Eric Rolfe

Long/short equity, value, tech
Eric Rolfe
Long/short equity, value, tech
Contributor since: 2012
2 years ago the iPhone 4 16GB cost about $187
A lot of that price was in the new Retina display which is going to be significantly cheaper now. Prices will have come down on almost all of the electronic parts. Material in labor are slightly up maybe. I'd be surprised if it costs more than $125-$150 to make the 4 right now.
I think it is actually more likely to smooth out some of the seasonality that is starting to show up in iPhone and iPad sales.
The more likely scenario is that Apple shortens the release time between phones to about 8 months and just keep pushing down the price of the iPhone 4. It is currently $450 with no contract. If it goes down $100 bucks every time a new apple product comes out you will be looking at a $250 iPhone in less than 16 months.
I'm referring to stock at Walmart specifically. I'm sure that most Apple stores and provider stores have stock.
I would be surprised if Apple is contributing anything to the discount. Calling around to stores in my area only a couple had any 16GB iPhone 5's and none had them for Verizon. I think everyone basically checks their sale's are ok with Apple before doing them. One possibility is that Walmart agreed to take stock of more 3rd gen iPads Apple is trying to get rid of, in return Walmart gets to sell the iPhone at a loss to get people in the store. Mostly conjecture but seems more likely than Apple pitching in on the discount.
If people have big gains in their taxable accounts they are going to be selling them this year. They may repurchase them if they think it is a good long term investment.
If it is in an IRA obviously selling for tax benefits won't be happening.
I think that the minis are going to skew higher anyway, so anytime that happens is going to be an added bonus. I do wonder what the percentage of people is that go with the 32 GBs vs people who decide to not buy one.
Yea sales volume on iPad is going to have a significant increases especially once the iPad Mini finally overcomes supply constraints. The number of iPad Mini units they will need to sell into channel partners to stock shelves alone is a mind boggling number. Based on current inventory levels something like 3 million iPad Minis just to fill shelves doesn't seem unreasonable. I doubt any of those 3 million will make into the current quarter, will probably be all Q2+.
Typed up a blog about the iSupli estimates and fears of th Mini cannibalizing the Retina.
I agree that the capital expenditures have a huge impact on the profitability of Apple. The fact iSuppli does not take those into account does not make it flawed. It is a measure of something entirely different once you start trying to calculate in the capital costs, I think. You have to start looking over some long time frames because a significant portion of those capital expenditures are going to be one offs. We will get a better idea on what the volume and mix of iPads after the next earnings report, then you could try and work in the capital costs on top of build costs.
Your comment contains 20% more useful information than the actual article.
I actually just submitted an article for review that debunks this rumor and explains why it even exists in the first place.
This idea that the iPad mini has lower margins than the iPad retina is probably one of the most well proliferated rumors.
The iPad Retina has a markup of 57% of build cost
The iPad 2 has a markup of 62% of build cost
The iPad mini has a markup of 66% of build cost
All the build cost estimates are from iSupply teardowns
I'm sure this is the case for special dividends. You can see what happens here is Costco's Adjustment.
Option prices are adjusted for special dividends. So this would not have a huge effect as long as the special dividend was in $5 dollar increments. Otherwise it will be a headache as it would create strange strike prices.
Unfortunately there is no data on what proportion of channel inventory is which phone. I think someone could probably come up with some fairly good educated guesses. I think most of it will be the iPhone 5 since the iPhone 4s and 4 are only available in one memory size each, the iPhone 5 is available in 3. If they were all stocked equally (doubtful since the 64gb iPhone 5 certainly sells less than the 16 and 32) 3/5 of the channel would be iPhone 5.
As far as going down a lot it is just relative -3% is pretty minuscule compared to the 30% growth the previous quarter. Honestly the iPad mini could completely destroy iPad models people are currently using. It real could be something like a 50% increase in channel inventory once they get to the point when they are filling channel inventory.
The straight line on the graph is the trend line. The green line is the channel inventories. Apple internal inventories have nothing to do with the analysis those are just held as liabilities on the balance sheet. You can see where the green line goes up sharply at Q2 and then goes down a small amount at 2012 Q3. Does that make sense?
Apple counts sales to channels as sales, as do most companies. Apple does try and track sell-through vs sell-in at their partners, but I think this is so they can try and manage channel inventory better. Sales through Apple stores and the website only count once the customer has the product in hand. Most device companies don't have the situation where direct sales are a significant portion of revenue, so when a company in general says sales they are talking about mostly channel sales.
No, in most of the calls the approximate channel inventory is either stated or the change in channel inventory from the previous quarter is stated.
I agree with this as related to warranty amortization. On foreign earnings I think Apple is not obligated under GAAP to set aside this repatriation money. If I am wrong on this I'd like to know, post a link if you have one.
I agree with this being a common practice which is why I don't go through a new calculation of PE with it included. I think some people are not aware of the practice in general and just wanted to cover it since I was already going over liability related stuff on the balance sheet.
Ed, I'm not the first person to see this trick. I think most of the analysts on Wallstreet know about this. They seem to be perpetually driven by trying to guess the earning number for the next quarter more than actual financial analysis of the reported earnings. They are only interested if Apple changes accounting methodology which is highly unlikely.
That is for non-current liabilities only. I did this because including deferred I think is a little misleading, they can be used in the forward PE.
I agree with almost everything you said here. I'm curious what effect you think Apple shorting their release cycle from 12 months down to 8 or 9 would have on this(What if the shortened refresh on iPad Retina was not an abnormally).
I have to agree with Ted on this. We won't know until next year but I'd be willing to bet you see something in the 2.2 - 2.7 million units next year for the same quarter since 1.5 million iPhone owners will be coming off contract.
I also think the ubiquity of the iPhone tends to make people less likely to switch carriers. It is very profitable to get dumb/feature phone users into more expensive data contracts but as far as increasing subscribers the effect is just not that big. It is to the point now that a company need's to have the iPhone just so people don't leave for another carrier.
Whenever someone has a section called "Irrelevance of Traditional Valuation Techniques" it doesn't bode well for the reasoning and facts that are used in the piece.
If you assumed Apple hardly grew at all , the current valuation would be fair if not cheap. no growth would basically assume Apple would get $40 billion in cash each year.
All they would have to do is increase the dividend to pay out all the increased cash they get. Which would be about $40 billion at 0% growth.
That ends up being $42 Dollars a share. Which at the current stock price would be a 7%+ yield. The yields on big stable companies rarely reach 5%. To get to the 5% yield you would end up with a share price of about $840.
I don't know what Apple is going to do this quarter or next but eventually the fundamentals are the only thing that matters. Not analyst, pundits or bloggers.
Just trolling through some old articles looking for some AAPL number related to cash. I came across this and thought I would make a correction/observation. Apple actually already sets aside money to pay the US income tax. It just puts it down on it's balance sheet as a liability. So what would happen if the us declared some sort of tax holiday is that apple would have an instantaneous extra $16billion dollars in profit as of Sept 12 Quarter.
You can find the account on the balance sheet under
Other non-current liabilities
As an interesting side note if they just restated the earnings for the last year with that counted as profit it would actually lower their P/E by about 90% which as of this comment is around 13.6 so that should actually be about 12.25