Pete Mitchell

Why Eric Schmidt Had to Go

Mr. Schonfeld -- and most of the financial media -- really doesn't "get", or at least consistently fails to articulate, the real basis for the emerging differences between Google & Apple and what those differences represent. As Schonfeld does here, most of the media characterizes Google with glitter and praise in declaring that it desires full free and open access for the web and all of its platforms and connected devices. The media then pauses and in deeper, more somber tones (usually with a negative overlay in the tones), states that AAPL still advocates a "closed" system.

What Schonfeld doesn't say -- or doesn't understand -- is that Google and most of the Web participants, OEM's and carriers ultimately will push for an open system. The real reason is at the heart of the controversy. You see, Google is not an innovator or a visionary company -- it's nothing more than a search company that would also like to sell as much advertising as possible. It's simply not wired to invent the light bulb, design a build the first airplane or create an iphone out of sheer genius and innovation. In short, it's looking for revenue from the masses and has no real intellectual property to protect.

As as we've all witnesses during the past 2-3 years, most of the players in the Web related markets are similar. They're dull, they have limited talent and cannot and will not innovate and change the world with the "next big thing". Instead they're followers and freeloaders who will need an open access system to survive -- not by their own strengths but by having access to the strengths, inventions and innovations of others.

In contrast, Apple -- and perhaps a very few limited number of others -- are the innovators of the world. They're inventors, risk takers and create new things -- with their own genius in the develepment of their own products, systems and intellectual property. If Apple is ultimately forced to make its genius and innovation available to the mediocrity around them -- the Palms, the Dells, the list goes on as we saw with the way Apple has singlehandedly disrupted the mobile communications device industry during the last two years and has forced the non-innovators around them to either perform or get outa the way . . . .

However, now we have an emerging group of players that realize they cannot innovate or create or push the envelope and they're now attempting to capitalize on Apple's products and systems. Witness lowly Palm's attempt to wire the Pre so it can access iTunes and the movement of many OEM's toward the "open platform" philosophy.

It's Ayn Rand's "Atlas Shrugged" to the core, it's the emerging mentality in the U.S. as a whole. Let's reward the innovators and risk-takers like Apple by denigrating the so-called "closed" system and let's force Apple to share its genius with the mediocrity and losers in the Web space . . .

Fundamentally, it's a tough choice and, if not handled properly, will cause the innovators to "disappear" a la Atlas Shrugged.

However, to be sure, the likes of Google will remain above the fray; it has no real "philosophical" or macro-economic bent here . . . it's sole motivator is simply to make as much $ as possible using "guile and deception" in advertising to persuade people to buy things they don't need. It's like the mercenary that'll fight for either side without a conscience as long as it receives "payment in silver or gold . . ."

You'd think Erick and the media would be a little more skeptical of the agenda of the Googles of the world in this fight and at least somewhat more respectful and supportive of innovators like Apple and its progeny . . .

How the iPhone and Poor Management Contribute to Apple's Downfall

Everything Zacky says is true . . . However, he misses the real strategy by AAPL's management in the manner in which it has managed iPhone accounting.

There are two critical factors in AAPL's decision to use subscription accounting in managing iPhone sales and profit reporting. First, Jobs and company say the U.S. (actually, global) recession coming and say an opportunity. Knowing it's survival and viability is assured by virtue of its cash flow and cash position, AAPL's decision to defer iPhone profits permitted two things to occur within the company's infrastructure . . .

First, the swoon on the stock price because of the failure of the market and market analysts to understand the company's real financial strength will produce a year during which AAPL employees will receive incentive compensation (restricted stock and stock options) at extremely low values. This will ensure employee loyalty and create (again) a huge spike in employee wealth over the next 2-5 years.

Secondly, the articially low stock price will give Steve Jobs an opportunity to implement his succession plan somewhat seamlessly without a single major panic disruption in the stock price. Witness the $5-10 loss in the PPS last week when AAPL announced Jobs' 6 month medical leave. Had the stock price been trading at its true market value (e.g. around $140), the resulting panic wouldn've been far more pronounced and the PPS would've fallen 2-3 times as much . . .

Deferred accounting for the iPhone, when combined with AAPL's cash flow and cash position, is allowing AAPL to rather seamlessly implement radical changes in its underlying mgmt and infrasture without a major disruption to its financials or employee base . . .

It's success it assured in the longer term . . . and its PPS will no doubt recover and push through $200/sh within 1-2 years.

Apple Reduces iPhone Planned Builds, Suppliers Could Suffer

AAPL's iPhone margins are increasing with the continued fall in Nand memory pricing. Looks like AAPL believes it'll sell 14-15 MM iPhones in '08. New iPods are flying off the shelves and this will accelerate into the Holidays. Macs will continue to take mkt share and set new volumetrics records . . .

This stock right now may be the buy of the century.

What the President Didn't Say

Noticed that you inserted "American" in the singular and right before the word "Banks". Wasn't the word "Americans" in the plural used many times by the President . . . and of course used by the President to be equivalent to "taxpayers" . . .?

Me thinks you're playing deceitful games (like most so-called "financial journalists" today) with your politics . . .

Understanding Valuation Multiples With Respect to Cash

Author is quite incorrect in the treatment of a company's cash position in determining earnings and earnings power (e.g. P/E & PEG ratios).

In evaluating a company's ability to generate quality earnings and growth, it's ridiculous to include a company's cash position and interest on the cash position in the P/E ratio (and ultimately the PEG analysis). Investors simply aren't interested in whether a company can achieve the financial milestone of earning interest on a cash position . . .

To obtain a true (actually truer) picture of a company's earnings generating power and growth, both the cash and the interest income generated by the cash should be excluded from the pro forma . . .

Where do they get these goofy accountants that think they're Larry Livermore . . .