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New Century observes stocks, markets and the economy from a modern, sometimes contrarian viewpoint. New Century focuses on publishing ideas or themes not known or not discussed by many other observers.
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  • Apple's Red Herring

    Apple (AAPL) disappointed the Street with its Q1-14 results when it reported earlier this week. While much of the disappointment was related to lower-than-expected iPhone unit growth and the company's apparent maturation, there was another major factor behind the Street's lack of enthusiasm: no new products.

    A new and improved Apple TV is on everyone's radar, but the real disappointment has been the lack of wearable technology. Apple has been supposedly working on a smartwatch for quite some time, but Samsung beat them to the market, releasing its Galaxy Gear smartwatch in 2013. Some observers have considered this evidence of poor execution by Apple, as Samsung (OTC:SSNLF) was able to bring a relatively well-received product to market before Apple itself could. But might this have been Apple's plan all along?

    The 4-star rating for the Galaxy Gear on Amazon indicates that the adopters have been relatively pleased by it, but there are certainly limitations to the first-generation device, namely, compatibility is limited to few Samsung devices running some of the newest Android (GOOG) builds, and native and third-party applications are limited.

    But perhaps more importantly, adoption seems quite limited. I live in New York City, and I've never seen one while riding the subway, at work, at lunch, or anywhere else (all while generally noticing other consumer electronics trends - the proliferation of Kindles (AMZN) years ago, the success of Samsung's Galaxy phones, etc.). The smartwatch simply isn't a must-have device - at least in the minds of consumers, at this moment; after all, a smartphone can do much more than a smart watch can (and a pocket isn't much less accessible than a wrist). Some people might actually prefer to wear a real watch!

    So while Apple has supposedly been asleep at the wheel, maybe the iWatch non-launch was all part of Tim Cook's master plan? Apple successfully coaxed competitors into bringing devices to market while spending billions of their dollars, many thousands of employee-hours, and a significant portion of corporate focus on a device that's a relative dud. They were able to perform the world's largest product test ever - using the actual buying population - to figure out whether there was appetite for a pipeline product. They were able to evaluate individual features to determine what should and shouldn't be included in a potential future device of their own, if there becomes an appropriate time to bring it to market.

    Tim Cook has been criticized as lacking vision because Apple hasn't release a truly new product since his tenure began. But if indeed the non-release of the iWatch was a strategic decision - one that has allowed Apple to preserve shareholder value by avoiding wasted money and effort on a dead-on-arrival product category - he should be applauded as a truly brilliant operational visionary.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jan 30 5:45 PM | Link | 1 Comment
  • How To Trade Apple'S Date With "Nightline"
    Tens of millions of people around the world have opened one of those sublime, white boxes to marvel at the brilliance of the iPad, but no one from the outside has ever seen how these machines are built. Until now.

    The above quote is spoken by Bill Weir, in a special that will air on Tuesday evening, February 21st, on ABC's Nightline. The special focuses on working conditions at the massive contract manufacturer Foxconn.

    Not surprisingly, the piece will center around Apple (AAPL), who is one of Foxconn's largest customers. However, most other large electronics companies also use Foxconn's services, so singling out Apple isn't really fair - this isn't an Apple issue, it's really a moden electronics manufacturing issue. Nonetheless, since Apple will be the focus of the piece, there is always potential for stock-market effects.

    If conditions shown in the report are absolutely atrocious, there may be potential for some short-term downside. While mutual fund managers and sophisticated investors aren't likely to sell Apple shares based on a report containing information that is (almost certainly) already well-known, there could be some light selling from retail investors who may be troubled by anything that is seen as unacceptable in the report. There is also the small potential for truly unacceptable behavior to surface, which would indicate that major, costly changes would need to occur that will ultimately affect Apple's business.

    But if shares do fall, it should prevent long-term bulls with a great buying opportunity. Apple and Foxconn have both already taken actions to improve, respectively, the standards its suppliers must adhere to, and the treatment of its workers. Apple's margins are very healthy and growing, so the effects of minor wage increases at Foxconn or other costs that are the result of safety or quality-of-life improvements shouldn't be too painful.

    I think that this report is actually a great opportunity for resolution of this issue to begin to occur. Foxconn has been in and out of headlines for years, and news has become more frequent in the past few months. If the report can demonstrate that conditions are acceptable, or even just that uncovered shortcomings are being acknowledged and improved upon, I think that current and potential Apple customers will feel even better about buying Apple products. Such action will also demonstrate Tim Cook's management ability, building shareholder confidence.

    Apple longs, shorts, and any consumer of modern technology should probably watch the report - it's good to understand where our gadgets come from, even if that means recognizing that other people may suffer to provide us with our toys. But I don't expect the report to move shares meaningfully to the downside in anything but the immediate term, which will only allow investors to enjoy discounted pricing on already-cheap Apple shares.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAPL, long-ideas
    Feb 21 1:23 PM | Link | Comment!
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