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Gary Morton  

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  • Apple's Still A Better Value Than Google [View article]
    It is refreshing to see a look at some actual facts. Here are some more interesting numbers. Google (GOOG) grew earnings per share about 9.7% over the trailing twelve months with an actual decline in the latest reported quarter. Apple delivered 61% earnings growth in the trailing twelve months. However, the market seems to believe Google's future is somehow brighter as GOOG has been able to maintain a multiple in the low 20s. While Apple, with dramatically better actual results, only merits an 11 PE. To compound the confusion, with a share of Google you get: No dividend, no say in how the company is run, no ability to influence the board (Brin, Page, and Schmidt together have controlling interest). If you believe the unfocused, undisciplined Google can turn-around and deliver market beating financial results in the future, you can buy a share at a 33% premium to the market PE. If you believe that Apple might be able to squeak out earnings growth at one third of their five year average (that would still be double Google's current growth), AAPL might be worth a look. At an 11 PE, Apple might be attractive for those who invest on facts and demonstrated performance.
    Dec 31, 2012. 08:34 AM | 13 Likes Like |Link to Comment
  • Apple: A Look At The Chart, Historical Comparisons, And Academia [View article]
    The Article points to an interesting but flawed comparison of other tech companies meteoric rise and fall to the situation with Apple in Dec 2012. Certainly there is a reasonable argument about the 2000-2002 decline in MSFT and CSCO being based on reestablishment of fundamentals in their valuation following the .com bust. Eventual recognition of the slowdown in their growth rates was reasonable justification for their fall. Apple today is in a totally different universe from a fundamentals perspective. Cisco and Microsoft's stock rose during the .com boom and were given valuations far beyond a PEG of 1.0. They fell when expectations for future growth came back to earth and their PEGs have been about 1.0 since the .com bubble bust. Apple has never been bestowed a PEG anywhere approaching 1.0 in the past several years. The fundamentals underlying the valuations of Apple today vs. Cisco and Microsoft in the boom are worlds apart. If Apple was trading at 61 times earnings (a PEG of 1) it would be at $2693 per share, then a horrendous fall to $1000 per share would seem about right. That is obviously not the valuation scenario we face in 2012. Apple's PE and PEG are so far from any reasonable fundamental value model that comparisons with situations out of the .com bubble to Apple in Dec 2012 don't pass the sniff test.
    Dec 17, 2012. 03:29 PM | Likes Like |Link to Comment
  • The Real Truth About Apple's Q4 Results [View article]
    Apple consistently emphasizes that the investment strategy with its cash is capital preservation. I would guess that they invest in low risk short term treasuries that currently pay little return. Before the financial crisis, their OI&E returns were higher as a % of cash because those rates were higher. During the crisis, they did not lose any cash and kept growing the balance based on their earnings contributions. Apple could probably get better returns, but would have to take greater risk.
    Dec 15, 2012. 11:54 AM | Likes Like |Link to Comment
  • Betting On Apple's Operations Team And Gross Margins [View article]
    I have definitely observed the facts vs. opinions (or even wild speculation) phenomenon happening with Apple this quarter. History would clearly show that in the long run, actual financial results matter and ultimately drive the valuation of a company. But, that long run can seem a long time coming in some cases.
    Dec 13, 2012. 02:41 PM | Likes Like |Link to Comment
  • Betting On Apple's Operations Team And Gross Margins [View article]
    It is interesting to look at the sentiments regarding mp3 players during the 2004 to 2007 time period. There were more iPod killers launched than can be imagined, but the iPod juggernaut continued to move forward. Some of the alleged "killers" were very nice products with interesting new features. What the history showed; however, was that the competition was really about the eco-system, the product, and where the consumer was in the technology adoption curve. By 2005, no company made significant advances in the mp3 player market because they lacked one or several important elements of the ecosystem. The tech enthusiasts and early adopters would rave about the features of the Zune, Dell Mp3, SanDIsk player, but the early and late majority wanted the tried and true. The mass consumer market bought iPods and iTunes during that time. I am not sure, but the train may already have left the station for windows 8 phones and Microsoft surfaces.
    Dec 13, 2012. 02:25 PM | 2 Likes Like |Link to Comment
  • Betting On Apple's Operations Team And Gross Margins [View article]
    I can remember accessing the app store for the first time years ago and thinking, "Oh my God, they have this all figured out." Will we have similar experiences when the rumored reinvention of the TV experience comes out? Again, my bet would be on Apple. Tigers have stripes and they can't avoid them. The innovation stripes are deeply ingrained in Apple's DNA. They'll WOW us again.
    Dec 13, 2012. 11:22 AM | 4 Likes Like |Link to Comment
  • Betting On Apple's Operations Team And Gross Margins [View article]
    Thank you for your insightful and well delivered comments. The economies of scale part is of particular note. Tracking unit volumes relative to margins over Apple's history yields a strong correlation. The nuances of burden absorption and standard cost accounting also point to significant gross margin guidance "beats" when production volumes are significantly higher than guidance.
    Dec 13, 2012. 11:18 AM | 5 Likes Like |Link to Comment
  • Betting On Apple's Operations Team And Gross Margins [View article]
    Yes, it is very strange how the market views future prospects for Apple and Google, granting one a multiple of only 12 recently and the other a multiple of 21+. Although, over the long term, financial results tell the real story. If you investigate the relative performance of Google since the introduction of the iPhone at MacWorld in January 2007 vs. the performance of Apple, it will give you a clear understanding of which company is actually winning the smartphone wars based on delivered financial results. Despite its short term distortions, the market has rewarded Apple's success over the long term.
    Dec 13, 2012. 10:32 AM | 12 Likes Like |Link to Comment
  • Apple: No Innovation, No Problem (For Now) [View article]
    Great comments in this article. Steve Jobs said that every once in a while something comes along that changes everything. He talked about how Apple had the chance to create a few of those products in their history. As we all know, they had the iMac, then the iPod & iTunes, then iPhone, then iPad. Undoubtedly Apple has a few more in the works. Jobs himself talked of several that were in concept before he died. The breakthroughs are wonderful when they come, but they are only part of the picture.

    The key for every successful innovative business over the long haul is not just the breakthroughs, but also making sure that they relentlessly refresh their portfolio of products to keep as much of an edge in the market as possible. Proliferate when needed (add derivatives such as the iPad mini, iPod nano, etc.) and ensure they keep their products on the leading edge. Apple just completed the most compelling product refresh cycle in its' history.

    Apple is on track and doing exactly what they should be at this point. Refreshes also do great things for your financial results, and they help set the stage for the next breakthrough. Those who sell the stock at these levels will miss out on the incredible results that are to come.
    Nov 16, 2012. 11:31 AM | Likes Like |Link to Comment
  • The Real Truth About Apple's Q4 Results [View article]
    Chuck Jones raises an interesting point on whether the $242M should be ratcheted down by some % to account for taxes. In the reply to him, I noted that the tax impact in making the adjustment is uncertain. On Apple's tax side they probably included the hedging premiums regardless of what they reported on the GAAP side. In this likely case, there would be no tax effect if they reported the $242M in FYQ4 as everything affecting the $242 would already have been reflected in their reported taxes. There are often such timing differences in the tax vs. GAAP financials. All this said, in the worst case for taxes, the $242 adjustment would be ratcheted down by the 25% tax rate to $181M, still an additional $0.19 per share for the quarter and still a BEAT of analysts' expectations.
    Nov 15, 2012. 06:20 AM | Likes Like |Link to Comment
  • The Real Truth About Apple's Q4 Results [View article]
    I am not sure on the GAAP side vs. Tax side implications of the anomaly. We would probably have to ask Apple for definite clarification. The article assumes that Apple's taxes would not have been impacted by the GAAP reporting rules for the hedging premiums. This is likely. Also not grasping how guidance for the tax rate has an impact on the actual rate incurred and would merit an adjustment to the report.
    Nov 15, 2012. 02:58 AM | Likes Like |Link to Comment
  • The Real Truth About Apple's Q4 Results [View article]
    Yes, sorry for the typo. As you noted, $36 Billion not $36 Million was the Q412 revenue number.
    Nov 15, 2012. 02:58 AM | Likes Like |Link to Comment
  • The Real Truth About Apple's Q4 Results [View article]
    If the run rate on OI&E holds and the 75% to 25% split is accurate, Apple will report an extra $0.19 per share in fiscal Q113 and $0.06 per share in fiscal Q213. This will actually be an over-reporting contrasting with the Q412 under-reporting. The $380M forecast from Oppenheimer is consistent with the $0.19 for Q113.
    Nov 15, 2012. 02:58 AM | 3 Likes Like |Link to Comment
  • The Real Truth About Apple's Q4 Results [View article]
    I couldn't agree more with the contrast on the investor reaction for Apple vs Amazon. Apple is reporting real growth in earnings and real growth in revenue. Amazon has not genuinely demonstrated that they have a business model that can generate earnings. "Making it up in Volume" does not work if your margins are zero.
    Nov 15, 2012. 02:58 AM | 4 Likes Like |Link to Comment
  • Oh Apple, About That 'Win' You Thought You Got... [View article]
    It is likely that the source of this 20% increase report has their facts incorrect. It is highly probable that the Apple-Samsung contract for chip manufacturing is a cost plus contract. Perhaps the A6 production process costs 20% more than that for the A5, but that is a lot different than simply jacking up the price of the A6. Has any vetted source verified the specifics of this 20% rumor?
    Nov 13, 2012. 04:02 PM | Likes Like |Link to Comment
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