspaper Shanghai Evening News Wednesday. In the interview, he directly addresses the rumors surrounding a potential cheaper iPhone, saying that this will ‘never be the future of Apple products’. TheNextWeb.com has verified with Apple that this was an official interview.
“At first, non-smartphones were popular in the Chinese market, now cheap smartphones are more popular and non-smartphones are out,” Schiller added later. “Despite the popularity of cheap smartphones, this will never be the future of Apple’s products. In fact, although Apple’s market share of smartphones is just about 20%, we own the 75% of the profit.”
http://tnw.co/VTI6uV
*** 20% of China's smartphone market and 75% of the PROFIT ***
"Looking Good, Billy Ray!"
My friend, Adam Stein (who can be followed on Twitter at: http://bit.ly/VVAuHx) was my muse for this article when he shared this anecdote with me:
Typical Apple News Cycle:
Step 1: “Apple needs to come out with X or they are doomed!”
Step 2: “Reports say that Apple is about to come out with X!”
Step 3: “When Apple comes out with X, profit margins will fall and X will cannibalize Apple's existing product line, so they will be doomed!"
Step 4: “Apple announced Y today. They didn't come out with X like everyone expected, and Y clearly sucks, so they are doomed!”
Step 5: “Y is a huge hit, but they can’t make enough of them, so they are doomed.”
Step 6: “Apple is finally making enough of Y to meet demand, but this is only because demand is softening, so they are doomed.”
Step 7: “Apple has stopped innovating after Steve Jobs died which explains why they don’t have any future products on the horizon, so they are doomed.”
Step 8: “With declining margins, softening demand, and no innovation or new products, Apple's stock price should immediately decline until it is supported by its dividend yield, as are other mature slow-growth tech stocks like Microsoft and Intel.”
Step 9: “Apple's fair value with a similar 3.8% yield is $278 per share, so anyone in their right mind should sell Apple.”
Step 10: Return to Step 1 and repeat cycle. :-)

Thank you to everyone for your comments and support, I am very appreciative! -Bert
Nicu,
Excellent work. I think you have it right. 4S was on sale for three weeks at China Telecom last quarter and three months this quarter. There is a significant list of similar evidence to support $13. I am at $12.5 - $13 (also trying to reign in the longer-term trend when predicting quarterly numbers).
-Bert
Hi Graham, very well put together article. Especially convincing. I would offer a slightly different take on Gold. Gold RISES with fear of systemic risk and rear of inflation.
So the way I would phrase that sentence is this, "Even Gold, which has been rising for two years on fear of systemic risk and possible future inflation, is sucumming to the ever increasing force of the deflationary wave that is beginning and will overpower everything else."
Respectfully, having been studying Apple intensely for many years both as an IT executive and financial analyst, most Wall Street analysts and many amateur bloggers Do Not Understand the situation.
So your piqué is really about Political Correctness. I personally find it refreshing, and enjoy someone with the courage and candor to unabashedly tell it straight. Just IMHO.
Well Done! It was refreshing to read your sensible and well thought out article. The "Street" is so confused regarding Apple, and this lack of understanding contributes to the absurdly low valuation accorded the company. The prevailing underestimation of Apple's present and future growth rate is astonishing. Thanks for writing this - it is a good day when we get to read insightful information regarding Apple.
I've been in IT since the early '80s and have followed all these companies since they came public. As for as investment success, I have never done well selling the winners and buying the loosers just because some day the tide will change. Your article is sophmoric and conceptual rather than a proper assessment of changing paradigm in IT, especially with regard to consumer technology. Good luck.