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  • Tim Cook, Willy Wonka And Michael Corleone

    Tim Cook, Willy Wonka and Michael Corleone

    From someone who owns Apple stock - still; with a cost basis closer to our close today than the prices during the earnings call I'm offering my non-spin perspective and my only posting ever to SA. I'm not a writer and I have never blogged or pounded the table for or against Apple, so perhaps this may offer a fresh perspective.

    Everyone take a deep breath. I am certain that the following critical points, made by Cook and leadership on the earnings call will not make headlines, however - I would suggest that you reexamine these key indicators as I believe that if interpreted objectively, Cook, I believe is intimating a very meaningful upswing leading to the next earnings call :

    • Innovation - Cook mentioned that in regards to innovation, "...the new product pipeline is chock full."
    • Production - Cook provided full disclosure that supply chain/manufacturing constraints hindered delivery in Q1. I'd expect this back log to front load the current earnings period and will continue to flow freely.
    • The rumors - I admire that there was no specific address towards speculation and rumors in the media, stating that "I would encourage you to not interpret all that you hear as fact." I would argue that most people listening to the call missed this point and others as we have lost the art of brevity in our communication. I thought Cook was concise and matter of fact in a clear manner and did not give in to slightly antagonistic questions by some money managers that were seeking defense from Cook regarding recent rumors.
    • Guidance - The new "range" approach which Apple is shifting it's guidance methodology to is not a way to soften or pad earnings estimates or to ratchet down from more aggressive past guidance - rather - it's a stop measure to defend against the hundreds of estimates on the street that are simply a % + or - of Apple's own guidance. A range will force the street to think more about their estimates and allow Apple and it's shareholders to deflect some of the nonsense that the media stirs. I am a fan of taking the "Willy Wonka" approach to running the business - they let products and the numbers do the talking. Everyone wants a golden ticket to see how they do it.
    • Cash pile - The minor increase in dividend, I believe says a great deal about the leadership's confidence in the near-term health of the business. For those that believe that the massive amount of cash reserves AAPL has should be deployed to buy back shares or increase dividends - in my opinion are not investing in Apple, but are trying to beat the market. I believe the cash could be used for several, very meaningful activities, which should contribute positively to share price - for example:
    1. A strategic acquisition - perhaps of a content provider or accretive assets that would enhance supply chain.
    2. A special dividend announcement in the coming weeks that would reward those shareholders that have hung in there - not only would this improve Apple's perception in the marketplace - it would reward less of the Bears and opportunistic investors who jumped in for a free lunch. There will always be short interest - but, thou who short don't own the actual stock and don't receive dividends.
    3. In front of a special dividend announcement, it would be an opportune time for Apple to offer its employees options at a price below $500/share which would be likely renew commitment from employees while giving them options at a price which is more likely to increase dramatically over the coming years than it is to decrease.

    Now let's build on this - I would challenge everyone to step back for a moment and consider this take away from today's earnings:

    I think it's fair to say that AAPL's Board does take its responsibility seriously - that is, to ensure that Cook and other executives are held accountable for Apple's stock performance - to varying degrees. Clearly, Cook has the most accountability. Going one step further, I'd propose that Cook and most executives actually knew with full certainty exactly how the market and Apple's share price would react once earnings were announced.

    If this is so, then why wouldn't Cook use the conference call to hint at AAPL's next big thing? I propose that, the tinge of frustration in Cook's tone of voice that was faintly distinguishable, at times during his concise and matter-of-fact responses today should not be interpreted as Cook being defensive or frustrated. Although I think it's fair to say that Cook likely did have those emotions zip through his consciousness today - rather, I'd assert that it was Cook's innate competitive nature, and his Steve Job's voice on his shoulder and having to pare back the news of the future - the news of the next big thing that would at least muffle the ensuing panic. Instead, Cook and the spirit of Steve Jobs are holding back - for the moment, taking one on the chin - as the Shortists captured a victory, the Bears won - meanwhile, Cook's is holding back; strategically - he knows that he holds the pearls of data about AAPL's next innovation that if he so much as teased a detail about - would instantly cause the plummeting share price to invert and trek toward Bullish territory - just by sharing a single announcement, a juicy bite - a meaty nugget for the media and money mangers to squeeze every ounce of spin out of. The pipeline of innovation exists, or so Tim told us today - so I will wait - trusting that he's timing when to fire the dry powder.

    Instead, of pontificating and writing about what Cook is doing wrong and what Apple needs to do - I believe in Cook today and I feel positive - not upbeat, but optimistic about what the next earnings call will deliver. I am not a blind follower of AAPL, but I believe in the products and I do believe there is a great deal of value that faithful and prudent shareholders will be rewarded with over the coming weeks and months. Prudent and aggressive rarely are pinned together, but I believe to play in this game you need both qualities.

    So with this in mind - I theorize that Cook, during the conference call today, in his mind's eye and with the Steve Job's voice on his shoulder - postponed, as planned what his instinct called him to do and resisted the urge to launch back with laser focus at the slightly accusatory line of questioning from the big bank money managers, seeking a rebuttal to the tabloid headlines about the demise of AAPL - providing the about-face moment for AAPL with a one shot to the heart "check mate", "Apple's back!" answer. We all know that did not happen and the share price kept falling - but Cook knew this would happen, he chose the high road even as we all wanted him to engage - defend us, the shareholders, defend AAPL - we were ready for battle. I assert that there will be a rebuttal from AAPL - a powerful, actionable answer that will shift the position of strength back to Cupertino and the propaganda articles with quotes from "parties familiar with the situation" will not be a market influencer. There is a greater, strategic plan in motion here and it will be executed deliberately and likely unannounced by AAPL, and not in response to the market fodder.

    Try to think like a high powered executive for a moment - even if you are not one - I'm not. If the earnings numbers today had blown away analysts' estimates - we likely would have an equal amount of hysteria pushing the stock upwards. Today's strategic, non-reactive dialogue and candid reporting on the conference call from Cook and Oppenheimer was designed in advance, that would serve to level-set the battle ground, re-calibrate the madness that has glommed to AAPL for nearly 6 months now. The movement today should have scared off the neophytes who have blindly invested and bought shares near the peak of last year's bull run and soon the droves of Short Sellers that have accelerated AAPL's downward momentum leading up to this moment will move on - and then AAPL moves closer to executing on its battle plan.

    I have no factual evidence to back my statements, nor do I have any knowledge basis to predict where share prices will be when I wake up tomorrow or in three weeks. What I learned today is that there is not one individual posting articles on the web, Seeking Alpha or in Cupertino, China, or Atlanta or who is reading this post now (unless your name is Tim Cook, CEO of AAPL) that knows the facts that can predict AAPL. We heard something today that resonated with me, when Peter Oppenheimer, CFO who today commented that it is "impossible" to draw a reasonable conclusion about the broader business impact that one data point, collected from one part of the world, producing one product will have on the overall business or what that individual data point means in relation to AAPL's product strategy. Peter used the word "impossible". Bold choice of words - carefully selected. In today's consultant-speak, non-committal jargon filled dialogue that we hear often - from CEO's and read on Seeking Alpha and I'm no exception in my own day-to-day - providing consultative speak to clients that protects us from being associated with a definitive stance or picking a side. Oppenheimer said "impossible". It was refreshing to hear that kind of assertive language from a CFO in response to the recent flurry of bogus articles, quoting unnamed sources over the past few months, claiming to know what's really going on with AAPL. The leaders of AAPL, possess knowledge that the public does not have access to and if I venture to interpret Peter's statements - I think he clearly has confidence in AAPL's strategy and that there is no correlation to the rumors about iPhone production and the actual reasons for changes in supply chain.

    There was a point, not too long ago when AAPL was trusted by consumers - it was our own Willy Wonka and the Chocolate Factory. A mysterious, genius - Steve Jobs - churned out the most incredible innovations, one after another and just when we wondered if the "factory" had ceased production and sent all of the Oompa Loompas back to Loompa Land - all of the sudden, the products kept coming - production at full blast. Look, Disney is still the magical company we all know and grew up with even without Walt Disney at the helm. There is magic in AAPL and we will be blown away once again. For the time being, Tim Cook is our Charlie Bucket - and the show will go on and touch new highs. I've made a point not to write about recommendations for Tim Cook, but perhaps it's time for a "Golden Ticket" contest - which would no doubt cause a global craze.

    I hope that after reading this, you might take a moment to challenge yours and others thinking in an attempt to grasp for and go beyond what a headline reads. And then, take the time to listen to the earnings call again or for the first time - when you're not simultaneously following the share price as it performs a plumb line nose dive. I'd advise that you wait until you've regrouped and can approach objectively. In summary - I've outlined what I see as the key takeaways from today's earnings call that I assert, we should embrace as key indicators that should play out over the next few months.

    As we evaluate AAPL and attempt to make sense of everything, I'd offer my characterization of Cook's disposition today, in contrast to the disposition of the Bears and panic sellers. Cook, and AAPL have a plan and they do not expect us to know what the plan is. Think of Cook as Michael Corleone and the opposition or the Bears as Fredo Corleone. In the words of Michael Corleone, "Fredo, you're my older brother, and I love you. But don't ever take sides with anyone against the Family again. Ever."

    As for me, I remain as level headed as someone could be for being on the receiving end of a stock market beating today. I own Apple stock, but I think whether you bought in at $85/share or $620/share - no one enjoys losing money that I have ever met. I challenge all of my fellow Apple Bulls and those not Bullish to get "old school" for a minute - tune out the blog feeds, Seeking Alpha and StockTwits and don't allow fear to dictate your day or how you invest - and stay positive for a while longer - let's see what Cook and team have in mind.

    I'd welcome any feedback or additional insight that would challenge our thinking - without a single number to reinforce your position - unless you happen to be Cook or Oppenheimer. "Oh, you should never, never doubt what nobody is sure about." - W. Wonka

    ALD

    Disclosure: I am long AAPL.

    Jan 24 3:14 PM | Link | 1 Comment
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