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Background in corporate finance at multiple Fortune 200 companies including real-estate, media, and banking. Believe strongly in detailed analysis of company balance sheets and income statements, going into deeper detail than the average investor. Look to identify companies whose fundamental... More
  • Apple - Why Tim Cook's Screen Size Comment Is Ignorant  0 comments
    Jan 24, 2013 9:45 AM | about stocks: AAPL

    Lots of articles are going to get written about Apple (NASDAQ:AAPL) in the coming days proclaiming it as a great buy, a declining business with falling gross margins, and frankly both the bulls and bears will probably have good points.

    From a purely trading standpoint if the stock does not immediately rebound on the open of trade (indicated to be down $50 or over 10% post earnings) I would look to an income generating trade and sell the Jan 2014 $400 Put's which should yield around 8% depending on the volatility and if stock continues to fall after the open.

    At $400 a share if the stock were put to you Apple would be paying a 2.65% dividend, should have close to $175B in cash by the end of 2013 (which would be close to 40% of its market cap), and for all intents and purpose Apple is not going to disappear overnight so the trade should prove profitable.

    However one thing about the earnings call did concern me to the extent that it seemed Tim Cook was ignoring reality. When asked in a nutshell if the I-Phone screen size being smaller than some of the new feature Android phones Tim Cook had this to say:

    "Hi Bill, it's Tim. The iPhone 5 offers as you know a new 4-inch Retina display, which is the most advanced display in the industry and no one comes close to matching the level of quality as the Retina display. It also provides a larger screen size for iPhone customers without sacrificing the one headed ease-of-use that our customers love. So, we put a lot of thinking into screen size and believe we've picked the right one."

    As soon as I read this I immediately though back to some of the great quote's from the RIMM management team as they dismissed the I-Phone when it first came to market. My favorite is this one from Jim Balsillie:

    "As nice as the Apple iPhone is, it poses a real challenge to its users. Try typing a web key on a touchscreen on an Apple iPhone, that's a real challenge. You cannot see what you type." - Balsillie, November 2007.

    Its quite clear that there is not only demand but actually significant and growing demand for phones such as the Samsung Galaxy SIII and Note that feature screen sizes from 4.8in to over 5in.

    But here we have Tim Cook basically saying Apple has it right and that the 4in Retina Display is the right size and trying to justify that somehow that you cant use a bigger phone with only 1 hand. Unless the target audience for Apple is made up entirely of small people or teenage girls I think plenty of people who own larger smartphones have no problem handling them with 1 hand. I think the consumer disagrees Tim and a vast majority of them want a bigger I-Phone.

    For all those saying Apple needs another revolutionary product it is staring them in the face - it's making a phone out of the best that the current I-Phone offers combined with the Ipad Mini.

    But in the world of smartphones as RIMM painfully figured out if you wait 12 months to realize the competition has found the new sweet spot while you proclaim from your throne that only you have the product specs that consumers want - you will get left behind in a hurry.

    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.

    Themes: earnings Stocks: AAPL
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