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Michael Blair
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I retired as CEO of an Automotive Parts supplier, and manage an investment portfolio for myself and family. I have a BA in History from Royal Military College of Canada and an MBA from the University of Western Ontario. My first career was as a fighter pilot in the RCAF, and, following my MBA I... More
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  • September Is Apple Harvesting Time For The Fruit And The Stock 11 comments
    Jul 26, 2013 3:09 PM | about stocks: AAPL

    Apple Inc. (NASDAQ:AAPL) shares have had a bounce since they reported a lower than expected 20 % drop in year over year net income for the June quarter and Tim Cook advised they had something "big" up their sleeve to be announced later. Apple bulls have been vocal about the terrific ecosystem; the high quality products; the massive cash position enhanced by an equally massive stock buy back; and, of course, the dividend. These are all good things.

    IDC reports smartphone markets grew 59% in units in the June quarter to a worldwide volume of 238 million and Apple market share slumped to 13%.

    LG Electronics, Lenovo and ZTE all expanded market share at enormous rates as did the "Other" category which makes up 42% of the market and (necessarily) includes BlackBerry, Nokia and a handful of others.

    The implications for Apple are dire. Apple owned the smart phone market not that long ago and it is following a BlackBerry like trend of shedding share at an enormous rate and keeping an "its not important" demeanour just as many Apple bulls commenting on my recent SA article maintained that Apple's share of the so-called "high end" of the market is what is important.

    Smartphones is not the only arena where Apple market share is taking a drubbing. Despite creating the Tablet market, Apple sales of iPads dropped substantially last quarter as the market flattened and consumers opted for more lower priced Android tablets. The total market reported dropped 14% in the June quarter while Apple sales dropped a whopping 25% from its first quarter volume shipping 14.6 million units.

    Margins are falling as well and year over year Apple saw sales declines in key markets like China, Europe and Asia Pacific. This is not a trend favourable to Apple investors.

    At this point, seven out of eight smart phone users choose a product not made by Apple. Over half of tablet users choose a product not made by Apple. It is starting to sound a lot like the PC market where more than 7 of 8 computer users choose a PC not made by Apple.

    New products with new features may be Apple's salvation but they better come quickly. The flattening of markets for tablets suggests this trend has run its course and possibly consumers have all the tablets they want or need and may even upgrade their old laptop now that Intel has introduced processors with longer battery lives. The long battery life of the tablet in my view was one of the major contributors to its success despite its limitations as a computing device.

    Ultrabooks are now thinner, lighter and have battery lives (thanks to Haswell and Silvermont) that compare favourably to tablets and offer a full range of computing power that is more compelling than a trip to YouTube or Facebook with a stop at Instagram and a few tweets on Twitter. I am seeing a lot more people at the coffee shop sporting a new laptop than a new iPad.

    Fortunately for Apple, many of those new laptops are MacBooks which remain a compelling choice for many and with crisper display and Haswell processors are likely to remain a favourite for many users. iPads, not so much.

    In my view, despite its recent torrid pace of growth, the smartphone market is rapidly maturing. With over 1 billion smartphones sold each year it is a refresh cycle rather than initial demand that will determine future growth, and Android assemblers are taking full advantage by offering a relentless array of new phones with new features. A once every year or so refresh by Apple of its iPhone is just not going to cut it in my view.

    What does it mean for Apple? Without new products that capture the imagination of consumers - a real possibility given its history, but by no means a certainty - Apple will do well to hold on to the share it has today. If that is the case, you can expect it to become a less profitable and less interesting investment.

    The September quarter is likely to be reasonably profitable for Apple if it meets its guidance but is not going to make anyone rich. In my view, it may well be the last decent quarter Apple puts up for a while. That suggests that Apple investors take advantage of the Apple harvesting season not only to fill their baskets with Royal Gala or Granny Smith's to make preserves but also to preserve the value of their investment portfolio by cashing out or hedging with options.

    With its current strength, I believe Apple is a better short than long today.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in AAPL over 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.

    Stocks: AAPL
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Comments (11)
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  • Sam Liu
    , contributor
    Comments (3711) | Send Message
    Well thought out and brilliant!


    Just one correction, "Apple owned the smart phone market not that long ago"


    I believe at that time, according to Gartner et al, Nokia "owned" that market.


    In 2007, Apple redefined that market though ...


    and do their tactics of buying up certain supplier "raw materials" made it expensive to compete with it.


    So decent or more than decent substitutes have come in.


    I have never seen or needed to go to a "Samsung" store in Cn, so I can't comment. I have gone to a Samsung after sales office, in Shanghai and Hong Kong. And despite the limited global warrantee, I will not be repeating such purchases.


    As for LG Electronics, Lenovo and ZTE those do not have much premium yet.


    At best middle market.


    And at least in Shanghai, a 4k RMB older IPhone is often sought after more than a new 2k RMB substitute (lower working class, not yet in the consumer class).
    26 Jul 2013, 09:02 PM Reply Like
  • Michael Blair
    , contributor
    Comments (5099) | Send Message
    Author’s reply » Thanks Sam. Appreciate your inputs.
    26 Jul 2013, 10:15 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3711) | Send Message
    By the way my friend, a church handyman who I reported got a great looking LG is not a Nexus 4. It cost him around 1K RMB, an N4 over 2k RMB
    26 Jul 2013, 11:33 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3711) | Send Message
    Biz Break: Apple continues to cede ground in smartphone battle
    26 Jul 2013, 11:34 PM Reply Like
  • Sam Liu
    , contributor
    Comments (3711) | Send Message
    Investors have dumped its stock for months now. Techies are demanding it come up with the Next Big iThing. Yet for all the bashing it’s taken of late, Apple and its products apparently remain close to Americans’ hearts.


    The proof is right there in the Harris Poll pudding:


    According to the interactive survey of 38,500 Americans, Apple once again beat out strong competitors like Samsung and Amazon to end up Number One.


    the 2013 Harris Poll EquiTrend® (EQ) study. In its first full year under Tim Cook’s stewardship, Apple took home repeat Brand of the Year distinctions in three categories – Computer, Tablet and Mobile Phone – in the annual study.


    Here are the winners:


    Apple Computers: 2013 Computer Brand of the Year
    Hewlett-Packard (HP) Computers
    Dell Computers
    Sony Computers
    26 Jul 2013, 11:41 PM Reply Like
  • Michael Blair
    , contributor
    Comments (5099) | Send Message
    Author’s reply » @Sam Liu - it is a great brand and has enormous marketing power. It is however not using that power today but rather resting on its laurels while competitors grow rapidly.
    27 Jul 2013, 08:30 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3711) | Send Message
    Dear Michael:


    The difficulty going to the supermarket, department store, even car shopping is over-branding. Apple has the mystique of capturing the media's prose. I guess Wall Street was also caught up in that furor, and then AAPL fell.


    As in another post would who would want an LG, Sony, Samsung or Apple product, at least in Cn it is an Apple iP-- or Mac. A source of prestige and some envy (unless one is a Hong Konger).


    My support is from Apple's far superior after sales service (by the way I have been snubbed by all of those brands, except for Apple). What a 3.5 year track record!
    27 Jul 2013, 09:17 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3711) | Send Message
    I mentioned that non-consumer class Cn citizens were enjoying Apple products.


    Apple's Secret Weapon: the iPhone 4
    Three-Year-Old Smartphone Propels Company's Sales in Price-Conscious Markets


    Why would Apple Inc spend more money to further develop a new lower cost IPhone (though they have ODM/OEMs develop some test models).


    Using IBM during the late-1980s to 2005 as an example, the PC division constantly fought for its relevance and resources in the organization.


    27 Jul 2013, 09:40 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3711) | Send Message
    Guo Bing, a vendor at a computer mall in Beijing's business district, said about 30% of his total sales are still iPhone 4 and 4S smartphones, compared with iPhone 5s, which make up about 50%.


    The rest are Samsung Electronics Co. devices (20% and how many redundant models does Samsung have-- I can't understand how this company's mobile phone division could be more profitable than ...), he said.
    27 Jul 2013, 09:52 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (7612) | Send Message
    According to most rumors, this will be replaced soon with an iPhone lite:




    AAPL will achieve a few things:


    - new connector, now the same across all iDevices
    - same screen size across all product lines (which could later open the road for a new, larger screen size)
    - get more lower-end customers since they don't perceive the product as "old"


    New differentiator is plastic vs metal casing.
    27 Jul 2013, 10:23 AM Reply Like
  • Michael Blair
    , contributor
    Comments (5099) | Send Message
    Author’s reply » Thanks. A lower priced iPhone will certainly make a difference and could bring growth back to Apple. I think without meeting competition in the low to mid range their outlook is not strong enough to warrant their market value.
    27 Jul 2013, 11:06 AM Reply Like
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