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  • IPhone 4-Year Lifecycle Means Recurring Revenue For Apple

    In 6 months, even if my iPhone 4 is in perfect condition like the day it was made back in 2010, it will be less functional and slide ever so quickly into obsolescence.

    iPhone 4 was the first iPhone that featured the retina display. It was the most visible and significant upgrade after the release of the original iPhone in 2007. There are estimated 100M units of iPhone 4 currently in use [estimate from Unity].

    Until now, iPhone 4 has been allowed to upgrade to each new version of IOS. These upgrades provide new features, bug fixes, and security patches. For many iPhone users, the motivation to upgrade comes from the apps that they use. When these apps are updated to a new version that requires Apple's newest IOS, suddenly the IOS upgrade becomes no longer optional.

    The decision by Apple not to provide a version of IOS 8 for the iPhone 4 forces the iPhone 4 to become functionally obsolete, on the 4th year of its release. This 4-year upgrade cycle is a pattern that will be repeated. Planned obsolesce will become an increasing contributor to Apple's financial stability as the installed pool of IOS devices increase.

    Investment Implications

    • Revenue model for Apple (NASDAQ:AAPL) should include the 4-year planned obsolescence cycle for its IOS products
    • Apple's financial stability is currently under-appreciated, and will increase over time
    • This is one more reason to categorize Apple as a stable income / dividend stock, with potential growth upside as a bonus

    Disclosure: The author is long AAPL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

    Tags: AAPL, long-ideas
    Jul 24 4:13 AM | Link | 1 Comment
  • DENZA EV From Daimler Is The First Credible Threat For Tesla

    Daimler (OTCPK:DDAIF) partnered with BYD to create the Denza, an all electric sedan available for delivery September, 2014. This is a notable development for Tesla (NASDAQ:TSLA) investors because the Denza offers many features of the Tesla Model E and at similar price point.

    The most important feature is the all electric range of 190-miles using 47.5 kWh lithium battery. This is quite close to the daily-use Tesla Model S range of 220 miles that maximizes battery cycles. (85 kWh battery)

    The main characteristic of the Denza that is a negative compared to Tesla is the 14-sec 0-60 acceleration. This is much slower than the Tesla Model S sub-6 second time.

    Tesla Model E will not be shipping until 2016. This gives Denza a two+year lead ahead of Model E in China. Given China will be a key market for Tesla, this will impact Tesla after 2016. In the short term, the impact on Model S sales in China is less clear. Given Denza price is less than half of Model S price in China, some buyers may opt to get the Denza as their first all electric sedan instead of Model S.

    In addition, once Denza irons out early production issues and ramps up, it will very likely arrive in ex-China markets. With its 190-mile range, it has sufficient range to alleviate day-to-day range anxiety even for U.S. drivers. The arrival of Denza in the U.S. market will open a new era of practical electric cars. This is a milestone that many Tesla investors have been looking forward to with the arrival of the Model E.

    The question that must be faced now by investors is what Tesla will do to win this battle? Can Tesla beat Denza in China? If Tesla cannot beat Denza in China, how can Tesla stay ahead anywhere else in the world?

    The story is unfolding and worth watching to discern the answers to these questions.

    References:

    Denza website (English): www.denza.com/?s=eng

    Denza China subsidy: www.reuters.com/article/2014/04/20/us-au...

    Denza charging method:insideevs.com/denza-opens-new-chapter-ev.../

    Disclosure: I am long TSLA. 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: DDAIF, TSLA
    May 05 5:18 PM | Link | 6 Comments
  • Timing, Impact Of Apple iPhone With Larger Screen In 2014

    Company Strategy

    Apple (NASDAQ:AAPL) makes money by selling maximum number of iPhones etc, at the largest possible margin.

    Thesis & Catalyst For Apple Inc.

    Every Apple decision is worth analyzing to refine the "Apple business behavioral model" to better predict Apple's product road map.

    When it comes to the "right" smart phone screen size, it has been known for at least 3-4 years that many users prefer screen size larger than offer by the iPhone. Thus, the question of iPhone screen size has been hotly debated, even before the screen size increase to 4-in with iPhone 5 in 2012.

    What could Apple have been waiting for?

    1. Preparing the market by optimizing the 4-in screen size segment. If the ultimate lower-limit in terms of iPhone screen size is 4-in, it would be distracting to consumers if Apple were to increase screen size from 3.5-in to 4-in, AFTER the introduction of the 5-in or larger models. Thus, it is strategically preferred to complete the introduction of 4-in models first, before adding the 5-in and larger models.

    2. Transition to 64-bit and next generation chip: to gain adequate processing speed at sufficiently low power consumption to support more pixels of the larger screen. Unlike tablets, phones need to balance power consumption with processing speed. Galaxy S4 with 5-in screen had to use a much larger battery (2600mAh) compared to iPhone 5S (1560mAh) to have similar battery life. Part of this different is due to the screen. [www.informationweek.com/mobile/mobile-devices/galaxy-s4-vs-iphone-5-display-shoot-out/d/d-id/1109714] On top of power consumption of the larger screen by itself, there will be higher processor load to support graphics due to more pixels on the screen. The transition to 64-bit architecture in 2013 and the speculated 20-nm manufacturing process for the A8 processor will both contribute to longer battery life.

    3. Establish reliable supply with lower price for larger display. Securing a sufficiently large quantity of 5in display is not trivial. Display technology takes time to mature: capacity to increase, costs to come down. Note that $41 for 4-in display in 5S is the highest cost single component [technology.ihs.com/451425/groundbreaking-iphone-5s-carries-199-bom-and-manufacturing-cost-ihs-teardown-reveals] As reference, $75 for 5-in display in Samsung Galaxy S4 is also the highest cost component [technology.ihs.com/430692/samsung-galaxy-s4-carries-236-bill-of-materials-ihs-isuppli-virtual-teardown-reveals]. Apple may or may not end up paying more than $75 for larger display. The point being made here is that cost must be one of the major considerations.

    Valuation

    22% of smart phones sold in 3Q2013 have screen size of 5-in or more, accounting for 56M devices. [appleinsider.com/articles/13/05/30/samsung-google-to-scale-back-giant-screen-sizes-on-new-android-phones] Out of the 250M total smart phones, Apple sold 30M in 3Q2013.[www.cnbc.com/id/101174395] Those who desire a larger screen size will become potential new iPhone buyers.

    Using a conservative 20% estimate based on Android-to-iPhone switch rate, an estimate of 11M more iPhones will be sold in 1Q2015 compared to 1Q2014 (51M), solely due to contribution from the larger screen size. In addition, larger iPhone model will also increase upgrades among existing iPhone users, perhaps by 2M per quarter, based on estimate that 50% of iPhone buyers are upgrades and larger iPhone adds additional 15% upgrades.

    These two items together point to an additional 13M iPhones per quarter, or about 64M iPhones in 1Q2015. This translates into additional $9B revenue per quarter, assuming $700 average selling price (NYSE:ASP). Roughly +$3 earning per share (NYSEARCA:EPS) per quarter, +$12 per year. At price-earning (NYSE:PE) of 12, that will be +$144 per share - added to current price of $517 = $661, based on addition of larger iPhone model alone.

    Variant Views

    1. Timing. Although iPhone models with larger screen have been rumoured for 2014, it is possible that these models will arrive until 2015 or later.
    2. Canibalization. Introduction of iPhone with larger screen will lead to shifting of product mix towards iPhones with larger screens. If the ASP of the larger iPhones are indeed higher and with similar or larger margin, then the impact of canibalization on EPS will be neutral.
    3. Competition. The valuation above assumes 20% of those who would purchase Android phone with 5-in or larger display will instead opt to purchase an iPhone, if iPhone model with larger screen is available. This 20% assumption may be overly conservative. Arguably, in the higher end market which is applicable to consumers who are shopping for larger displays, iPhone should have a reasonable shot at 45% of market, based on U.S. unit-share in 2013.[appleinsider.com/articles/14/03/14/how-android-lost-global-open-market-share-to-apples-integrated-ios] If this comes true, valuation will double to +$6 per quarter and over $800 stock price.

    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: AAPL, long-ideas
    Apr 17 1:53 PM | Link | Comment!
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