Seeking Alpha

Timothy Perdian's  Instablog

Timothy Perdian
Send Message
Investing in stocks or twenty years, undergraduate degrees in Englis and Genetics from the University of Wisconsin. M.A. in Creative writing from University of Wisconsin-Milwaukee. And a Doctor of Chiropractic degree from NCC. Post graduate Certificates in Worker's Compensation (California),... More
My blog:
Making Money With Money
View Timothy Perdian's Instablogs on:
  • Three Companies Apple Needs To Buy Yesterday-But Won't

    Companies grow in different ways. Oracle (NYSE:ORCL) and Cisco (NASDAQ:CSCO) have a long history of making excellent acquisitions. Both companies make it clear to shareholders that they will continue to innovate through acquisitions whenever they are beneficial to the share holder's interest. Each company discusses the strategy on their respective web sites. No other technology companies have been as successful as Cisco and Oracle at implementing this strategy and then integrating the new companies into their corporate frame work.

    The purchased companies bring in new blood, patents, technology and income. Both the above companies have led their respective sectors for years by virtue of both developing new technology and buying advancements when it was necessary or expedient. Microsoft (NASDAQ:MSFT) on the other hand has had a history of developing technology that its competitors have through reverse engineering or copying. However you want to say it. Microsoft ends up with a browser similar to Netscape without buying it, mysteriously Word Perfect goes out of business and is replaced by Word, Bing has a familiar look to Google (NASDAQ:GOOG) and the list goes on. Apple (NASDAQ:AAPL) has made a few strategic acquisitions but not at the rate of Cisco and Oracle. Apple improves upon products that are in the market place but not by merely duplicating them. Apple altered the phone and digital music markets through mostly in house research and development. With Jobs at the helm this has been an ideal path to corporate success. Now though the time has come for Apple to use its cash to save time and money on research by leapfrogging its competitors through acquisitions. The visionary no longer exists. It is that simple and Apple can't move forward without new ideas and cutting edge technology. Current management has dug in its heels and refuses to see the obvious: People want larger phones and Phablets like Samsung's (OTC:SSNLF) Galaxy Note and S class phones. Voice recognition technology is the new frontier and soon the phone should work as a credit card one way or the other. The voice recognition technology in Siri gave Apple a huge shot in the arm after Mr. Jobs passed away. However, voice recognition technology is just in its infancy. Nuance (NASDAQ:NUAN) is the leader in that field and to counter the many complaints about Siri (especially in non-English speaking areas) and to insure the future belongs to her and Apple, Nuance must be purchased.

    In a previous article I made the case for why Apple should by Nuance so I will only summarize here. Briefly Nuance brings 4000 plus patents, cutting edge voice recognition technology, Swype, and 1.5 billion in revenues to add to the top line. Nuance has a market cap of 6.5 billion. If it were purchased for 8 billion Apple would barely miss the money and the benefits would be legion. Try to think of a few reasons why Apple would be worse off with a Nuance acquisition. The projected 25 percent return is just icing on the cake. The company is well run and has no debt. This is a no brainer if there ever was one.

    While that would move the iPhone forward there is the Mac itself to think about. Last quarter Mac sales were down for the first time since 2006. In fact they were down a staggering 22% (a billion dollars in lost sales).

    Current Apple management shrugs off the declining sales and claims Mac users are buying iPads instead. To be blunt this is simply not true. Mac sales declined more than overall PC sales. If the decline were due to switching to iPads from laptops one would expect a decline in PC and Mac that was equal.

    Another explanation is that the Mac is no longer giving users a reason to upgrade or more importantly PC users a reason to switch. The plethora of criticism and frustration of the Mac community over the Lion and Mountain Lion OS X upgrades explains some of the reluctance to buy new computers. Many programs run under Snow Leopard and do not run under the Lions. Quicken, Auto Fx, and others that worked on Rosetta can't run on Lion because Apple ended Rosetta. Rosetta is the code that made the switch from the PPC processors to the Intel chips (NASDAQ:INTC) painless. Curiously it would have cost Apple nothing to continue Rosetta, the code was already written. It just makes the OS larger. Not a big deal in today's world of GB hard drives. This frustration has led to many web sites and forums that give instructions on how to convert your Mac back to the old OS, Snow Leopard, and to junk the Lion (and Mountain Lion) systems. When has that ever happened before? Apple users have always embraced change, but this and the other non-upgrade change for the sake of change features have created a back lash among Mac devotees. To name a few, the absence of the search box in Safari, the disappearing tiny scroll bars and the inconsistent behavior of option+click to open a link in Safari. Sometimes the link opens next to the window you are looking at an sometimes it opens at the end of all the tabs, prior to the upgrade the links always opened at the same place. Now it is hard to find the link if you have many tabs on your browser.

    On the Mac itself there is no financial program that can compare with Intuit's (NASDAQ:INTU) Quicken. And the Quicken most people have used for years runs only on Snow Leopard. So either Apple should write one themselves or just buy Intuit and make Quicken work for the Mac. The absence of a good financial program is a glaring hole in the Mac software library. It is a big reason not to upgrade or buy a new Mac. So Apple must either buy Intuit and make a deluxe financial program for the Mac that will seamlessly upgrade all the older versions of the program and integrate with FileMaker Pro, Apple's previously superb database. Here again in FileMaker Pro Developer edition Apple has dropped features long used by software writers for no reason. To name a few the auto select same kind (one check selected all the data entry fields) and the 3D look that was a hallmark of the program for years. Although buying Intuit would not solve all of Mac's problems it would remove one of the largest barriers to upgrading to the Lion or Mountain Lion OS's and give Mac users a reason to buy a Mac instead of a reason to keep their old one. Clearly Intuit's technology would help pave the way for the pay by phone instead of credit card tsunami that is coming to the world of consumers. Apple cannot afford to let Samsung and Google leap frog them again.

    Sap AG (NYSE:SAP), however, is the stock that can change the game for Apple. With one bold stroke Apple would cease being a small player in the enterprise to become the dominant provider for both hardware and software for companies around the globe. Purchasing SAP AG would use up most if not all of Apple's cash. But the merger would allow Bill McDermott, the current co-CEO of SAP AG to take the same position at Apple. He could sell iPads and software to corporations around the world. With all of SAP AG's software set to run on iPad, iPhones and Macs hardware sales would increase geometrically. Apple would become the Microsoft of the eighties and nineties. Every government and corporation would use Apple hardware and software. This could result in a trillion dollars in sales in ten years. In addition Bill McDermott could do the new product presentations. He is very articulate and has some charisma. Unfortunately Steve Jobs surrounded himself with capable people not exciting leaders, this would change over night if Mcdermott came to Apple.

    The three acquisitions above are not going to happen. Apple's current management has shown no desire to think outside of the box. They are content to circle the wagons and maintain the status quo. Steve Jobs was a man who would push the envelope and test limits. He surrounded himself with people who helped him find the right place to stop, now with no one to challenge leadership they all think where they are is just fine. Unfortunately for Apple users and shareholders that is not going to change any time soon.

    Disclosure: I am long AAPL. 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.

    Additional disclosure: I know you get lots of articles on Apple, I believe my articles offer a unique perspective. Thank you in advance for giving them a chance.

    Apr 10 8:04 AM | Link | Comment!
  • Samsung VS Apple: Turtle Beating Hare Down The Stretch

    The race for the best smartphone may answer one of the most perplexing issues facing investors in today's market. That is: what is the appropriate value of Apple (NASDAQ:AAPL)? Is Apple still a growth story or will Apple just continue to produce iPhone's of only one small size, a few Macs, iPods, and iPads and pay a good dividend? If the latter is the case expect the stock to trade at 3.5 percent yield or 4 percent yield one way or another. Either the stock price will fall or the company will increase the dividend. That is why the stock is on a yo-yo now, down 40 points and then up 40.

    A more important question is why has growth stalled? Clearly the Mac to PC switchers were providing growth for Macs in a declining market for PCs. Curiously Apple discontinued the very successful "I'm a Mac" ads. As a result Mac sales showed a decline for the first time in years. Apple knows better than most that good advertising works. Yet Apple has stopped promoting the heart and soul of their business-the Macintosh computer. Apple laptops have been consistently the best out there but Apple needs new customers to grow the market. Today the laptops last 4 or 5 years easily. Users have little reason to rush their upgrades. The iPod (digital music player) market is still 75% Apple's but with every phone now a digital media player and every tablet one also the market for stand alone iPods while substantial is hardly growing. On the other hand the iPad growth story seems to be just beginning. But Samsung's (OTC:SSNLF) success in the mobile phone market could spill over into the tablet market and stifle Apple's future growth. Has this spooked Wall Street's gantseh machers?

    In the smart phone market the turtle, Samsung, has caught the hare, Apple. Samsung is even threatening to take the lead in the all important mobile phone and tablet market. The way the two companies approach the phone and tablet markets could not be more different. Apple has fixated on the idea that users want a phone that is large enough to read on but difficult to really use for writing more than short texts and emails. Apple believes that the thumb plays a central role in using phones with one hand. They adamantly refuse to make a phone wider than the width of a small person's thumb. Therefore Apple has resisted duplicating Samsung's success with the larger S line of phones and the All in One or Phablet market. Apple has yielded this market to Samsung and that is a large reason why growth has stalled. Samsung on the other hand has flooded the market with both feature phones, smart phones, and the All in One tablet-phone hybrid called the Galaxy Note and sells tablets as well. For instance Samsung sells 20 flip phones and 38 Qwerty Keyboard phones. Samsung's approach is to create a variety of products and see which one sells. When a market segment is identified then Samsung focuses on that part of the market and improves the quality of its product over time. Samsung does not shrink from testing the market at all price points. Apple demands a premium for its phone and appears to be aiming for only those who can afford the phone. This has left Apple promoting only one sized phone since 2007 with a minor change in size last October. Samsung offers phones in many configurations and sizes. The numbers explain where Apple's growth has gone. Starting with the hybrid Galaxy Note Apple has lost 1.1 million customers for both a phone and a tablet each and every month since the product was introduced. The Note 2 is currently doubling the sales of the original Note. For each Note sold Apple misses the opportunity to sell a tablet, phone and to involve a customer in the Apple ecosystem. The Galaxy S class, which is basically a larger phone than the iPhone, has recently passed the 100 million mark in sales. Since it was introduced in 2010 the S class has become Samsung's flagship product. Sales are expected to be at least 40 million for this year.

    If Apple were to offer a larger phone and a Phablet and take 50 percent of that market it would sell an additional 25 million units per year. At an average selling price of $700 that would add 17.5 billion to Apple's top line. Associated accessories and apps would add to the top line also. So instead of missing estimates every quarter by a small amount Apple would have beaten estimates and the growth story would be intact. With gross margins at 40% the refusal to offer a larger phone has cost Apple 8 billion a year in earnings which would translate to 8 dollars per share. Apple would have year over year estimates of over $50 per share instead of the declining growth rate that it now has of $44 per share.

    Instead of focusing on the ultra competitive tablet, phone and Phablet market, Apple is rumored to be developing an iWatch. Consider that if the iWatch immediately took 10 percent of the $54 billion wrist watch market this would add only 5.4 billion to Apple's top line. The iWatch does seem like an interesting idea. But the refusal to simply make a larger phone that would make more money with less work is a choice the stubborn executives at Apple have made. Apparently they are obsessed with the idea that the thumb plays a large role in the use of a mobile phone and refuse to even entertain the idea of a S class phone. This reflects poorly on Apple management. They are letting their opinions get in the way of the shareholders best interest. The hare is jumping to another product (iWatch?) before the race for the smartphone crown is done. In fact the Phablet market may be the area where Apple could do the most good. How can Apple management overlook the usefulness of a car salesman for example with a clipboard sized Phablet negotiating with a customer, showing the different options and prices live and in real time while simultaneously discussing price points with his or her boss? For the enterprise one device to interact with both management and customer seems to be the wave of the future. Bet on the turtle to get there first. Apple's charts below show the down trend is still intact. Worth noting is that the Point and Figure chart shows that Apple may have found footing in the low 400's. Currently Apple is a Point and Figure buy but only a few points from another sell signal. Clearly the stock is at a critical level and investors should be cautious.

    (click to enlarge)

    Point and Figure Chart of Apple

    (click to enlarge)

    Weekly Chart of Apple Shows Downtrend

    Disclosure: I am long AAPL. 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.

    Apr 04 10:59 AM | Link | 2 Comments
  • Tim Cook Resigns From Apple

    Citing Apple's (NASDAQ:AAPL) 300 billion dollar loss in the stock market which seems a lot for a CEO making 378 Million in 2011, Tim Cook resigned saying he regretted the loss of share holder value, the failure of Apple to innovate, missing the large phone market completely, striking out on the Phablet or All in One market for phones and tablets, apologized for the abysmal upgrades of Lion and Mountain Lion and generally admitted that being a CEO was more work than he initially thought. He could offer no explanation for the disappearing scroll bars in Safari, the absence of a search box in Safari or why the iTunes upgrades just made the software harder to use. Quoting a dejected MacAddict who was now using Spotify, he stated "iTunes is now just to difficult to use, I can't even figure it out". Flilemaker Pro even screwed its long time users by dropping features like the 3D effects that were a part of the program for years. Cook said: "We are trying to become Microsoft. They have made money for years on upgrades that don't really do much so why shouldn't we?" He pondered at his good-bye press conference. The death of Jobs seems to have left Apple devoid of mojo and Cook suggested hiring Bill McDermott of SAP AG (NYSE:SAP). "Bill has some charisma and can talk about the iPads for enterprise the way Lennon sang about Yoko. I can't do that and no one at Apple can now so we need some new blood." Calling the iPhone 5 the worst product in Apple's history he said it was obviously time for a change. "Good luck to the next guy though, without Steve no one around here knows how to count to ten." April Fools or IS IT?

    Disclosure: I am long AAPL. 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.

    Tags: SAP, AAPL
    Mar 31 11:54 PM | Link | 1 Comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.