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Everybody Loves Apple

Apple's performance isn't so surprising to many who have followed apple for some time now. What is surprising is the lack of honest financial forecasting and reasonable share targets. The relationship between financial analyst, hedge funds and MM makes investing in markable securities almost impossible. There is little correlation between the companies performance and its share price-- particularly in the short term. Long term is less risky but valuations has little to do with a companies performance.

Case in point, every analyst projection is at least 35% above pricing, however, pricing goes up and down, albeit with an upward trend, as though the MM are skeptical. When you have 100% agreement by all analyst that the target price is 35% higher over the next year, why would anyone sale their stock until then? It all defies logic, common sense or facts.

Garmin's Nuvifone: Why I Don't Expect It to Gain Much Traction

Garmin has good brand awareness and is small enough that they don't need to be a major player in the handset business. My belief is that Garmin will vy for the niche logistics, highend recreational and transportation add on markets. The combination could give them 5 to 10 million annual units at an OEM cost of $400. That's a $2 to $4 billion business with greater than 50% GM. They could also pick up another 1 or 2 million units from the broader smartphone market in some select geographic areas. This business doesn't have to compete directly with the Nokias or Apples of the world to be successful to Garmin. What's wrong with high margin niche markets? Nothing.

Should Apple Spin Off Its App Store?

You make a compelling argument. If we are to believe Apple, they don't make much profit off of the app store; so by spinning it off, they could make a lot of money on each down load with none of the cost.

The potential cost to apple would be to leave its app store platform up to less imaginative people who may corrupt the present excellent user experience. Apple needs to make the decision if the long term risk out weigh the short term financial gains.

Why Apple Will Blow Away Forecasts This Quarter

I would suspect two differences in your numbers:
1. Cost of Goods may have a more dramatic reduction than your current expectation. My reasoning is that, ipods will make up a smaller part of Apple sales this quarter and ipod-touch will make up an increasing amount of ipod sales. Because the ipod touch share many parts with the iphone, that fact leads to more efficient manufacturing cost and lower material cost. More over I believe that Apple will be looking to control ipod cost by de-emphasizing slower ipod product lines--thereby lowering inventory cost even more.
2. Itunes - Given the high rate of app store sales, I would not expect for itunes sales to decrease this quarter over Q2 numbers. Your projection is Q3 (975M) where Q2 was (1049M). I believe that app store sales will drive itunes at a higher rate going forward than what we've seen in the past. Although itunes typically see a 7% drop in itunes sales from Q2 to Q3, I'm hoping the app store sales growth will start to midigate that at least until the growth rate tails off.

Jobs: Catch the App Store if You Can

Carriers are already dumb pipes. Exactly what do they offer becides talk, text and internet access? All three are formated pipes that includes no content. They don't even have leverage. The vail threat of cutting off Handset providers is just that vail. Truth be told, if Apple were to compete with the telcos it could easy buy its way in and disrupt AT&T and Verizon. Both AT&T and Verizon must may soon have to get into the hardware business to stay relevant.

The only good news for the telcos is that Apples too busy disrupting the handset makers to take on the telcos. However, its just a matter of time (2 to 5 years) that it will eventually take on these blood sucking technicaly illiterate fossils.

On Jul 14 10:42 AM SiliconValleyJoe wrote:

> Someone has to repair the towers, the dishes, the fiber cables and
> the power packs sitting way on top of a remote hill. Someone has
> to design, implement and support the technologies necessary to handle
> all the "packet" switching, transfers and routing. Someone has to
> respond rapidly to the aftermath of a natural disaster. All that
> requires technological know-how and immense resources.
>
> Carriers, if anything, has a strangle hold on the "pipes". Give them
> a decent piece of the pipe or they take that bandwidth to someone
> else and leave a device maker in the dust.
>
> If we ever are arrogant enough to think that carriers are just "dumb
> pipes", we risk losing a key part of our wireless infrastructure.
>
>
> All the shiny Pre, iPhone and Berries out there require a reliable
> and ever faster network to access an ever increasing amount of information.
> Someone has to design, implement and support that network.
>
> No, carriers are not in danger of becoming dumb pipes any time soon.
> They are in danger of losing subscribers if their network is perceived
> to be slow or unreliable for multi-media data access.
>
> I see carriers becoming eager partners with the likes of AAPL, Palm
> and GOOG and Nokia and RIMM.
>
>

The App Store: A Billion Downloads, But Not Much Revenue

The following article

"news.cnet.com/8301-135... "

suggest that the first week of the release of the iphone 3G gemerate 60+ million downloads and $30 million in revenue. That translates to $0.50 per app store download, including freebees. Translating this number to 1 billion downloads would put apple revenue at $500 million. What's also important to note is that the average cost for downloads are probably increasing given that the ratio of freebees to total apps is dropping. Apple gross profit would be $150 million.

Now the infrastructure to run the apps store is already created through itunes however, the SDK development, and the added support staff for software quality control(SWQC), app review and commission, accounting software all would require additional staff fix and veriable cost. I would assume that I least 50 engineers are working on SDK with 15 SWQC engineers, 10 app reviewers and 10 member management team including accounting, legal, regulatory etc. That's a 75 person team costing Apple about $150K per year puts cost around $11million annually. Its just a guess but Itunes could have been given $10 million initially to upgrade there server farm to handle increase transactions by 10%. Storage would be neglegable given only 50K apps. As time went on, transaction speed would had to have been upgraded further perhaps another $20 million.

Bottom line, I believe cost for app store is annually $10 million to $15 million annually with an initial start up cost of $41 million. It looks as though Apple will do somewhere near 1.5 billion apps the first year. That'll amount to around $200 million with a first year cost of $50 million. Gross profit would be north $150 million.

Apple and Amazon's Open Embrace

As far as content distributor, its not amazon. How ever controls the hardware will control content. Just look at the mp3 market. A book saler will soon by past amazon and go directly to itunes. A middle man is not required. Amazon however is doing best they can by providing there content on as many platforms as possible. In the end, itunes will win out. Its a matter of time.

Apple: Is a Low Cost iPhone in the Works?

Turley... I believe Apples approach to lower cost is not in the mechanical systems or the feature rich components but rather in its core electronics--the mpu. Apple wants to lower power consumption and cost for the iphone and it needs to lower cost for the ipod--particularly the touch. Some and including yourself have over looked the cost involved with the cpu core for both the ipod and iphone.

CPU core

Apple can lower its BOM with its own mpu and given the volumes its not hard to ring up billions in savings. It's been estimated that the current Samsung processor used in the ipod and iphone cost upwards of $20. This processor was not designed to interface with other feature components and perhaps carry another dollar amount in glue logic and discrete components (both passive and active). I can see at least a $20 cost savings in components and another $3 savings in PCB realistate per iphone and a similar amount for the touch. Its not a stretch to forecast apple selling 50 million iphones and ipods-touches this year. With a cost savings of $20 plus per device Apple reaps a $1Billions in component cost alone-- not to mention labor and handling cost.

Elimination External DRAM

Its possible now to eliminate external DRAM with eDRAM patented by IBM. Since non of the current smartphones uses more than several 100's of Megabytes of DRAM its possible to include 256 MB or 128MB of eDRAM. Although this wil drive up the size of the cpu chip and cost there's a greater savings in inventory, PCB realistate, total component and glue logic cost.

Law of large numbers

Many have concluded correctly that $5 cost savings in removing a feature is not worth the lost in functionality. However, when that $5 is saved without lost of functionality and is multiplied by 10's of millions of devices, it becomes a profit center for Apple. That $5 cost savings on 100 million devices becomes a $1Billion in gross margin expansion.

If my premises is correct that Apple will save a $1Billion a year in component cost, an interesting question is what would be the most productive use of that cost savings? My answer is drive innovation by buying a controlling interest in Sprint/Nextel inwhich they could then offer the iphone with reduced service plans say $10/month and thereby completely alter the mobile lanscape in America over night. Apple's iphone volume will escalate north of 100 million annually as aforedability will extend down to the low cost consumer.

Apple having controlling interest in a carrier will drive innovation products in movie down loads, music down loads, ebooks, navigation, education, texting ect.

At todays current prices, Sprint/Nextel would only require about $5billion for a 50% stake in the company. However, for much less, Apple could get access to the network with just the capabilities it wants to revolutionize things.

Apple's FY09 EPS Estimate Is Too Low

I think your estimates for iphone sales are growsly off. I'll stake my reputation on the fact that Apple will continue to gain smart phone market share based primarily on this years upgrade cycle, continued geographic expansion and the app store ability to pull sales.

This year's iphone upgrades should be the most remarkable and dramatic. I believe the first versions of iphones built with the PA semi processors will release 2H09. As apple takes advantage of PA semi's power management expertise, these units will set new standards for smart phones uptime and cost. It's quite possible that we may see subsidized iphones for under $75 and in Europe for free. At these price levels the iphone will ship in quantities approaching 100 million. Your 19 million units are laughable given that the shift to smart phones will occur significantly in fy09.

With now the #1 retailer, the #1 cell phone company and the #1 CE retailer on board to sell iphones, plans to distribute the lower cost iphone are in place to mark a remarkable year for apple.

If apple sales (as I believe) north of 45 million iphones, $8 a share this year will be in the cards.

Palm's Pre Goes a Step Further Than the iPhone

I look for Palm to be bought out by HP, Dell or MS. This has to be their only hope and they have a good chance. Buying Palm now could earn you a handsome return when the purchase is announced.

Apple's Credibility Problem

Are you kidding me? The very opposite is true from what you're saying. What's there to be suspicious about Apple? We have independent reports that the iphone is the #1 handset, imacs are growing above market trends, cash reserves are $25billion and counting, ipods are still growing dispite major market saturation, earings are still growing above the street guidance, there's no debt etc etc etc... What's there to be suspicious of?

I tell what though, I'm suspicious of your post and you. Why would you post a lie when the world was informed of the truth from Jobs himself? Should we believe you or Jobs? Should we not believe our own eyes, hearing and independent confirmation of Apples financial health and operations efficientcy? Or should we believe only your report that Steve Jobs was material ill to perform his duties?

I've worked as an engineering manager for some time and there were times I was too sick to perform a task but I wasn't too sick to continue in my position and the work went on until I got better (few days). I think Steve diserves that much given the earnings and performance of Apple during the worst recession since 1929. You should re-read the earnings reports for CY2008 before you write another post.

Cash Is Not Yet King When it Comes to Market Performance

It may not be king but it sure as hell allows one to rest easy at night. look for Apple to add another 4 to 5 billion this quarter to its cash position further distancing itself from the all but XOM and Bershire. How significant is this, Apples cash flow is exceeding revenue growth which is above 20%. In addition, it will only improve as Apple ships more and more iphones at rediculously high GM. I suspect that Apple will have above 45billion in cash by end of 2009.

This boggles my mind to think that Apple has exceed the streets Revenue and earnings estaments for the last 5 years, grown cash reserves over 900% and accelarating growth in all of its major markets but managed to only loss market cap of over 60% this year. A year that is marked with many first for the computer, handset and CE markets. You've got to love the way the market values growth.

Five Apple Predictions for 2009

Good predictions; however I believe the iCar prediction will unfold slightly different. I think Apple would do well with marketing the Apple brand as "Apple in side" similar to the "Intel inside" campaign. Apple could then possibly spread its hardware over more of the automotive industry.

Here are two other predictions for Apples growing cash hoard:
1. Apple becomes a producer of its own 100% owned content (Animations, movies, documentaries, digital books, digital classes, digital lectures, digital training materials etc.) Initial Cost = $1 billion; Annual Cost = $0.25 billion; Annual Revenue = $2 Billion; GM = 40%.
2. Apple to exploit joint venture to leise bandwidth for its own wireless carrier operations. Initial Cost = $10 billion; Annual Cost = $1 Billion; Annual Revenue = $5 Billion; GM = 65%.

iPhone at Wal-Mart? Steve, Say it Aint So!

Perhaps the ipod-touch isn't selling as well at Target. With Walmart, you get twice the number of venues. Its now apparent that most of Targets clients are shopping at Walmart as well but vise verse is not true.

I do believe that Walmarts electronics department leaves a lot to be desired from a customer support perspective but Targets not any better if not worse.

What I believe is happening here is Apple is using this time as a training ground for what's about to happen in 2H09 when they release their low cost iphone version with PA semi's power management processor. I don't believe that Apple feels as though many iphones will be sold in Walmart until the below $100 price point is made.

Finally, if you're apple and you know that you're about to release a product that's going to sell close to 100 million with possibly 20 million the first month, you'll want as many POS as possible to improve the customer purchase experience. Also, Walmart is the largest toy retailer in the world. We know that once Apple crosses the $100 unit price, these things will become a major competitor to the WII, xbox and Playstation. No better place to compete in the electronic gaming market than at Walmart.

Infineon's Woeful Outlook Is a Result of Apple's Slowed iPhone Production

Apple publiched that it sold 6.9 million phones. How do you know or anyone know that the 2 million is not additive to the 6.9 million sold as apposed to being subtractive. By your logic, 2 million would be a little under 5 weeks of inventory. I doubt Apple has that much inventory on hand given the iphones global expansion, the high market share growth and the faulting of RIMM's touch screen offerings. If any ones responsible for phone cut backs to infineon its RIMM not Apple.