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  • Apple: Net Income Growth Is The Name Of The Game [View article]
    garysund:

    Apple is not going private. The premium to be paid above today’s trading range puts the company out of reach.

    Apple remains among the most profitable enterprises on the planet and will continue to generate huge profits. The market will revisit today’s valuation as the company returns to net income growth.
    Feb 23 04:42 PM | 1 Like Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    Michael:

    Thank you for your comment. As you point out, I am bullish on Apple long-term. There’s nothing in this article that signals a change in my point of view.

    The market will value Apple based on growth in profitability not growth in revenue. Net income growth will return as early as the June quarter. In my view the market is waiting on indications of net income growth before revisiting the current valuation and trading range of the shares.
    Feb 23 02:32 PM | 1 Like Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    cjay18:

    Apple has under construction massive content distribution infrastructure in Nevada, North Carolina and Oregon. The company actually has the largest privately-owned solar power array on the planet to fuel the North Carolina facility.

    iTunes billings this fiscal year (inclusive of the pass through of revenue to developers and content providers Apple doesn’t report as its own revenue) may reach $20 billion. Apple’s interests extend well beyond mobile payments. However, growth in content distribution (and iPhone unit sales) is influenced by the pace of 4G/LTE installations in emerging markets Apple has yet to fully tap and the company’s much-anticipated mobile payment solution will take time to develop.
    Feb 23 02:25 PM | 2 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    Robert:

    As you know, as both the founder of the Braeburn Group and moderator of the AAPL Independent Analysts group on LinkedIn, I am among the most consistently bullish independent analysts of Apple on the planet.

    Addressing your points:

    The iPod market has been subsumed by the iPhone and other smartphones with digital music player functionality and Apple did not provide an iPod touch update last fall.

    Management stated clearly in the December quarter conference call the change in upgrade policies by the US telcos influenced iPhone unit sales in the quarter and foreign exchange-related issues obfuscated the unit sales performance in Japan following the start of the NTT DoCoMo agreement.

    OI&E will vary by quarter and a $200 million sway will not materially impact the company’s overall performance.

    Moving forward, the company will return to profit growth as early as the June quarter. As I have stated many times over the past two years:

    Earnings growth and earnings growth alone will move the share price higher.

    In my view, the market values Apple based on the rates of earnings growth, not the rates of revenue growth. As profit growth returns, the share repurchase program will amplify the impact of profit growth on earnings per share. The share repurchase program is a constituent share price catalyst. It is not a primary share price catalyst.

    Apple is emerging from a multi-quarter cycle of diminished profitability and diminished gross margin year-over-year. Again, I expect gross margin improvement moving forward through at least the March quarter of FY2015 and for a return to positive net income growth to commence as early as the June quarter.
    Feb 23 02:12 PM | 2 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    Maverick707:

    Thank you for your comment. As the founder of the Braeburn Group of independent Apple analysts, I spend much of my day in active conversation about all things Apple.

    As much as I am bullish on the company and its long-term prospects for growth, ignoring Apple’s performance realities or the challenges confronting management would be a disservice. Promoting informed discourse about Apple is the primary purpose of my work.
    Feb 23 01:58 PM | 2 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    marklihsu:

    Among the best uses of the company’s cash at this time is repurchasing shares as Apple exits a multi-quarter cycle of negative net income growth. However, the share repurchases alone will not move the share price higher. In concert with a return to real earnings growth, the repurchases will amplify the impact of rising profitability on the share price.

    The purpose of this article was to highlight the company’s current performance. I remain bullish on Apple long-term. But ignoring the facts and not addressing issues related to the company’s recent results does nothing to add to informed discourse about the company’s prospects for growth.
    Feb 23 01:45 PM | 2 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    Azazello:

    That’s correct. Apple maintains comparatively high gross margin on Mac unit sales and takes in a much higher percentage of the global industry’s profits than underlying market share statistics suggest.

    Apple will not play the low-margin game. There’s absolutely no reason to participate in a race to bottom of the PC, smartphone or tablet markets.
    Feb 23 01:35 PM | 6 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    chemguy2:

    I have listened to just about every Apple quarterly conference call webcast since webcasts began. The recent December quarter conference call was certainly not Tim Cook’s best performance. I do believe Apple’s management was surprised by the market’s response to the company’s December quarter results and March quarter guidance.

    This precipitated an opportune share repurchase opportunity. I would prefer Apple borrow the funds necessary to complete the massive share repurchase program before the end of this calendar year and commit to repurchasing sufficient shares moving forward on a quarterly basis to eliminate the impact of stock-based compensation on the fully diluted share count.

    Again, the share repurchases will provide a floor for the share price and will serve as a constituent catalyst for share price appreciation once the company returns to positive net income growth. The more shares repurchased now, the more current dividend payments saved and the stronger the eps results in the future.

    Again, the market will not value Apple based on rates of revenue growth. The market values Apple based on the rates of profit growth. Profit growth will return as early as the June quarter.
    Feb 23 01:31 PM | 2 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    RetiredLady:

    Again, I am quite bullish on Apple long-term. For the reasons outlined in the article and in comments above, I expect a return to positive net income growth as early as the June quarter and an improvement year-over-year in gross margin through at least the March quarter of FY2015.

    However, one can not ignore the company’s current and recent performance realities. I do expect the massive $60 billion share repurchase program to serve as a constituent catalyst for the share price as positive net income growth returns. Absent positive net income growth, the share repurchase program will provide a floor for the share price but is not a catalyst for strong and sustainable share price appreciation.

    As positive net income growth returns, I expect the rising deferred revenue balances to influence the market’s valuation of the company.

    Unlike some high-flying tech stocks, the market will not value Apple based on revenue growth. The market will raise the value of Apple based on earnings growth. Earnings growth and earnings growth alone will move the share price higher. The massive share repurchase program will amplify the impact of a return to profit growth on reported earnings per share.
    Feb 23 01:11 PM | 2 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    Andrew A:

    Based on management’s revenue and gross margin guidance for the March quarter, I’m not seeing “incredible earnings” in FQ2. I do expect a return to positive net income growth beginning in the June quarter and an improvement in year-over-year gross margin through at least the March quarter of FY2015.

    The share repurchases are providing a floor for the share price. But repurchases alone are not a catalyst for a strong and sustainable share price advance. The repurchases will be a constituent share price catalyst as positive net income growth returns.

    The China Mobile deal will take time to reveal its long-term value and Apple’s very strong performance last quarter in Japan following the start of the DoCoMo agreement was obfuscated by the foreign exchange pressures. Those pressure will ease moving forward. China is Apple’s second largest product market following the US and Japan may soon join the US and China as a third country contributing 10% or more of Apple’s recognized revenue.
    Feb 23 01:03 PM | 2 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    fneww1212:

    I agree the share repurchases are placing a floor or foundation under the share price. The $60 billion ongoing repurchase plan will amplify earnings per share and serve as a constituent catalyst for the share price as positive net income growth returns.

    I expect the market to eventually expand the price-earnings multiple due to in part to the rising deferred revenue balances.
    Feb 23 12:52 PM | 1 Like Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    sikkabooyah:

    Thank you for your comment. I remain quite bullish about Apple long-term and expect a return to positive net income growth as early as the June quarter. As the founder of the Braeburn Group of independent Apple analysts and being among the most active members of our global discussion community, I have an intense interest in all things Apple.

    No matter my bullish stance, ignoring Apple’s current performance realities would serve no useful purpose. A cogent review of the facts is the best means to promote informed discourse about Apple and the company’s prospects for long-term growth.
    Feb 23 12:46 PM | 1 Like Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    InvestingInvestor:

    Exactly which facts have been “twisted”? Apple is working through a multi-quarter cycle of negative net income growth and declining gross margin. Those are facts.

    The rates of growth in high-end smartphone unit sales on a global basis have diminished. The Apple iPad will not see anywhere near the rates of unit sales growth that occurred in the first two years following introduction of the product line.

    Contributing to the multi-quarter cycle of negative net income growth are the company’s very strong results in FY2012, the extraordinary $1.551 billion warranty set-aside realized in the March quarter one year ago and an overall change in the unit sales mix following the introduction of the iPad mini and a higher percentage of iPhone unit sales for lower-cost handsets. The iPhone unit sales mix has been influenced by efforts to gain traction in India and other emerging markets.

    Due to high import tariffs, sales in Brazil are challenged. In the December quarter, revenue in the Americas actually fell 1%. The company’s performance in the Americas was also challenged by changes in US carrier upgrade policies that have extended the time period between subsidized smartphone upgrades.

    China Telecom and China Unicom participated in the initial rollout of the iPhone 5s and iPhone 5c. This moved revenue from sales through those carriers to the recent December quarter from the March quarter. China Mobile became an authorized iPhone carrier this quarter but sales in the first year of the agreement will be influenced by the rollout of 4G/LTE on the mainland. This agreement will reveal its value long-term.

    Through the company’s March quarter guidance, Apple’s management has signaled the possibility of negative revenue growth in the current quarter. That’s not conjecture and it’s not a twisting of the facts.

    As I stated in the article, I expect a return to positive net income growth in the June quarter and improved gross margin through at least the March quarter of FY2015.

    Although I do not make stock recommendations, I consider Apple a strong investment choice for value, conservative and even growth investors moving forward. But this does not change the company’s current performance realities.

    Apple’s capital allocation plan (the return of over $100 billion in capital over four years through dividends and share repurchases) will buoy the share price. But until net income growth returns, the impact of the share repurchases on the share price will be compromised.

    Patient investors may be well rewarded over the next two years. But ignoring the company’s recent and current performance realities benefits no one.

    Again, exactly which facts have been “twisted”?
    Feb 23 12:36 PM | 8 Likes Like |Link to Comment
  • Apple: Management Needs To Vision Tomorrow More Than Explain Today [View article]
    techy46:

    The challenges of establishing and successfully sustaining a third mobile device platform are immense. Extending Windows into the mobile device market will take time and a big investment of resources to make it work. So far, the results have not been impressive and the market for high-margin devices is growing much more slowly than the market for lower-cost devices.

    Apple has plenty of geography to cover for both the iPhone and iPad lines. But growth rates for the two popular products lines have slowed.
    Feb 17 07:58 PM | Likes Like |Link to Comment
  • Apple: Management Needs To Vision Tomorrow More Than Explain Today [View article]
    ronjohn26:

    Consumers purchase Apple innovation. The seasonal nature of Apple’s unit sales and consequential revenue cycles suggest consumers begin to sit on their hands five months to months to six months after a product refresh and postpone purchases until the next refresh cycle. Maintaining a “conversation” with consumers throughout the year is important for eco-system development and customer engagement. Captivating the imagination assists in selling Apple products and encourages participation in the eco-system.
    Feb 17 07:51 PM | Likes Like |Link to Comment
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