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Can You See Apple Under $60?

southbeach... Who the hell are you, that we should believe your reason for Apple's decline and earnings projections? Truth of the matter is that Apple has grown top and bottom line at 30%+ for the past 5 years. That type of growth deserves a P/E multiple of 30+.

However, that's not all this company has done. Cash sits at $25B and growing at a rate of $10B+ annually. Apple has more cash than any CE company and approaching MS like cash flows. Better yet, it has weened itself from its most productive product line (ipods) and added 3 more high growth product lines that are growing 50%+ annually (mobileme, app store, iphone). Additionally, their bread and butter imac is growing above industry standard and is about to become the number 2 PC company in the US. Further, Apple is the smallest player with the highest growth and gross margin, in the largest CE market and is poised to transform that market as it did the mp3 player. Don't forget that Apple is also growing its retail and global footprint that has much more upside than down side.

Finally, with apples pending release of mobile processors created from the acquisition of PA semi, I suspect that they will produce mobile devices that are 20%+ cheaper to make which could catapult Apple into 100 million annual iphone level while also improving ipod GM. At that level and with GM above 45% look for Apples EPS to sky rock and cash flow to reach $15B annually. I personally believe Apple will have $45billion in cash by early 2010 or before. Steve Jobs is building Apple into the Samsung of the West. How about "Applesung" for a new corporate name. Recession or Depression, Apple's revenue and EPS will grow straight through it and you all will be amazed as to how they did it. Before I can believe your prognostications over mine, explain to me how Apple with only 2 years into the mobile market with only one device out sold Rimms entire line of cell phones? Until you can answer that question, please keep your dooms day projections to yourself.

Is Apple Set to Make Its Own ARM Chips for the iPhone?

Tom... You are absolutely right that Apple is merely taking advantage of the large number of processors used in its portable platforms (ipods and iphones). Integration of all peripheral subsystems (sRam, touch screen interface, multiple discretes passive and active, accellorotemeter interface etc) could cut cost significantly. A 20% reduction in cost on 200 million portable devices on a $40 cost basis could save $1.6 billion annually and move its iphone price point below $100 subsidized. I also believe they'll target power consumption as a major design goal besting the competition. Lower power processor design was PA semi speicialty. By summer next year we should see a new platform based on the new processor design. Papermaster is only needed for management of a processor road map that will compete against the competition no doubt will do catch up within a year. Apples competition will be TI, Samsung and other mobile processor OEMs. If TI and Samsung were smart they would start now leveraging their expertise on providing a low cost low power consumption pocket computer for other mobile OEMs. To wait until Apple debuts will be in my opinion disasterous of them and mobile OEMs.

On Nov 05 05:36 AM Tommo_UK wrote:

> Right but wrong. Apple isn't creating a closed ecosystem at all.
> Its intending on using a variant of an OS (OS X) which is widely
> available on iPhones and iPods, and Macs (don't forget about those,
> will you) on portable devices running on ARM-based chips - an architecture
> actually helped launched and nurtured by Apple before it sold its
> stake in the company some years back.
>
> Its launched an SDK for the platform, so the only proprietary aspect
> is the chipset itself - in other words the manner of the integration
> between the components and the minaturisation which can be achieved
> by custom design in-house rather than having to rely on off-the-shelf
> parts.
>
> The key is, its the same architecture, just adapted and developed
> in-house, as every other device out there, so its nothing like the
> original Macintosh paradigm where everything from the OS to the IO
> ports were propritatary.
>
> I wish writers would stop making this simple error. Vast swathes
> of OS X are open source. The development platform - XCode - allows
> tou to code for Macs, iPods and iPhones, and the chips Apple uses
> - whether designed in-house or not, are based on a widely used and
> non-proprietary architectiure. Jobs isn't swimming against the tide
> at all. What he's done is found the ripd tide to drag him and Apple
> as far away from its competitors as possible, as quickly as possible,
> leaving them all beached with no hope of catching up.

All Quiet on the DRAM Front: Can Micron Survive the War of Attrition?

I can not believe someone is trying to put lipstick on this pig of an investment. You should try a list of worstening scenarios that suggest under what conditions would micron become insolvent. As I see it, smart money will start to exit micron no later than 1Q09 and that micron will receive a bit somewhere in the 2Q09. At a current market cap of $3.4B (4.4 pps), it's p/b at 50% would suggest that with a little further deteriation in its share price, one can pick up at least two 300mm mfg plants for the fire sale price of $4 Billion. Throw in the other operations and a hefty 25% layoff after acquisition micron is ripe for the picken. Buying micron would benefit Samsung or Hynix well as all two are in the 3 basic businesses that Micron operates. Sandisk would also benefit in buying Micron because they would eliminate another major nand competitor while improving its royalty stream, and more importantly give Sandisk an upper edge in removing Intel from the nand business. If Sandisk were to buy Micron, this could usher in a greater collaboration between Intel and Sandisk and would go further to solidify Sandisk/Toshiba partnership as the defacto standard for nand chips and cards.

Apple: Great Company with Lofty Valuation - Due for Pullback

Exactly why should anyone listen to your prognostications. Anyone whose invested in Apple over the past 2 years know that P/E ratios for valuating Apple doesn't reflect its true earnings.

By your writing style, you're not an uninformed person. So what's your reason for writing such an uninformed piece?

I see a lot of these short side biased blogs on Apple that just boggles my mine. I finded it intreging to here someone write such a negative piece on a company that is accellerating cash flow by 35%+ per annum and will top out near $40Billion within a year. With such a matrix, who cares about less than 0.1% stock price dilution.

Come on, be honest for once and tell us the real reason for this useless piece.

Research In Motion's 3G Counteroffensive: The Smartphone Arms Race Escalates

Wow... Thanks for the chart. This chart clearly shows that Apple was taking share from Palm and stalled RIMMs advance. What's not shown is after the 3G launch which will clearly show that Apple is now taking market share from all smart phone OEMs including RIMM.

However, one could tell Apple has captured a significant portion of the smart phone market by its SP performance. This is all shaping up to become a short for RIMM and a long play for Apple. By Christmas, RIMM will be punch drunk from Apple's reported sells and the analyst will have to take notice of the iphones contribution to Apples top and bottom line.

Big money was betting on RIMM and they have clearly choosen the wrong race horse. These low tech investment gurus have provided a great opportunity for small investors to benefit from Apples rise to mobile phone prominence. RIMM should go down by 1Q09. Nokia will take some time--perhaps another year. Motorola is dead in the water and neither are prepared for the next iphone platform that will catapult Apple market share of all mobiles above 10%. These are great times for the retail investor. Big money will not be able to ignor a 12 million plus 4Q08 iphone 3g sales.

Replacing P/E in Valuing Apple Stock

Wow... After 4Q09 its not going to matter any way. Both EGM and CGM will move the stock higher. From my estimates a forward looking CGM (4Q08) should value Apple at 20.3 x 10B= $203B. Apple earings and Cash are accellarating which indicates a growth stock. Cash growing 50%+ and earnings growing 30%+. Most growth stocks are valued based on 4 quarter forward looking estimates. If I were to do that, the cash looking forward would be 12 to 15 billion. Using a 20.3 multiple we're at 240 to 300 PPS.

I'm not trying to be contrarian here I just believe that Apple is unfairly undervalued at this time. Your CGM of 20.3 is based on backward looking CF. My contention is that forward looking cash flows are more appropriate. I estimate that Apple will have 45 to 50billion in cash by 4Q09-- 150% growth in 1.5 years. What company growing that fast uses multiples of 20x?

Apple: Are Investors Overlooking Cash Earnings?

This was a great treatment on Accounting principals but your analysis ended up with "Therefore, when evaluating Apple on its prospective cash flows, shares look attractive under $160." This is exactly where the market took Apple which currently stands at $158.5. Most Apple longs believe Apple is not being priced right given its growth projections and like your post points out its high FCF.

Also, your analysis doesn't include the impact from iphone cannibalizing ipod sales and the addition of the apps store and mobileme revenue streams.

Third, the current accounting methods will show that the iphone represents 5% of Apple current sales. That number will move to over 20% by 1Q09 without including app store and mobileme revenue. By the 1Q09, the iphone will represent the 2nd largest revenue catagory to Apple. Assuming minimal ipod sales erosion (15% or less), how does this not warrant an increase in valuations.

Finally, your 2009 20 million iphone sales are low, extremely low by about 15 million. In terms of cash, Apple will be sitting on about $28 billion by the end of 2008 and adding about $3billion per quarter to that number. This time next year, Apple will have somewhere in the vicinity of $44billion. This stock is worth much more than $160/share and its p/e multiple should be in the area of 35.

Apple Math: Market Share over Margins

Jason... Although I agree with the general low eval of Apples potential, I totally disagree with your numbers and the time frame inwhich the iphone will be acretive or noteworthy to earnings.

Why disagree with your numbers
1. Munsters predictions are already wrong in that he did not expect expansion of 74 additional countries with initial launch of 22. His numbers included only Japan for 2008. Although I agee with munsters 300% growth over the next 2 years its possible that given Apples momentum, app store and content model, 400% is more probable than 300%.

2. You $71.75 per phone seems too high for my estimates. I estimate a single 8GB phone addes only $65/quarter in sales and using a conservative 40% GM (this number would include royalties, packaging and other mfr incidentals). Much less than your $72/phone.

My estimates

1. The iphone is not just hardware. It includes additional revenue to Apple via the apps store, Mobileme, accessories, repair and itunes. Two of these 5 catagories are new independent multi-billion dollar revenue streams while the others benefit from incremental sales. All total, the iphone represents an initial hardware sale and residual revenue to Apple over the life of the product.
2. The iphone will canibalize the ipod product line. Apple tried to put a good face on this by growing quantity shipped but that was accomplished by halving the price of the shuffle and lowering the ASP for the other ipod line. On the CC, this was reported as being a good thing because the iphone carries a higher GM than the ipod. I agree.
3. In the current quarter iphone sells is $419M lower than all Apple revenue generatine catagories; next quarter it'll be $800M larger than software and peripherals. The 4Q08 iphone sales will be $1450Million larger than desk tops, itunes, sw, and peripherals. By 1Q09 iphone revenue will be 1800Million, the second largest revenue catagory exceeded only by lap tops. Starting in 4Q08, the iphone will be the greatest contributor to cash flow than any other catagory including lap tops.
4. While iphone is moving quickly up the catagory hierchy, apps store and mobileme revenue will approach $250Million per quarter by 1Q09. Although the these catagories will contribute the least the renvenue, added with iphone sales they represent more than 20% of the iphone catagory.

My point is that we don't have to wait until 4Q09, iphone sales and impact to Apples revenue are relevant now and they are substantially significant.

Dividend Yields Soar

Correct me if I'm wrong but Since you're buying the stock for the div, then why not hedge your stock purchase with some puts? Any errosion in the stock will bet off set by the puts. Any sign of a bull market, you can cover lower your puts and benefit some form the stock appreciation.

Apple: Expecting Short-Term Weakness

At best the Apple should not have suggested 10% lower margins without backing that up with expected higher volumes. Hedge funds love this type of disperity which is fodder for shorting the stock. It's apparent that, longs are not selling which leads me to the conclusion that there are a lot of short sellers out there. Irroneously they link the lower GM to the economy. What a idiot thing to do, given that we're most likely moving out of a recession and by early next year we'll see signs of economic improvement. The greatest threat to the economy is oil which is used in almost every aspect of the US economy. It alone is probably 50% of the current economic down turn. But Oil prices are down 20% the past 2 weeks and falling even further. Demand destruction is accellarating and supply is increasing. There's no place for oil to go but down. This entire contrived oil imbalance has finally ran its coarse; eventually the truth always win. Fortunately for us (unlike the oil barons) the future for oil prices is lower given the shift in America and other western countries will to become energy independent. The Saudi's are probably shaking in thier sandles. In an ironic since, the hedge funds may have done America a good think by given focus to the huge 700Billion of cash leaving US soil for foreign countries. The light is on this little hidden win fall and the exterminator is cranking up the gas can.

Apple's problems is not the economy and the earnings results from Apple proves it. Forward guidance from Apple is worthless other than providing some insight into the direction of new product releases. Any one that suggest otherwise is just providing cover for hedge fund shananigans.

RBC Analyst: Expect 1 Million 3G iPhones to Sell on Launch

agreed, Abramsky is grossly off in his predictions for the 3G iphone. His conservative estimates doesn't take into consideration the canibalizing of the ipod and mp3 markets. I estimate they'll sale 1.2 million in the US alone and twice that everywhere else. If you make the assumption that on average each country does 100K iphones in the first weekend, then you reach a number of 2.1 million world wide excluding US. Include the US and you get 3.3 million the first weekend. I also estimate they'll sale somewhere's upperwards of 6 to 10 million this Christmas albeit at the expense of ipod sales but this is not a bad thing given that the GM and ASP for the iphone is higher than that for the ipod. Secondly, residual sales from the apps store and itunes bolds well for Apples bottom line and future sales. My god, some are saying the Apple could do $1Billion in apps store sales a year.

I further estimate that Apple will move above $10Billion annual cash flow and by this time next year will be sitting on a hoard of $30billion+ in cash. By 4Q09 Apple will have $37 to $40 billion in cash and would have to start putting some of this FCF to work for share holders in the form of stock repurchase, annual dividends or special dividend. Given Job's personality, a stock repurchase may be what he chooses because he then will have control over whether, how and when the money is spent.

Did Apple Manufacture a First-Day iPhone Shortage?

Why would apple turn customers away after standing in line for hours. Pissing off customers again after the orginal release contraversy (under cutting early adopters) would make no sense. I believe Apple underestimated the success of the iphone greatly and again got caught with under supply. It made since to me that the large number of people buying the Iphone are moving up from ipods and MP3 players to the iphone with its multimedia and smartphone capabilities. Their estimates may be as high as 3x off. Why would one buy a $189 4GB ipod nano when they could get an 8GB iphone for the same price.

Apple will sale at least 15 million of these things in 2008 and as much as 8 million this Christmas. Next year will be off the charts with north of 35+ million sold. Getting any higher will depend on the success of RIMMS, Samsung and Nokia's new offerings. I suspect they will be have very competitive products.

Garmin: Market Erroneously Pricing In Nuvifone Failure

Tim... You raise a good argument for investing in Garmin based on nuvifone sales but I'm not as optimistic about cell phone revenue contribution as I am in continued automotive penetration and having aero+boating GPS becoming a larger percentage of revenue. These latter markets are less competitive and are sufficiently large to continue Garmins as a growth stock. My concern is that the cell phone market is too competitive and may consume a disproportionate amount of R&D resources from the other bread and butter product lines--not to mention its the competitiveness. Selling a car phone as an automotive GPS package for the low end consumer with WIFI or Wimax as the primary broadband low cost conduit for toll and network access would be huge as well as game changing. Those locations that don't have WIFI access could then use a specialized pay as you go cell network until within WIFI range. Essencially free cell phone access.

But competing with the likes of Nokia, Apple, RIMM, Samsung, Motorola and Google is highly risky in the cut throat cell phone market.

Will Some Solar Companies Face a Cash Crunch?

You've done a great hack job on the solar sector, but let's look at what the balance sheet really says. For CSIQ, inventory ramped to $81 mm from $71 mm. That's a 14% increase q-o-q. No company in their right mind will increase inventory when sales are not being made. Secondly, 30 and 90 day terms are typical for all businesses especially for service oriented business which have to rely on MFG credit worthiness to fund inventory builds. Solar companies limit their exposure to even heavier marketing cost by relying on a small number of integrators. They also limit labor cost by relying on integrators as well. However, nonvertical industries do share marketing and installation cost by providing consignment inventory to their custormers. Further, booking this cost is done only when the sales are made not when the consignment is delivered. The 30 to 90 day terms are used to help cash limited integrators.

Your post is nothing more than a cover to short these companies. The important matrix in the solar sector is visibility of sales. Companies like ELSR and CSIQ with 2 years of sales backlog is not a company going out of business any time soon. On the contrary, its apparent that with increasing volume, panel efficiency and growing awareness I for the life of me don't see this trend ending for at least 5 years-- with each year bringing surprised upward revision of capacity and revenue.

Great hack job though!!

WSJ Report: What Apple Will Be Creating in 5 Years

The only prediction I found plausible is the Apple TV/multimedia console. All other products won't be material to Apples earnings. Over the next 5 years Apple's success will not be in new products but old products expanding within their respective markets. You, perhaps mistakenly, give the impression that you're investing in Apple as a growth story because of these new products. I beg to differ with that conclusion. Apple is a growth story because of its legacy products--the Mac, iphone, ipod and software/services. All of these product lines will grow at double dig over the next 2 to 3 years and some over the next 5 years. The Mac is growing over 35% annually, taking market share with no known viable competition. The iphone is in its infacy with less than 0.5% of the cell phone market. The ipod is morphing into a multimedia game playing machine and software and services will expand at the same rate as these new hardware products as Apple capitalize on new apps for all of them.

Finally, there are 2 additional lagecy categories inwhich Apple will have double digit revenue growth namely content distribution and mobile microprocessors. Content on itunes is expanding into, TV, new motion picture releases, and soon gaming and posibly print media etc. With over 100 million processor needed for its mobile lineup, Mobile microprocessors will become an instant $2Billion market for Apple. Assuming a cost savings of 25% per processor, Apple will be looking at adding at least $500 Million to material cost savings annually.

Apple is the new Sony. Given their war chest of $20B and approaching cash flow growth rates of $10B annually, Apple will become more and more vertically oriented to minimize material cost and system complexity.

New markets are great but investment in Apple today should be based on its current market potential and track record not these small trinkets of CE products that are so consumer fickled. I see Apple is a congloramate in direct competition with (MS, HP, RIMM/Nokia, ToysRus, BestBuy and Block Buster). Add to that mix the Apple ipod which is the MP3 market and you have the making of the largest tech company by market cap in the world. I suspect Apple to surpass MS in market capitalization in 3 years.

Where will Apples expansion come from:
1. SW - Apple will become 25% of the desk top market as its Mac line expands. It will add more applications on top of the current purchase of Mac version of MS office from MS. SW Applications will expand into mobile as well.
2. iphone - Apple will capture at least 5% of this market in the next 2 years. Thats an annual $10 Billion in sales with GM above 50%.
3. Mac - Growing at 35% plus.
4. ipod - rejuvinated by gaming applications suspect growth rate of 10 to 15% annually.