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Osiris Farol  

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  • Apple: The Astonishing Margin On Flash Memory [View article]
    My guess would be that late-adopters, particulary those who purchase a product version that is not the latest, are more price-sensitive. As a result, there is a mix-shift over time from the premium, memory-enhanced models to the base model.

    I find it striking the data indicate that all purchases of the iPhone 4S after the release of the iPhone 5 were for the base model.
    Jan 9, 2013. 04:24 PM | 1 Like Like |Link to Comment
  • Apple: Margin, Pricing And Product Strategy [View article]
    Thank you for the careful read and remarks.

    The confusion over margin arises from the distinction between: (1) "teardown" margins (referred to as manufacturing margins in the article) sourced from iSuppli; these are ~70% for the iPhone 5, ~40% for the iPad Mini, and ~35% for the retina-display iPad; and (2) reported margins which, from Court documents, are 49-58% for the iPhone and 23-32% for the iPad.

    The difference is costs, other than bill-of-materials and manufacturing, that are not in the iSuppli teardowns but are included in AAPL's calculation of gross margins; these include, for example, royalty payments and reseller discounts. AAPL has said that the iPad gross margin is lower than the corporate average and this is consistent with the Court figures above and the 38% figure you mention for the corporate result.

    I agree that the use of the word "up-sell" was confusing and regret it. As commented by theregans below, I was thinking of gross margin on a percentage-basis, but it is more relevant to the economics to think of gross margin on a dollar-basis as you calculate.
    Jan 8, 2013. 12:17 PM | 1 Like Like |Link to Comment
  • Apple: Margin, Pricing And Product Strategy [View article]
    I apologize for any confusion. The article is intended to convey that a mix-shift within the iPad line to the iPad Mini may increase margins for the line (because the teardown margin of the Mini is ~40% versus ~35% for the "regular" or retina-display iPad).

    However, a likely mix-shift from the iPhone to the iPad line, including the Mini, may depress firmwide margins because the iPhone has a higher teardown margin of ~70%.
    Jan 8, 2013. 09:35 AM | 1 Like Like |Link to Comment
  • Bank Of America: Expect Stock Buyback In 2013 [View article]
    The stock price doubled from $5.6 at end 2011 to $11.3 today
    Dec 28, 2012. 10:17 PM | 1 Like Like |Link to Comment
  • Bank Of America: Expect Stock Buyback In 2013 [View article]
    I agree the litigation losses related to the legacy mortgage business could be meaningfully higher than accruals (of $16.3 billion for representation & warranty claims) even after grossing up for management's estimate of up to $6bn for possible losses above the accrual.

    Indeed, the bank's filings are clear that these numbers represent losses which are probable (or reasonably possible) and estimable. Possible losses which are not estimable are simply not included so that the numbers "do not represent a maximum loss exposure".

    Against that, the bank seems to have excess capital today and looks likely to generate substantial capital this quarter and in 2013. If we assume regulators would accept for now an 8.5% Tier 1 ratio (equal to JPM) under Basel 3, BAC's present excess capital is ~$7.5bn. Analyst EPS estimates for Q4 2012 and FY 2013 are 19c and 96c respectively representing additional capital of ~$12bn.

    In other words, assuming risk-weighted assets do not grow meaningfully as BAC continues to "optimize" the balance sheet, the bank either has or will generate nearly $20bn of excess capital through the end of next year. Even if litigation losses absorb $10bn of this (and so, given tax effects, come in at $15bn+ above accruals) there is still plenty available.
    Dec 28, 2012. 09:28 PM | 1 Like Like |Link to Comment
  • Bank Of America: Revisiting The Valuation Case [View article]
    You have history on your side! Thank you for commenting on the note.
    Dec 28, 2012. 03:00 AM | 1 Like Like |Link to Comment
  • Bank Of America: Revisiting The Valuation Case [View article]
    Coincidentally, these are the four financial stocks I own although with most interest in BAC. The litigation risk around mortgages seems over-discounted if, as I believe, it accounts for much of the valuation gap with JPM.

    That said, the litigation risk is disconcerting. BAC has outstanding mortgage "representation and warranty" claims of ~$25bn against which it holds reserves of ~$16bn. Furthermore, new claims continue - to the tune of $5bn last quarter.

    BAC notes that many of the new and unresolved claims relate to mortgages on which borrowers have made many (>25) payments, and are presumably less viable than claims relating to mortgages where borrowers made few, if any, payments. However, these are technical issues for the attorneys and, without the resources to arrange a legal analysis, I prefer to diversify any BAC position.
    Dec 27, 2012. 09:07 AM | 1 Like Like |Link to Comment
  • Bank Of America: Revisiting The Valuation Case [View article]
    If you accept the analysis, at $14, BAC would offer a prospective annual return of 16% (since there is an assumed "return on equity" of 11% on book value/share of ~$20). I view this as still satisfactory although obviously less than the prospective return of 20% potentially available at today's price.

    If you want a "target price" for the stock (i.e. a maximum you are willing to pay), you would need to decide what annual return on investment compensates you for BAC risk. If, for example, you decide on 10%, the analysis suggests a target price of $22.
    Dec 26, 2012. 01:30 PM | 1 Like Like |Link to Comment
  • Bank Of America: Expect Stock Buybacks To Accelerate In 2014 [View article]
    Thank you for comment; you are correct.

    I believe management has stated they are targeting a 9% Tier 1 ratio so the analysis stands but, as you note, this is higher than the B3 requirement of 8.5% at least excluding any counter-cyclical buffer that may kick in at a national level if and when the economy and credit growth recover.
    Oct 6, 2013. 11:59 PM | Likes Like |Link to Comment
  • Bank Of America: Buy A Dollar For Around 85 Cents [View article]
    Kinte - the cfo has commented that bac expects to be "balanced" and work through the share repurchase authorization over the course of the year. I wish we had some sense of whether the stock price factors into timing.
    Apr 18, 2013. 02:26 PM | Likes Like |Link to Comment
  • Bank Of America: Buy A Dollar For Around 85 Cents [View article]
    Speedy12 - If you take a look at the earnings transcript, you will see a discussion between the CFO and an analyst on the modeling errors.
    Apr 18, 2013. 01:24 PM | Likes Like |Link to Comment
  • Wells Fargo Earnings: A Case Study On The Institutional Dynamics Of Wall Street [View article]
    Under Sarbanes-Oxley of 2002, a CEO or CFO who wilfully files a false certification that the annual and quarterly reports "fairly present" the finances of a company can be fined $5 million or jailed for up to 20 years.

    Richard Scrushy, former CEO of Healthsouth faced criminal charges for false certification but was acquitted. A number of executives at companies involved in the mortgage crisis, including Fannie Mae, Freddie Mac and Countrywide, faced civil charges for false certification. I am surprised none of the executives at major banks faced similar charges in the aftermath of 2008.

    Nonetheless, senior executives have an incentive not to wilfully mis-report; of course, this does not relieve the risk of incompetence or good-faith error.
    Jan 21, 2013. 08:35 AM | Likes Like |Link to Comment
  • Wells Fargo Earnings: A Case Study On The Institutional Dynamics Of Wall Street [View article]
    Thank you! The mix-shift in liabilities does not seem to be enough taken into account and, of course, will reverse when short rates back-up and the opportunity-cost of checking deposits rises. I wonder whether the complaint will then be weaker deposit growth!
    Jan 14, 2013. 09:23 AM | Likes Like |Link to Comment
  • Wells Fargo Earnings: A Case Study On The Institutional Dynamics Of Wall Street [View article]
    Thank you to both Ray Merola and dneedle1!
    Jan 14, 2013. 12:22 AM | Likes Like |Link to Comment
  • Bank Of America: Why A Stock Buyback Is More Likely Than A Dividend Raise [View article]
    You are right about the goal. Here is what CEO Brian Moynihan said in Jul 2011: "We need to get back most of the shares we issued in the crisis, that caused all the dilution". The link is below:

    (http://bit.ly/Sr1AdR)
    Jan 12, 2013. 01:24 PM | Likes Like |Link to Comment
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