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

    Apple’s 91-day results are nothing more than a static snapshot of a fast-moving enterprise object. I don’t think senior management decisions are based on the fiscal calendar.

    The benefit of the share repurchase program will be maximized as Apple returns to real net income growth and rising earnings prompts the Street to adjust the company’s valuation. The share repurchase program and rising deferred revenue balances are both constituent share price catalysts. Apple has on its December quarter balance sheet $11.428 billion in deferred revenue to be recognized over time.
    Feb 23 06:27 PM | Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    Rootarmo:

    In FY2013, the iPhone represented 53.41% of revenue and the iPad line represented 18.71%. That concentration of revenue rose to 75.82% for the two product lines combined in the recent December quarter.

    The market is looking for something more than the iPhone and iPad lines to drive revenue and earnings growth. I can not quantify a value or offer projections and analysis on future products Apple has yet to announce.
    Feb 23 06:03 PM | 1 Like Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    Camden:

    Thank you for your comment. Beginning with the June quarter, the impact of the increase in deferred revenue per unit sold will gradually diminish. The iPhone 5s appears to less challenged from a warranty cost standpoint than the original iPhone 5. I don’t expect Apple to repeat the extraordinary $1.551 billion warranty cost set-aside that occurred in the March quarter last year.

    Apple is seeing its fastest growth in Greater China and Japan. Japan delivers the highest percentage of revenue to the regional operating income line of any of Apple’s regional revenue segments and I expect the foreign exchange issues that complicated results in the December quarter to ease.

    Additionally, I expect stronger rates of revenue growth in the June and September quarters this year fueled in part by positive single-digit unit sales growth for the Mac line through the balance of the fiscal year versus negative unit sales growth for the line in all four quarters of FY2013.

    Both China Mobile and DoCoMo will provide a revenue growth benefit for the balance of the fiscal year
    Feb 23 05:03 PM | 2 Likes Like |Link to Comment
  • Apple: Net Income Growth Is The Name Of The Game [View article]
    TimmiesRegular:

    I agree. Apple carefully chooses its new product steps and I do expect a new product offering this year. A return to net income growth and a new product will excite the Street. Combined with the impact of the ongoing share repurchase program, patient investors may be well rewarded over the next two years.
    Feb 23 04:48 PM | 1 Like Like |Link to Comment
  • 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
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