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Dialectical Materialist

Dialectical Materialist
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  • Apple Earnings Call: Under The Radar Gems [View article]

    I set up Apple Pay with a couple of my credit cards a few months ago. One of my bank cards didn't work. So instead, Bank of America got all my Apple Pay transactions.

    The other day, after making a payment online, I logged off the site of the card that had not accepted Apple Pay. They had a splash screen informing me that my card is now compatible with Apple Pay. They seemed very eager to make sure people knew this.

    It's clear where the momentum is.

    Folks who have not used Apple Pay may not understand. But use it once and you get it. Contactless payment is how we'll all be paying for things in the coming years. And Apple Pay (now with the watch) makes this ridiculously easy.
    May 10, 2015. 02:01 PM | 1 Like Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    Here's how many Macs Apple sold in the first two qtrs of each year going back to 2010

    2010... 6.3 million
    2011... 7.9 million
    2012... 9.2 million
    2013... 8.0 million
    2014... 8.8 million
    2015. 10.0 million

    There was a spike in 2012, but the trend shows pretty clear growth. Sales are up 59% since 2010 and 13.6% in the last year. Not sure how this can reasonably be defined as "stagnant".

    Here's the same category using trailing 4 qtrs

    2010... 12.0 million
    2011... 15.2 million
    2012... 18.1 million
    2013... 17.0 million
    2014... 17.2 million
    2015... 19.5 million

    Again, it shows up 62% since 2010 and up 13.4% YoY. The data is pretty clear that Mac sales are not stagnating.

    You can say whatever you want about how the trend line will be broken or what will happen in the future, but you can not reasonably characterize the present state of Mac sales as "stagnating".
    May 10, 2015. 01:28 PM | 5 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]

    There is actually a lot more disagreement here than you think.

    You say if companies aren't making money, they will increase the price. That is not true. In commodity markets, they can not afford to raise the price. Chrome books, like net books, are a race to the bottom. The biggest companies like Samsung will hang on in an effort to force other companies out of the market. These other companies won't "raise prices". They'll just go under. Do remember Gateway computers?

    Market share doesn't matter if you are making no (or almost no) money. The only way to keep a business alive is to make profits. I know in the era of Amazon, this sounds like nonsense, but it isn't. Eventually profits are King.

    I agree with you that the winner here is Google and not the vendors selling these devices. They can afford not to make money on the front end because they make it up on the back end. Google is a company that makes money selling ad space. The larger their platform for selling clicks to advertisers, the better position they are in.

    I never argued, nor do I believe that "Android will go out of business." I don't even know what that sentence means.

    But as far as Apple goes, it is actually selling more computers year over year. And as it is the only one making any real profit per unit, it is coming to dominate the computer space. Other vendors sell more, but Apple is making a very large slice of the profit pie. So inexpensive thin clients are not a threat to them. Google can dominate the low end of the market at the expense of the hardware manufacturers, and this doesn't hurt Apple one bit.
    May 9, 2015. 06:48 PM | 2 Likes Like |Link to Comment
  • Apple's Search Opportunity [View article]
    Seeking Alpha has said that it is working on an "ignore" function. I expect that will change the Seeking Alpha experience greatly. I can't wait.
    May 9, 2015. 04:41 PM | 3 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    That sounded more snippy than I wanted it to. The last question should read, "Do you understand why I think that is important?"
    May 9, 2015. 02:53 AM | 1 Like Like |Link to Comment
  • Apple Inc.'s 30 Year Bond Issue: Good Value, Not Great Value [View article]

    I won't pretend I know as much about the topic as you do. I'm not even in the same ballpark. But Apple has a huge cash pile. It is taking on debt to leverage those foreign reserves. And it still has way more cash than debt.

    It is hard for me to think that only having $100b net "cash" is really a risk.

    Some folks argue they should be putting that money to work, but I think most of those people don't really appreciate how much money $100b is. Apple makes its strategic acquisitions at the dollar store. To spend this money on a huge takeover just to spend it would be money wasted. And any other strategic use of its cash like investing for return instead of capital preservation would carry its own risks.

    Buying back its own undervalued stock makes a great deal of sense. Is the stock undervalued? Well the average purchase price of buybacks to date is $85, so I think the answer so far is clearly yes. They could implement the last third of the buyback at 150 and the average price would still be below 110.

    What is the alternative? Repatriate the funds to buy back stock without debt and take a 26%+ hit in taxes? Doesn't sound smart. Should they sit on $194 billion in case they hit rough waters? That sounds excessive to me.

    What would you like to see Apple do with the money? I'm asking because you obviously know a lot about debt markets and you clearly have a view of the issue that I have no experience with.
    May 9, 2015. 02:50 AM | 3 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]

    Are you surprised that a $250 laptop from Samsung outsold a $1300+ Macbook Pro? I'm not.

    I wonder how much money Samsung makes on the sale of each unit. Do you know? Do you know how much Google makes on each Chromebook sold?

    As for the 125% growth of Chromebooks, the citation you give refers to US B2B channel only. Yes, that is impressive growth, but no, we can not call it 125% growth without qualification.

    No doubt Chromebooks are selling well. Whether this translates into positives for the companies involved is an open question. And by positives, I mostly mean profit. Sales with razor thin margins are not equivalent to sales with healthy margins.

    Do you know what that top ten list would look like if you ranked each company by how much profit they made on those products? Do you understand why that is important?
    May 8, 2015. 07:47 PM | 4 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    "You said it yourself, it isn't impossible that iPhone sales could drop Y/Y by the December Q."

    In investing one always has to consider that almost anything is possible. And then we place our bets based on what is likely.

    I agree that AAPL will always be somewhat discounted because it is a hardware manufacturer, and a huge one at that. But I don't personally see this as a variable discount that drives the price up and down. This is not something the market was just learning about AAPL. Instead I think it is a permanent discount to fair value that AAPL endures. I wouldn't use its dependence on the iPhone, which has been true for years, as a way to explain a few days of weak price action.
    May 8, 2015. 08:12 AM | 1 Like Like |Link to Comment
  • Amazon up 2.2% after Bernstein sets $600 target [View news story]
    The only way I see Amazon as the biggest company on Earth is in a post apocalyptic world where everything is wiped out but there is still one drone left in the sky, carrying diapers to an address that no longer exists.
    May 7, 2015. 10:14 PM | 5 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    Paulo, I agree that it is not impossible that iPhone sales will decline in the December quarter. But I think the risk of that is generally over stated. It is all about China. And Brazil. And then India. iPhone's future is very bright. The global smartphone market is not done growing, and the iPhone is the premiere brand worldwide.

    A decline eventually is inevitable. Apple knows this. Look at the iPod sales curve. But I don't think that will happen next year. After the China buildout is done? All bets are off.
    May 7, 2015. 09:03 PM | 7 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    Flexible displays are a certainty. It is just a matter of when. And once we have displays that are nearly paper thin and rugged as a strip of plastic, there will be all kinds of applications for them, as watches, wearables, and even labels.

    When adding a touch screen controller to something becomes as easy as sticking a piece of tape duct tape to something, we'll see all kinds of new ways to interact with computers. The computer is like the wheel. Each iteration shows us that there are even better and more efficient ways they can do work for us. We are still in the horse drawn chariot days of computing.

    I wouldn't say your idea is improbable. I would say it seems pretty likely.
    May 7, 2015. 08:42 PM | Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]

    I have been reading your comments, working hard to treat them with an open mind I have often resisted responding to them for fear of starting a long and drawn out back and forth that proves nothing except we see Apple and Google's opportunities differently.

    And I believe that Google has a lot of areas that it can continue to explore, even though search advertising is their bread and butter. I do not view Google as a company headed for trouble. Apple and Google are frenemies, since the world relies on Google search. Apple can't do some of the things that Google does. In turn Google makes a large percentage of its mobile search revenue from iPhone users. Google has no problem with folks running around using Google on iPhones and putting coins in Google's pocket.

    So it's not about Apple vs. Google to me. Android versus iOS is, on the other hand, an area where it is easier to see the battle lines.

    Still, any success I think Apple will continue to have in mobile does not mean I think Google will not also continue to have success in the many facets of "mobile".

    In short, Google does not need to fail for Apple to succeed. So much of the debate about Google doing this or that isn't relevant to my bullish thesis of AAPL.

    I listed many of the things I think will have an impact in 2016 in another comment.

    From a revenue standpoint, every Apple Watch sale is nearly an iPhone sale. Don't let the starting price $350 fool you, ASP's on the watch will be much higher -- at least 75% the ASP of of the iPhone. So if you assume every ten million watches is the same as selling 7.5-8 million iPhones (in revenue), you could look at 1h15's iPhone sales and compare them to 1h16's iPhone's and Watches. If they sell 10 million watches in q1 and q2 of 2016, that would be like adding close to 8 million iPhone sales. That represents 6% revenue growth if iPhone revenue remains flat.
    May 7, 2015. 08:23 PM | 6 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    Paulo, what is impossible?

    Are you modeling an actual decrease in iPhone sales? Can you make a compelling case for that?

    May 7, 2015. 07:42 PM | 4 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    So, Paulo, what if that changes next year?

    For all the hand wringing about what will happen to iPhone sales, if Apple were to increase earnings next year with a smaller portion coming from iPhone, that would be a good thing in your book would it not? And that is almostly certainly what will happen. The only thing that will prevent that from happening next year is if iPhone sales continue to grow rapidly. And we couldn't really consider that bad news, could we?

    There is a third possibility, Apple could see a decrease in earnings next year. I don't think that will happen for reasons I already touched on in another comment.
    May 7, 2015. 07:07 PM | 2 Likes Like |Link to Comment
  • Here's Why Apple Is Weak Since Earnings [View article]
    Paulo, China Mobile is continuing its build out. There will be more demand coming online in China. In addition, there is still a lot of replacement demand, with less than a third of existing iPhones being a 6 or 6+ (it's been reported that this percentage is in the low 20's, actually, so I am using 33% to be conservative). This suggests the 6s launch will continue to fill the larger screen demand. Also, if there is a 6c which is smaller, this will attract some folks who never wanted the larger screen. So there is clearly a large market for the next generation of iPhone.

    There is no reason to assume iPhone sales will be declining next year with all of these factors figured in.

    Then look at where Apple may see more growth.

    There is the App Store, which is growing wildly in China. This makes sense... Add more users and you add more app sales.

    There is the Apple watch which represents an entirely new income stream.

    There is the possibility of an iPad refresh that will drive more sales. For all the bad news about the iPad, it presents some easy compares if they come out with a larger iPad. So iPad sales may yet see growth.

    There is whatever they will be doing with Apple TV.

    There is whatever they will be doing with Beats/music streaming.

    In short, I don't see why anyone would conclude that 2016 revenue will be less than 2015.
    May 7, 2015. 07:00 PM | 12 Likes Like |Link to Comment