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  • Will Apple Emulate Gold's Plunge? [View article]
    The only metric by which gold has value is emotion. Gold is worth what someone thinks it is worth. Gold's spike was driven by fear mongers who were predicting the collapse of western civilization and who urged everyone to hoard guns, ammunition, food, and gold. When it became obvious that these dire predictions were baseless, the gold fear trade ended and the price of gold collapsed.
    There are an almost infinite number of ways to assign a value to Apple's business, and therefore, its stock price. While gold is an outlier, there are thousands and thousands of publicly-traded companies, all being subjected to financial analysis that provides a well-defined framework for assigning value. While it is true that Apple's share price from day to day is based on individual assumptions of value, Apple's business itself can be valued unemotionally and therefore, your comparison is of absolutely no value. For Apple to trade almost to the level of its cash per share is to suggest that Apple's business has almost no value. Ridiculous.
    Feb 11, 2014. 09:36 AM | 8 Likes Like |Link to Comment
  • Apple Stays Rotten [View article]
    Excellent job of selectively choosing your facts to fit a rather shoddy thesis. Credibility requires that you present ALL the facts, not just the ones that make your argument look good. ROIC is your only metric? Unbelievable. The iPhone's camera is less good than the Lumia 1020? Name one other smartphone that has the camera quality of the 1020's 41-megapixel camera? The Lumia is a fringe device for those who place a premium on photography. The Samsung smartwatch has very limited functionality and looks very much like a product that was rushed to market to try beat Apple. Apple meanwhile, won't release a such a device unless it believes that said device will actually prove useful. The disappointment of the media in Apple not caving to the supposed need for it to offer a low-cost phone is the result of analysts and the media not understanding what Apple's business plan is. It is a strategy that has been detailed numerous times by Steve Jobs and Tim Cook. Apple doesn't make junk. The 9 million new iPhones that Apple sold this past weekend is once again evidence that consumers appreciate quality and will pay for something that works like it is supposed to, closed ecosystem or not.
    Sep 23, 2013. 09:14 AM | 3 Likes Like |Link to Comment
  • September 10 May Be A Great Time To Put On An Apple Short [View article]
    You write with a degree of certainty that is impossible to capture in the world of investments-nothing is certain. Ever. I do give you credit for backing up your opinion with your cash and I appreciate viewpoints like yours, but the tone of the commentary on this article is very telling, in my opinion. Apple has been bludgeoned to the point where people (investors) now expect the worst from this company. Expectations for the upcoming product launch is very muted. No one seems to expect much on Sept 10. A new phone that looks like the old phone, perhaps a less expensive phone to address the issue of affordability in foreign markets, maybe even a watch of dubious utility. Since seasoned investors know that the best money is made in taking a contrarian position and that the market is famous for making fools of the greatest number of people at any one time, I'll play a hunch that the crowd is once again wrong. I don't expect Apple to rock the world on Sept 10, but my guess is that since everyone is expecting this to be a "sell the news" type of event, it won't happen.

    As for Icahn and Einhorn, your supposition that they believe they possess investing clairvoyance that the masses do not is off the mark. What these titan investors hope to do is unlock value on the balance sheet by using their leverage to get Apple to return more of its hoarded cash to shareholders. Everyone who can read a balance sheet knows that Apple's is full of underperforming cash. While we all may want Apple to give it back to us, there are only a handful of individual investors with enough clout to get Apple to seriously entertain the notion.
    Aug 15, 2013. 09:46 AM | 2 Likes Like |Link to Comment
  • Is Apple Vulnerable To A Bond Crash? [View article]
    You are referring to data that is 3 months old or more. Who's to say that Apple has not adjusted its portfolio to lessen duration risk? Perhaps Apple has sold at a slight profit many of the investments that you claim are cause for worry. In any event, any of these shorter-term securities are less volatile and should be held to maturity anyway. Only longer-dated bonds are subject to the interest rate risk that you describe and anyone with a brain has known for about 3 years that interest rates would eventually have to go up. I would guess that Apple has hedged itself appropriately.
    Jun 20, 2013. 11:10 AM | Likes Like |Link to Comment
  • Apple: How To Admit You're Out Of Ideas [View article]
    Karl, I understand that your controversial and often outrageous commentary on Apple has but one purpose: to drive page views that you get compensated for. Normally, I just ignore what you write but this piece cannot be allowed a free pass. A share buyback is a much better use of the cash than is an increased dividend. A dividend has tax consequences and offers but a short-term benefit to shareholders, a buyback is truly an investment in the company itself. At $400 per share, Apple is committing itself to buying back 125,000,000 shares, or about 16% of the public float. By not having to pay the $12.20 dividend on those shares, Apple will save itself up to $1.5B in dividend payments.

    Who are you to say that Apple has no more ideas and that the buyback is undoubtedly a sign of concession? Because that's what happened to Microsoft? Is that as far as your thinking goes? Microsoft was not vertically integrated, Apple is. Microsoft was dependent on end markets that it did not control. Apple's ecosystem allows it both to create and control its own end market. Huge difference. From my (occasional) reading of your work, I do not get the impression that Apple feels compelled to share with you any of its business plans or strategy.

    Apple's financial strength would allow it to access the debt markets at a much lower cost than would be realized if the company repatriated its overseas cash and paid the US tax due on it. Given its AAA rating, Apple could easily float a $50B five-year bond issue at something like 3.5%. You seem like a smart guy and you write well but I take exception to your repeated conviction that Apple is headed to $100 or less. You, sir, write click bait and I occasionally fall for it for no other reason that to offer an opposing view so that the unfortunate investor who may read your articles at least has an opposing view to consider.
    Apr 24, 2013. 11:13 AM | 6 Likes Like |Link to Comment
  • Will Apple Exist 3 Years From Now? How Much Will It Be Worth? [View article]
    Bart_sst: My comment was overly simplistic. At the time of the MSFT investment, Apple faced a very uncertain future. It had the cash that you state, but it's financial position was not strong and it was reporting quarterly losses. While the MSFT was largely symbolic, it commitment to update Office for Mac undoubtedly was vital to the company's survival. Without the MSFT, it is my opinion that Apple would not have survived. From the conference call:

    LIQUIDITY. Apple finished the quarter with over $1.2 billion in cash or cash net of both long and short term debt of $152 million. The sequential decline in cash balances was due primarily to a net use of $204 million to fund operations, including the $60 million in severance payments previously mentioned, the net increases in inventory, and larger accounts receivable balances related to higher revenues. They are pleased with their asset management. They were asked about the status of their credit lines and indicated that they don't see the need to borrow. They ended the quarter with about $127 million outstanding of their Japanese short-term bank loan. The rest of it is all long-term debt out several years. They anticipate repaying half to two-thirds of the short term debt during the fourth quarter. In terms of liquidity, the company is still in a very strong liquidity position. They have investments which are doing extremely well. They also own a lot of real estate. So, they have other sources of liquidity internally. But, they don't see a problem because even though they used about $200 million in terms of cash for operations this quarter, as they continue to move the company closer to break-even, the cash usage for operations would move toward a break-even situation in the next couple of quarters so they feel pretty good about their cash position. They need about $500 million minimum to run the company, so they are well above that level in terms of availability. They currently don't have any of their receivables pledged and their receivables are over $1 billion worldwide, so the company has plenty of borrowing capacity should they need it, but with the current cash position, they don't have a need to utilize any of those sources.
    Feb 23, 2013. 12:53 PM | Likes Like |Link to Comment
  • Will Apple Exist 3 Years From Now? How Much Will It Be Worth? [View article]
    Actually, not true. At one point Apple was down to about 30 days of operating cash. The Microsoft investment basically kept the company afloat, something I am sure MSFT now regrets.
    Feb 22, 2013. 09:48 AM | 4 Likes Like |Link to Comment
  • Will Apple Exist 3 Years From Now? How Much Will It Be Worth? [View article]

    You and I have exchanged views on a variety of topics in the past few years and I always read your articles with an open mind. I am sure that you realize that this article is mostly an academic exercise given the number of assumptions that you have to make regarding the everchanging nature of Apple's business. Two things jumped out at me as I read this. First, you wrote that Apple will be drawing down its cash hoard over the the next three years in order to pay dividends, fund its capex projects, etc. However, the current truth is that Apple's cash pile continues to grow despite these payments. Apple's capex this year will be significantly higher than last year and there is a good chance that the dividend will be raised. However, Apple's free cash flow is expected to totally offset these expenditures, the net result being that despite these expenses Apple's cash pile should grow this year rather than dwindle. Second, you and many others who are currently taking aim at Apple base your analysis on Apple's inability to remain relevant. I know that there are no hard statistics to refute or prove this, but why all of a sudden does everyone feel that the company that revolutionized portable music, that perfected the smartphone experience, and that brought tablet computing to the masses will lose any and all ability to innovate? That is the foundation for every bearish argument and it seems specious to me. It may turn out that Apple never delivers another hit product but why now is that the assumed outcome? Where has Apple flopped so badly that this view should be the majority one? Certainly the competition is more formidable than ever but to assume that Apple is now staffed by a bunch of unimaginative chimps seems ludicrous to me. Yes, Apple's present product lineup will be obsolete in three years but why must we assume that Apple will have no place in technology's future? Is that the safe stance? Would you rather bet on a company that has the balance sheet, depressed valuation, and management team that Apple has, with the product record it has compiled, or would you rather invest in some company with an unproven record, promising tech, and a very forward-looking valuation? Apple to me seems the far safer play. The tech future is promised to no company but Apple certainly seems better equipped to remain relevant than almost any other company I research.
    Feb 22, 2013. 09:43 AM | 13 Likes Like |Link to Comment
  • Apple Blossoms In The Spring [View article]
    In the end, it all comes back to valuation because, in the final analysis, fundamentals DO matter. Extreme valuations are what cause bubbles to pop and selling to stop. All investors have to assign some intrinsic value to whatever it is that they will consider purchasing. If you assign no value whatsoever to Apple's business or its prospects, the company is still worth the $130 per share it has in cash right now. When investment data has to be parsed for meaning, investors have to have some benchmarks for that data. Companies are valued on some combination of book value, future cash flows, earnings, etc. Apple' stock price is completely divorced from its fundamentals at the moment. The market, as they say, "can stay irrational longer than you can stay solvent", but eventually Apple's stock price will more adequately reflect the company's potential. That is not the case currently, in my opinion.
    Jan 21, 2013. 02:03 PM | 17 Likes Like |Link to Comment
  • Apple Stock Price Vs. Key Product Release Dates Beginning 1983 [View article]
    You have no idea if Apple has run out of products. What a ridiculous statement to make. Who knows what innovation lies ahead, for Apple or any other company?
    Nov 9, 2012. 12:52 AM | 6 Likes Like |Link to Comment
  • Apple Vs. Microsoft: The Tide Is Turning [View article]

    I have read your piece and almost all of the accompanying comments. Once again I am amazed at the ability of people to look at the same data and come to wildly differing conclusions, not just in investing but in everything. It is impossible to eliminate our inherent biases so therefore we all tend to give the most credence to the opinions that most closely align with the ones we already have. We are, in fact, looking to others to give validity to the viewpoints that we already hold. In the field of investment analysis, we feel compelled to provide or receive an explanation as to why a stock is moving in a certain direction. If a stock is correcting, as is currently the case with Apple, the explanations are all negatively biased and thus reinforce the direction of the move. Apple has lost its way bc Steve Jobs is dead, bc Tim Cook doesn't know what he is doing, bc the iPad mini is not revolutionary enough/is priced too high/has an inferior screen, bc the competition is narrowing the gap. It goes on and on. Apple cannot win. Had Apple priced the iPad mini below where it did, pundits would be roasting Apple for risking its profit margins, not for pricing it above where the consumer wanted it to be priced. The Kindle Fire HD may have a superior screen but does the public understand that Amazon is selling them at a loss in order to create a gateway for increased order revenue (hopefully)? Can Amazon continue to lose money on each Kindle sold if the return on investment remains negligible? Will it? Microsoft has been a mediocre investment for at least a decade. The facts support this. Windows 8 is Microsoft's gamble at reclaiming a seat at the roundtable of innovation. Miscrosoft has a huge installed base, many of whom are still running Windows software that is two or more iterations old. Why? Because it still works. Apple's customers are more likely to be early adopters than are Windows users, most likely because early Windows adopters are more likely to get burned. The Windows 8 reviews I have read have been mixed. Some like it, others believe that the hybrid touch/keyboard approach will confuse and irritate Microsoft's loyal but staid customer base. Who is right? I daresay that no one knows yet. The early sales (4 million in 3 days) represented but a fraction of 1% of the installed base, so it is safe to say that Windows users are taking their usual cautious approach to a new OS. I happen to believe that the iPad mini will in fact be a huge it and is positioned and priced to be the Christmas season's #1 must-have piece of electronic gadgetry. I also believe that the mini is priced and sized perfectly for the education market. Students have sharper eyes and smaller hands than do adults. The mini seems especially well-suited to them and to educational use, in my opinion. Apple runs up into product announcements and earnings events, and sells off afterwards. It is a source of ready cash for hedge funds, who know how they can trade into and out of the stock around such announcements. If their selling happens to cause a panic and stampede out of the stock, so much the better as it allows them to buy back in at lower prices and win again. Yes, Apple has better competition than it did two years ago, yes Apple's earnings growth rate must slow as the market cap increases, yes investors probably expect too much from Apple in the way of paradigm-shifting technology, but at 8X forward earnings estimate of $53 (minus cash + short term investments) do we not think that these concerns are priced into the stock already? How else to explain the most financially sound company on the planet trading at a 40% discount to the overall market's 15 p/e? All of this hand-wringing and anxiety seems to play perfectly into the hands of the hedge funds and other institutions that love nothing better than to get Apple at a 15% discount just in time for the Christmas selling season.
    Nov 1, 2012. 11:05 AM | 1 Like Like |Link to Comment
  • Apple's Cash Position Is Overstated By $70 Billion [View article]
    This is a long and detailed article and one that does add something to the reasoned discussion that should take place regarding the continued worthiness of Apple as an investment. I do not have a Ph.D in Finance so let me try to distill your thesis into some workable points that might add value to this discussion. If I understand correctly, your position is that bc Apple has shifted to its suppliers the burden of building and maintaining the facilities needed to produce its products, it eventually will be at the mercy of these contract manufacturers. Contract manufacturing has been popular in tech for at least the past 20 years. I believe Intel started it when it realized that spending $5 billion every few years to build a fabrication plant for its next generation processor was a terrible use of its cash. The equipment in the fab had value for only as long as the processor was made, which, as Gordon Moore taught us, was about 18 months. Unlike in other real estate transactions, Intel determined that it was far better to "rent" production than "own" it, so it gladly paid a contract manufacturer to do it instead. This freed up cash for other investments, research and development, and acquisitions. This has been the model almost all tech companies have followed ever since.

    In Apple's case, it has leveraged its size with these manufacturers, wringing from them terms that are favorable to Apple and, as you argue, not so good for the manufacturer. Wal-Mart has done the same thing in retail, quite successfully for several decades now, I might add. However, you believe (I think) that Apple has not made wise use of its cash hoard and thus has not maximized the opportunity afforded it by having some other company tie up its own cash in plants and equipment. This is where your thesis gets fuzzy for me because, as I said earlier, I am no Ph.d in Forensic Accounting or Finance. You make certain assumptions (which you have to do in order to talk about the future-I have no problem with that). Namely that:
    1. Apple will not find a use for that cash that will surpass any potential value created by investing additional capital in its supply chain;
    2. The inevitable waning of Apple's popularity will give the contract manufacturers pricing power that they do not currently have;
    3. The resultant falling profit margin will destroy Apple's stock price;
    4.If Apple makes additional investments in its supply chain, it would mean less cash available for other initiatives, also hurting the share price.

    In other words, unless Apple can find a home run use for its cash, the company will inevitably lose its leverage and pricing power, thus killing the share price. That is a reasonable point of view but it represents a static viewpoint, a viewpoint that seems to ascribe no value to ongoing R&D, to the viewpoint that (as mentioned by others) other manufacturers will gladly step in as others fall out. Contract manufacturing carries very thin margins and profitability comes with volume. Apple currently offers the best opportunity for high volume output. Apple invests as much of its cash as it feels it needs to in order to run its business efficiently. Its management and its investors may eventually disagree on the importance of reinvested capital to future profitabilty but I take no issue with Apple's decision to farm out production to those who are willing to do it on Apple's terms and to stockpile cash for whatever opportunities may come along in the future. Were interest rates at normal levels and Apple generating a 5% after-tax return on its cash, I daresay that underinvestment in infrastructure would be much of a worry (or potential worry). Thanks for your contribution to the discussion and I hope I haven't butchered your thesis.
    Oct 10, 2012. 03:01 PM | Likes Like |Link to Comment
  • iPad Mini Success Will Sink Apple Margins; Look For 30% Downside [View article]
    Articles like this are informative in that they present bad scenarios to those of us who read them. However, where I see a shortfall in your argument is that you are taking the current situation and extrapolating. You speak (write) in absolutes, yet you have no more idea what Apple may introduce product-wise than I do. You fail to take into account the possibility for change and continued innovation. Yes, if nothing else changes the iPhone market will mature before the tablet market does and Apple margins will most likely come down absent increased pricing power on Apple's part. This is conjecture though and while it is good to know what the other side is thinking, your thesis is dependent upon product stagnation at Apple and the evaporation of the value of its software. I cannot agree with you at this time.
    Oct 4, 2012. 09:16 PM | 2 Likes Like |Link to Comment
  • Tim Cook's Rotten Apple [View article]
    That has been Apple's strategy. Play at the high end and let the others use pricing to try to gain some marketshare. Problem is, someone will always be willing to undercut you on price so Apple has not played the low-end of the market. I think the idea of an iPhone having snob appeal is passé now, given the ubiquity of the device. The attraction now is Apple's cohesive ecosystem, not the glamor appeal of the device. However, by continuing to sell older models at reduced prices, Apple is willingly cutting its profit margin in order to bring more people into the ecosystem. Once in, people tend to stay there. Apple's retention rate is the envy of the electronics industry. So, in the short run Apple is sacrificing profit margin for head count in the hope that those people will then make additional Apple purchases and remain inside of Apple's sticky ecosystem. Given that the world has never really recovered from what happened in 2007-8 and that money remains tight for just about everyone, this probably is a smart strategy.
    Jul 26, 2012. 11:01 PM | 3 Likes Like |Link to Comment
  • Tim Cook's Rotten Apple [View article]
    The concerns that you point are priced into the stock already, yes? How else to explain a way-below-market p/e? I suspect that you are guilty here of cherry-picking your facts to support your analysis. You slowing rate of growth is such an example. Growth spikes when Apple releases a new phone and drops when rumors of the new phone start heating up. Growth will spike again when the next phone is launched and the cycle will repeat. The one thing that Apple bears are harping on and that I can agree with is that Apple's unheard of profit margins will most likely contract bc it has decided to compete in the lower end of the market. This is, I think, a concession to the times that we live in. If Apple can make a little money while boxing out its competitors and still putting its devices into the hands of a consumer segment that it would not ordinarily serve, all the better. Apple's sales strategy will have to morph into a Walmart-type strategy in which it uses higher volume to offset lower profit margins. Selling heavily discounted older iPhones, iPads, (and perhaps lower-margin iPad minis) gives consumers more options, albeit at Apple's expense.
    Jul 26, 2012. 07:05 PM | 2 Likes Like |Link to Comment