Liberty

Does it matter if it is? Who cares if he can't allocate capital if he has a business that can turn ideas into capital. Sometimes I feel like these "capital allocators" are the end of the line. That is they own businesses that have no future but generate cash, and they turn that cash into investments into other businesses that have no future but generate cash pyramiding these things up into something that faintly resembles Berkshire. And BRK has grown to a point where they're now investing in giant capital intensive companies that can suck up that cash to generate moderate earnings growth. I mean how much bigger is BNSF going to get? Are they going to suddenly double their track network? Nope, they can't. But can Apple create a new product that doubles their installed base? Yes, they have in the past, and probably will again. I believe this is Scott Hall's point about growth investing. Why go for FCF when you can by a piece of a business that can internally reinvest their cash at much higher rates? Something like Chipotle or Facebook. That's worth a LOT more. But these guys are stodgy value guys either, and it's harder to break apart returns. I think you're right, but it depends how you define "capital allocator". To me, it doesn't just mean M&A, it also means internal reinvestment (not just the fact that it's internal, but investing on what and how) as well as what to do with the excess cash (there are options other than M&A). Maybe there's another word than capital allocator to describe this, but I thought it fit within that umbrella (4 options of the capital allocator: M&A, organic growth, dividend, buybacks).

I think Cook is very good at capital allocation, from what I can tell. But that doesn't work the same way at Apple than it does at Berkshire, for example. If anything, Cook seems to always err on the side of cautions and on the side of favoring the long-term over the short-term, which isn't bad. Maybe doing a tender offer for 100bn back when the stock was much lower would've been a good move, but not doing it and taking a more measured approach to returning capital isn't hurting the business. I think Cook understands how good the core business is and he isn't diluting it with all kinds of other stuff, which lesser managers tend to do when they are sitting on piles of cash (they start buying everything in sight... Hey, let's buy Skype for billions, then Nokia, Autonomy, oops, lets write them down). Rather than do that, Cook seems to be digging the moat all the time, buying small strategic bolt-ons that help differentiate the core business (because Apple is rather secretive, we don't know what happens to everything, but when they bought PA Semi for $278m, who knew that a few years later Apple would go from a nobody in semiconductors to arguable one of the leaders in the world. How many billions has PA Semi been worth to Apple over the years? that's probably a multi-bagger right there). Another way in which I think Cook is a good stewart is that from everything I've heard from people inside, he's a great torch bearer for the Apple culture. Apple has certain outcomes because of the processes it has, and protecting that is very important. That's why they have Apple University for internal use, where they teach the company's philosophy and look at past case studies from the company's history of what they did in certain situations and why, what mistakes they made, etc. That stuff matters. If you strip out the Apple store employees, Apple is a relatively small company for its market size, hiring very carefully and taking time to absorb new people, and they still have small teams working on most things, which reduces bureaucracy and gives people more ownership of what they work on (but it also means they can't do everything at the same time). A lesser manager would just hire massively and dilute all this, and after a while you have B players hiring C players and the company is overrun in mediocrity. Another way that I think he's doing a good job is that he knows where spending money matters and where to be super lean. It would be easy for Apple to become fat and bloated, but Cook is an operations guy at heart and he gets notoriously good deals from commodity parts suppliers (flash memory, screens, whatever). But he also spends on stuff where differentiation matters; nobody else can afford a lot of the very expensive manufacturing that Apple does. In China they have factories where as far as the eye can see, there are CNC machines milling solid blocks of aluminum. Nobody else would have dared go the unibody route at that scale because it's too expensive, but Apple knew that would be a differentiator and make for products that feel better, so it was worth spending on. That's just one example. In the same way you can become fat, you can also nickel and dime the wrong things and kill your brands with products that feel cheap and badly put together. I've already mentioned to you previously that Cook's main capital allocation decision seems to be doubling-down on the core business. On the operational side, reinvest in existing products to keep making them incrementally better and spend a lot on long-term R&D to plant the seeds of new products over time, and on the financial side, the buybacks mean that each share of AAPL owns more of that core business with every quarter, which is different from another manager who might use the cash to run around and buy Twitter, Motorola, RIM, FOXA, whatever, diworsifying.

Yeah, sure, and while we're looking at things at their most meaningless superficial level, Windows Phones are the same as iPhones, right? Consumers should like Windows Phones just as much, and it should be as successful, right? When Apple criticizes something, they usually criticize a particular implementation of an idea (ie. something that isn't a great laptop and isn't a great tablet because of both the software and hardware), they're not saying that the idea can't possibly be made to work ever (ie. they didn't want to make a large phone before they could make it thin enough for it to be a good experience. A phone the size of an iPhone 6 plus but the thickness of an iPhone 4 would've been a brick..). Looks like you're taking it personally. I wonder why? Are you emotionally attached to Apple that you can't let criticism slide? ;D Surface is clearly a laptop with the added functionality of a tablet. Apple mocked the concept, along with that of a stylus. Two years later, they make a tablet with the functionality of a laptop....with a keyboard and a stlys! No they didn't criticize the implementation, they were criticizing the concept. As I've stated before, Apple isn't very innovative, they are copying what other companies have shown to work and improving the user experience. Nothing wrong with that though. Nothing personal, just correcting your statement and explaining why you are missing the point. The Surface and iPad Pros might look similar at first glance, but they take very different approaches and that matters. Apple never mocked using keyboards and stylii on tablets, you could already buy all those accessories in any Apple store and many people did. What they thought didn't work was trying to use a desktop OS and desktop software that isn't optimized for touch on a tablet, and having a confusing OS that switches between modes, because that's a major compromise and results in a bad experience. They didn't do that with the iPad Pro. I care about understanding what products actually are, not about some superficial comparison for point-scoring in some pointless religious war between Apple and other companies. There's no point in that, and it's not like Microsoft is winning in the consumer mobile device space...

Doing something first can give you some bragging rights I suppose, but what matters is who does it best, and features as they relate to a good product when looked at as a whole (who cares if you have one good thing if the rest sucks?). Apple rarely claims to have invented a new thing entirely, but they are very proud of the innovation that goes into their implementations and how they integrate things. It's kind of like how Henry Ford didn't invent the automobile, but his Model T was defining for the industry for many reasons. Tons of other companies come out with dozens of half-baked ideas that they can claim to be "first!!!!1111" about, but in the end, it's about products, not feature demos. Apple Watch wasn't first smartwatch. iPad wasn't first tablet. iPhone wasn't first smartphone. iPod wasn't first digital music player. Etc.. http://core0.staticworld.net/images/idge/imported/article/nww/2013/02/apple_newton_messagepad-100274461-orig.jpg Pretty sure surface wasn't first tablet with a stylus and keyboard, and the keyboard in the cover is inspired by the original iPad's magnetic smartcover anyway... Also pretty sure the Surface wouldn't look what it looks like without the iPad. But that's not convenient to the cherry picking. But hey, if all you care about is bashing companies rather than having an understanding of things, I guess a three panel comic is about the right amount of context.

So I wrote a little about today's event in my investing journal. Thought I'd share it here if anyone's interested:

Makes sense. I agree. I also think the music streaming is a bit of a mess right now. Lots of really good ideas, but too much iTunes legacy spagethi code and cluttered UI. They have a bit of a microsoft problem there, which is that it's really hard to remove things because some people still have iPods that they synch in, some people have bought huge libraries of videos and audio on iTunes, some people synch their ebooks, do their device backups, etc.. They need to do a rewrite and probably split these things into at least 2 apps. I wouldn't be surprised if that was the plan over time. I think there's enough of a kernel of good ideas that once they remove the bad parts, it could be a very nice product.

I think the margin guesstimation that most have implied on Beats is flawed. The BOM v. Retail Beats bashing is great for a laugh, but there are tons of companies that sell highly marked-up, low BOM goods that still don't generate amazing net margins (Coach, Adidas). My thinking on Beats really changed when I made a real effort to understand how they "succeeded". It was by absolutely saturating all the relevant (and irrelevant) media channels and then getting quick retail ubiquity. Unlike Apple, which is able to get both of these things done for free, Beats had to pay. I suspect the retail markups allowed to Best Buy, etc. were incredibly generous (compared to Apple's miserly allocation) and athletes, rappers, and pop-stars may as individuals be naive enough to do free product placement, but most of them have managers that will quickly make sure the deals represent economic reality. That is a lot of assumption on my part, but I think it is somewhat bolstered by their financing activities in 2013. They spent the better part of the year trying (and failing) to make a debt deal work; then they ended up selling half of the company to Carlyle at a $1B valuation. This was in the midst of their incredible revenue growth, and their projected revenue for the year was well in excess of that number. So we have to wonder why that was the best they could do... If you want to really suffer, start watching all of the most-viewed music videos of ~2013. Over half will have gratuitous, shallow depth-of-field lingering product placement shots of Beats gear. It is insane. Finally, if you just read Apple's moves and messaging during and since the deal, it seems fairly clear that the headphones are the last business priority and, as objects, aren't held in very high esteem. Recall Tim Cook's internal memo announcing the deal. He went on for many paragraphs talking about how important Music and streaming was, and praising Iovine and Dre. And then in the last paragraph he mentioned the headphone, expressing no personal opinion about the headphones, but just providing objective descriptors and then closing out by suggesting that maybe Apple would get around to making them good. Funny thing about this post, I was 99% sure there were leaked Beats financials from 2012 that I *remembered* reading. I have spent 30 minutes searching for them and I'm now faced with the very discomforting probability that I totally fabricated that memory from nothing. So take my analysis for as much as it is worth coming from somebody with mild dementia. Anyway, considering the only big product moves with Beats since the acquisition was digested have been 1. a product recall and 2. throwing a free pair in with laptop purchases for Back to School, I'm pretty comfortable inferring that Apple really cared mostly about putting the Music offering together, and saw the Beats legacy business as not especially attractive. I expect eventually some new AppleBeats headphones will be released, but I find it hard to believe that the addition of the Beats mark will dramatically improve the financial performance of the product over what it would have been if it were simply Apple branded. You bring up good points, and may very well be right about this. By the way, one very popular teardown of Beats headphones that everybody was passing around not too long ago turned out to be of knock off headphones and not of actual Beats.. I still think the headphone business can be of significant value. The fact that Beats itself wasn't able (if that's the case) to get it to be very profitable doesn't necessarily mean that it can't be; when in startup mode, you often sacrifice profitability for growth. Apple can either keep those dials that way (re-invest massively in promotion) or dial that back down and start increasing the margins. Just having the free placement in Apple stores and the association with Apple probably helps reduce that marketing spend. Regular people didn't use to pay a lot for headphones and see them as status symbol. Beats was creating/filling a new niche, and they were smart to be very aggressive with growth during the land-grab phase, IMO. I think you're right that Apple was most interested in leveraging the music streaming side of the business, though. But it's not because they are most interested on that side of the business for product reasons that on the financial side they felt the headphone business wasn't worth a large portion of the price. I wouldn't be surprised if they were working on the next wave of headphones that they'll like more, and if they got at least company-average margins on them quickly, if that isn't already the case.

There's already long-presses all over iOS. This depends on force applied, not on length, so it's different and requires the new hardware (pressure-sensitive screen + haptic feedback module to let you know when you're activating these different kinds of 'deeper' touches).

Yeah, sure, and while we're looking at things at their most meaningless superficial level, Windows Phones are the same as iPhones, right? Consumers should like Windows Phones just as much, and it should be as successful, right? When Apple criticizes something, they usually criticize a particular implementation of an idea (ie. something that isn't a great laptop and isn't a great tablet because of both the software and hardware), they're not saying that the idea can't possibly be made to work ever (ie. they didn't want to make a large phone before they could make it thin enough for it to be a good experience. A phone the size of an iPhone 6 plus but the thickness of an iPhone 4 would've been a brick..). Exactly. Making a touchscreen Windows laptop sans keyboard, to make a large tablet is not the same as an iPad Pro. That's the problem with the approach, IMO. The Surface is basically a laptop that tries to be a tablet (they still want you to run a lot of desktop software on it and there are a lot of mixed UI metaphors). The iPad Pro is definitely a tablet, but it has a few peripherals that make it more laptop-like for when you want to do work. iOS is still a mobile OS, it is just getting more powerful with more interaction metaphors and more multi-tasking. Windows is trying to be everything to everyone, but the strengths of a good mobile OS are different from the strengths of a good desktop OS, and Windows mostly falls somewhere in the middle on lots of things... Not to mention that iOS gives you access to all the iOS apps and developer ecosystem. With a Windows tablet, you mostly have to use desktop software that wasn't optimized for a tablet, giving you a bad experience, or you have access to a very limited number of software optimized for the Surface because it's a relatively small market and developers would rather work on iOS and Android.

Looks like my prediction from a few years ago that Apple TV would become an app-based gaming console with physical controllers was pretty close. They didn't have time to talk about it too much, but I bet these third-party MFi controllers will be popular for more avid gamers, while using the remote and iphones/ipod touches will be fine for more casual gamers: http://www.apple.com/tv/games-and-more/ Hardcore gamers will stick with PCs and more expensive consoles. But I suspect there's a kind of 'mid-market' above casual gamers who are fine with games on mobile devices and below those hardcore gamers that would mostly buy Apple TVs for Netflix and other content apps, as well as whatever other deals Apple makes with cable companies later, but would also buy a bunch of games despite not being hardcore enough to get a dedicated console. I think Nintendo glimpsed this mid-market with the original Wii, but they dropped the ball over time and never had the developer support and hardware to keep it going. Apple could take that under-served spot. Also nice that Apple TV games will mostly be universal across devices, so buy it once and play on iPhone, iPad, TV.. A potentially interesting effect: Consoles have very slow upgrade cycles. Each generation lasts for 6+ years. If Apple updates the Apple TV hardware more often than that, it could just about match console performance during the back part of that cycle, but at a much lower price.

Yeah, sure, and while we're looking at things at their most meaningless superficial level, Windows Phones are the same as iPhones, right? Consumers should like Windows Phones just as much, and it should be as successful, right? When Apple criticizes something, they usually criticize a particular implementation of an idea (ie. something that isn't a great laptop and isn't a great tablet because of both the software and hardware), they're not saying that the idea can't possibly be made to work ever (ie. they didn't want to make a large phone before they could make it thin enough for it to be a good experience. A phone the size of an iPhone 6 plus but the thickness of an iPhone 4 would've been a brick..).

Yeah, Skylake doesn't seem like a huge deal (especially on a desktop -- on a laptop, the power-efficiency might be worth it). I just like to be on the latest generation when I update out of principle, but functionally, you probably wouldn't notice much of a difference unless you are constantly pushing your machine.

My primary desktop computer is still a 2008 Mac Pro (8 Nehalem-gen cores, 12 gigs of RAM, now with a SSD -- per year I'm sure it cost me less than if I had bought a DELL piece of crap and had to replace it every few years..). When that dies, I also want an iMac 5K. Amazing screen, very fast machine, and takes almost no space (just the monitor, basically). I'd wait for the Skylake update from Intel before ordering, though.

I see you deleted your post, Wellmont. But here you go: https://developer.android.com/about/dashboards/index.html

Not to dive in the weeds, but I will anyways. Wow, Slackware, brings back memories. I ran Linux only for years, from the late 90s to about 2004. I started on RedHat 3 on a 486. For a period I used OpenBSD exclusively as well. What killed it for me was the hours I spent trying to get a digital camera to work in 2001. I spent hours re-compiling kernels and drivers to get the USB to talk to the camera. I had some issues with a sound card as well and I remember needing to hard code memory addresses in config files. I used Slackware for a while as well, but dumped it when the sole developer ran into health issues, the distro stagnated for a bit. Eventually I purchased an old Apple to play with on the side. I installed OS X and loved the concept of a unix with a nice UI on top that actually worked for things like sound and cameras. The moment things clicked for me was in 2003 when I plugged in the digital camera into the Mac and voila it found it instantly. It also found and configured a printer for me as well. Before that I was limited in what I could print on Linux because the driver didn't support all of the printers features. I'm still on OS X, and I still jump to Terminal often. But now Linux has been relegated to our company servers that are ssh'ed into. Nothing on the desktop. I tried Ubuntu on an old laptop a few years ago, it was alright, and I wish I had it 15 years ago, but couldn't hold a candle to OS X. Now you are bringing back memories... I remember re-compilling my kernel all the time to try to get it as lean as possible by removing all unnecessary modules and trying different compiler flags, saving a few kbs or RAM here and there. That was fun/infuriating. But I'm certainly not under any illusions that this is the kind of stuff that interests most people. There's a small class of people, who probably have the engineer gene, even if they aren't engineers, who care a lot about tools. And then most people just want to use the tools to get something done and never really think much about the tools.

While we're on the topic, here's a pet peeve of mine: Almost every year, without fail, after new iPhones come out there's some journalist who writes a big piece about how Apple slows down old phones on purpose to make you upgrade. It goes something like: 'My 2-3 year old iPhone was working fine, and then after the new iPhones were announced it slowed down". How could that be, right? Oh, maybe it's because Apple releases new versions of iOS at the same time as new iPhones, and new versions of iOS target the new hardware, not for 2-3 year old hardware..? It still runs and gives you access to many new features, updated design, etc, but it'll never be as snappy as on a brand new device. Duh. If you want things to stay the same, don't upgrade your whole operating system. This doesn't happen as much on Android because on most Android phones you simply can't upgrade your OS and are stuck with old, often unpatched software until you buy a new device. Apple is doing a nice thing and supporting old hardware for as long as it can, and to repay it for its efforts the media are writing negative articles about it. I wonder why these journalists who don't understand technology write about Apple. Scratch that. I get it. The easiest way to get pageviews and attention is to write something negative about Apple. There's always a race for a new "gate" fake scandal. I wonder what it'll be this year. I guess they wish Moore's Law would be repealed and software optimized for current hardware would run just as fast on way, way, way slower hardware from a few years ago... Sorry, I had to get this rant out. :)

I don't believe in any conspiracy theories about battery life, but I do believe that Apple could extend the useful life of its devices by making the batteries user replaceable and by adding a memory card slot or making the flash inside user replaceable/upgradable. Apple purposefully doesn't do this to drive people to replace their devices. I don't know if that fits the definition of "conspiracy", but it is a decision made by the company, and it seems to be working well for Apple. Design is about tradeoffs. If you do these things, you make the devices thicker, uglier, and more complex. You can pack things together a lot tighter on the inside if you don't need to have a separate compartment for the battery that can be exposed to the outside, and the back of the phone can be a lot nicer (unibody metal, or inlayed glass with super tight tolerances) if it can't be opened. Even Samsung recently dropped these features on its flagship, probably because very few people actually replace their batteries and swap memory cards around much after buying the phone with a certain amount of storage (either integrated or with a card that they then never think about again). I ran linux (Slackware distro) for years, I know about how fun customization can be sometimes. But 95% of people won't ever change default settings on anything, so it's a lot more important for things to be nice and useable out of the box than to have the ability for people to go DIY. If you try to please everyone, from Richard Stallman to some person who doesn't care about computers and just wants things to work, you usually end up with a mediocre product that doesn't really impress either side, so you have to make choices that will displease some people.

iOS 9 will actually reduce storage space required for many apps and the OS itself (they call those technologies App slicing and App thinning). http://9to5mac.com/2015/06/09/ios9-app-thinning/ iOS 9 will also contain a few power-saving features that will extend battery life on existing iOS devices by around 1 hour, and it'll also have a special low power mode that can extend battery life by a few more hours when you really need it. I don't believe in the "planned obsolescence" conspiracy theories about batteries and such. It would be very easy to prove by anyone looking at the actual batteries used or doing some tests with the software. The reason why batteries degrade is because that's a limitation of current battery chemistry. In a standalone digital camera, you might recharge the batteries every few weeks, so the total number of cycles over a typical year is very low. In a smartphone, most people do at least half a cycle per day, with many people doing a full cycle every day (sometimes more, with charging during the day). That's around 400-800+ cycles after just 2 years... Mobile devices will always have shorter replacement cycles than stationary devices. They are bumped, dropped, cracked, exposed to humidity, salty sweat, end up underwater by accident, etc. They're also a lot more important to the life of a regular person's than a computer ever was, so upgrading is an easier choice. They're also highly visible, and when you pull out an iPhone 4s in public, it doesn't say the same thing as pulling out a brand new 6s, kind of like driving an old beat up car (most here probably don't give a crap about that, but most people aren't like that). Others have already mentioned that software is adding new requirements fast and older devices can't keep up past a certain point. Either the CPU isn't fast enough, or the GPU isn't, or there isn't enough RAM, or they don't have some new hardware feature that is required (NFC, fingerprint sensor, a GPU that can handle the Metal API for game graphics, the motion-detection coprocessor, etc). Another factor in the upgrade cycle is that smartphones are now people's primary cameras. A few years ago, they paid hundreds of dollars for a standalone photo camera, and a few hundred more for a video camera. Now with a phone upgrade they get an upgrade to both. If all your baby pictures and videos look better, that's pretty compelling value right there.

http://bearofburrardstreet.com/recent-transaction-purchased-transdigm-tdg/

I don't know what the hardware business was worth, but the few numbers that i've seen (you can look back in this thread), and guesstimating at growth rates and margins, it was probably worth a fair chunk of change by itself. $200 headphones that probably cost less than $40 to manufacture have pretty good margins... Not a bad idea to own one of the most popular and profitable accessories/brands complementary to your main product (and also popular with Android users).

Can you elaborate? I'm pretty sure it's not, unless I'm misreading you.

Is there enough news about the company at this point to warrant multiple threads?

http://www.prnewswire.com/news-releases/zillow-group-announces-sale-of-market-leader-to-the-perseus-division-of-constellation-software-300137912.html This is a business that was acquired by another company in 2013 for $335m... http://techcrunch.com/2013/05/08/trulia-to-buy-market-leader/

Thought this was good:

I see both positives and negatives. On balance, I would probably agree that they should stick to being a platform and not compete with 'horizontal' content providers (who scale up by being on all platforms). I think the sub-optimal way to do it is to build a complete Netflix competitor with access to a wide selection of licensed content. That might not be the worst use of the cash they find behind the cushions of their couch, but I don't think that's the smartest way to do it. I'd rather see them just finance some exclusive content of the highest quality (a few TV shows by people with great track records, steal a few big hitters from HBO..) and have that available on Apple TV and iOS devices as a kind of separate channel, either for free or at a super low cost (which is possible if you only have a few things and don't try to carry thousands of TV shows and movies), and leave all the rest of the content to Netflix and HBO GO and such. That way the exclusive content would act as a kind of differentiator from other platforms, and the money invested would mostly be recouped through hardware sales (a kind of loss leader). And you are not really competing full-on with Netflix and HBO for the big monthly subscription fees, but people might still pick Apple TV over other things because they can then have Netflix and HBO and exclusive Apple stuff which they can't get elsewhere. If they invested just a single billion in content creation, they would overnight become one of the big hitters in the TV series world (even a big show like Game of Thrones cost about $6 million per episode)..