AAPL - Apple Inc.

[vinod1]

 

 

First off, I'd like to say that you're not pissing people off with a solid exchange of views.  I wouldn't be responding otherwise.  Now I wanted to mention that if we think back to Sony, why did they start to lose?  They started to lose when they lost sight of who their customers were, and of pleasing the customer.  It transformed from a company run by engineering and innovation to one run by sales administrators, wanted to protect their IP and gold.  Sony was never as fanatical about design as Apple was.  I say was because I do see some chinks in the design armor lately where engineers are winning over designers.

 

#2 I can see how this can potentially be a big competitive advantage, but so far I do not see this as amounting to any signiificant barrier. As already mentioned many friends switched from iPhone just for the heck of it. My employer offered a choice of iPhone, Android

and Blackberry. I chose iPhone just because I did not want to carry an extra power cord. So far I regret it as email is much better on Blackberry the way I use it.

 

This will depend on age and available time.  As people get older, those using apple products tend to be well-off.  At the young end it can be more of a functionality/fad.  In the older group, time is extremely valuable.  Someone asked why people would spend $50 on a shuffle.  Well, that is a trivial amount of money for someone in a good job--to switch away from the apple ecosystem could take hours of time depending on how much that person has invested--there are lots of details.  Don't forget people's own value of time in your analysis.

 

Then again, I can see others offering portability/compatibility with iTunes/iCloud. So it might not really amount to all that much of a barrier.

 

#3 Developer base could be a really big deal in future but it is not right now.

 

I think you'd need more supporting evidence for this statement.  Developers go to where the money is for their product.  Some are less concerned, but the majority have to make a living.  Apple's developer base is stronger than I've ever seen it, and particularly in the iOS segment, it's more profitable for them to be there. I don't think anyone would argue that this cannot change over time. Aside: I see in the end that the desktop/laptop line will be more for creators/developers--the vast majority of people out there are more consumers of content, for which tablets are just fine. 

 

And for the record, I'm not long Apple right now.

 

Regarding developers, what I mean is that an entire generation of developers could grow up to just learn IOS and remain dedicated to it. This would create a whole virtuous cycle for Apple.  This would only work if there is no comparable developer community for other OS's.

 

Thanks

 

Vinod

[val740]

Here is a thoughtful post on Apple from the Harvard Business Review. (My apologizes if already posted.)

 

http://blogs.hbr.org/fox/2013/01/apple-versus-the-strategy-prof.html

 

Makes several good arguments:

 

1) Apple's future success will be based on making the right big strategic choices (such as their past decision to radically simplify their product offering) and/or creating huge new markets (the Blue Ocean strategy / what they did with the tablet). The chances of doing either are far from certain.

 

2) History is not on Apple's side as successful products tend to devolve into commodities and the natural progression is from highly, integrated products (Apple) to open, modular products (Android). (The Greenwald argument: in the end everything = a toaster)

 

3) Network effects from iTunes and the App store will slow down the effect of competition but will not ultimately stop the barbarians from crossing the moat. (Spotify poses a significant threat to iTunes and the numbers of Apps on Android now exceeds the number available at Apple.)

 

Not mentioned is the considerable mindshare that Apple enjoys, although the infrequency and cost of purchasing a smartphone (particularly in poorer emerging markets) leads to shopping other models and is not entirely inducive to natural habit formation, i.e. Coke.

 

Perhaps Apple and Android can settle into and co-exist as a duopoloy for some time, if Apple intelligently segments the market.

 

Also, often overlooked is Apple's corporate opportunity. The FT reported, "That 85 per cent of Fortune 500 companies were testing or deploying the iPad, a market still dominated by Windows PCs."

 

http://www.ft.com/intl/cms/s/0/f7bc24b6-6a2c-11e2-a3db-00144feab49a.html#axzz2JOkz3A1r

 

I own a small position (2%). 1% at $628; 1% at $459. I am feeling less conviction and more like I have been drawn into more of a speculative situation (lack of discipline). Having said that, the $459 price discounts a lot - especially assuming the cash is used intelligently - but perhaps not enough.

 

 

 

 

[Guest valueInv]

http://gigaom.com/2013/01/30/apples-siri-coming-to-2013-honda-accord-2-acura-models/

 

Hyndai also announced something similar.

[vinod1]

From Aswath Damodaran

 

http://aswathdamodaran.blogspot.com/2013/01/are-you-value-investor-apple-test.html

 

Are you a value investor? Take the Apple test

 

The Value Skeptics: This group has always viewed Apple's rapid rise to the top of the market cap heap with suspicion, convinced that its value could not have risen that fast. Some of this group belong to the hardcore value camp, where no technology company, especially one with intangible assets and an elusive "cool" factor, would be a good value, at any price. Some, though, have reasonable doubts about the capacity of technology companies to maintain earnings in an volatile environment and believe that those of us who assume long term growth prospects for these companies are under estimating the risk of the disruption from new technologies.

The Value Optimists: This group believes that Apple is a bargain at $440 and that its true value is much higher. Some, in this group, base this judgment on simple comparisons. At a market cap of $413 billion, with a cash balance of $120 billion and net income of $42 billion, they note that Apple is trading at roughly seven times earnings, cheap in a market where the median PE ratio is about 16.

 

And he is a Value Optimist.

 

Vinod

[Guest valueInv]

In response to Uccmal's claims as to "operators are revolting":

 

http://allthingsd.com/20130130/wireless_bills_by_os_android_ios/

 

 

Also addresses Kevin4u2's claims that iPhone users are switching to Samsung.

 

 

[Guest valueInv]

Operators are "revolting" in Japan also:

 

http://www.bloomberg.com/news/2013-01-31/softbank-profit-doubles-after-new-iphone-ipad-lure-customers.html

[Viking]

From Horace Dedui's blog looking at Apple stock price declines over the past 10 years or so: http://www.asymco.com/2012/11/12/a-dramatic-reading/

 

Comments are worth reading too.

[Liberty]

http://www.bloomberg.com/news/2013-01-31/apple-loses-u-s-court-bid-to-block-samsung-galaxy-nexus.html

 

Apple Loses U.S. Court Bid to Block Samsung Galaxy Nexus

[Viking]

I find it fascinating how negative the news has become for Apple. It doesn't matter what the data point is, the conclusion is Apple is in trouble. It is almost like writers take a sentiment 'reading' before composing their articles. I am not complaining; great values often appear when sentiment is at its lowest ('be greedy when others are fearful'). I also am not looking at Apple through rose coloured glasses (too much) as, yes, sales are clearly slowing and gross margin is coming down. However, the sky is not falling.

 

Lots of data out the last couple days:

1.) Tablet market continues to expand at a crazy pace, which is fabulous news. Apple is selling everything they can produce (I think they are just now getting close to actually being in a fully stocked position with the ipad mini). Current interpretation: their market share is falling so they are in trouble. I would love to see Apple's profit share of the tablet market. My guess is they continue to earn better than 90% of total category profits. Simply beautiful. http://business.financialpost.com/2013/02/01/now-apple-is-losing-its-lead-in-tablets-too/?utm_source=dlvr.it&utm_medium=twitter

2.) Smartphone Share in the US is #1 in Oct-Dec period for the first time in years. And, similar to the ipad mini (though not as bad), they had supply issues for much of the quarter. And if you looked at profit share, Apple is way out in front (and always has been number one). http://finance.yahoo.com/news/apple-biggest-us-phone-seller-180613175.html

 

My point is Apple sales continue to be very strong. They are only now getting into a supply/demand balance on iphones, ipad minis and imacs. More importantly, Apple continues to be very, very profitable.

 

Both tablet and smartphone markets continue to grow like crazy. Apple is not after unit share they are after profit share. They will continue to make crazy amounts of money for the next few years even if they have no great new ideas. But my guess is they have lots of great innovation in the pipeline and it will be released when it fits with Apples objectives. I expect the sentiment (and share price) to be weak until they provide some clarity regarding future innovation plans (could be tomorrow or next year); once this happens sentiment will magically change and the stock will shoot. I am happy to accumulate shares and be patient and let management run the business for the long term.

[Guest valueInv]

I find it fascinating how negative the news has become for Apple. It doesn't matter what the data point is, the conclusion is Apple is in trouble. It is almost like writers take a sentiment 'reading' before composing their articles. I am not complaining; great values often appear when sentiment is at its lowest ('be greedy when others are fearful'). I also am not looking at Apple through rose coloured glasses (too much) as, yes, sales are clearly slowing and gross margin is coming down. However, the sky is not falling.

 

Lots of data out the last couple days:

1.) Tablet market continues to expand at a crazy pace, which is fabulous news. Apple is selling everything they can produce (I think they are just now getting close to actually being in a fully stocked position with the ipad mini). Current interpretation: their market share is falling so they are in trouble. I would love to see Apple's profit share of the tablet market. My guess is they continue to earn better than 90% of total category profits. Simply beautiful. http://business.financialpost.com/2013/02/01/now-apple-is-losing-its-lead-in-tablets-too/?utm_source=dlvr.it&utm_medium=twitter

2.) Smartphone Share in the US is #1 in Oct-Dec period for the first time in years. And, similar to the ipad mini (though not as bad), they had supply issues for much of the quarter. And if you looked at profit share, Apple is way out in front (and always has been number one). http://finance.yahoo.com/news/apple-biggest-us-phone-seller-180613175.html

 

My point is Apple sales continue to be very strong. They are only now getting into a supply/demand balance on iphones, ipad minis and imacs. More importantly, Apple continues to be very, very profitable.

 

Both tablet and smartphone markets continue to grow like crazy. Apple is not after unit share they are after profit share. They will continue to make crazy amounts of money for the next few years even if they have no great new ideas. But my guess is they have lots of great innovation in the pipeline and it will be released when it fits with Apples objectives. I expect the sentiment (and share price) to be weak until they provide some clarity regarding future innovation plans (could be tomorrow or next year); once this happens sentiment will magically change and the stock will shoot. I am happy to accumulate shares and be patient and let management run the business for the long term.

 

The new sites love to post click-bait, sensational articles. Thats what drives revenue. Apple continuing to succeed is not a story. The  "fall of Apple after Jobs" is a great story, "Mismanagement under Cook" is another great one. Take a look at today's story:

 

http://venturebeat.com/2013/02/01/apple-was-the-largest-u-s-phone-vendor-in-q4-but-samsung-still-ruled-2012/

 

Guess what? They use the word "phone" not "smartphone". Samsung's sales include smartphone sales, Apple's doesn't.

 

A word on the tablet sales - it wouldn't be surprised if they double count phablets as both tablets and smartphones.

[Viking]

When looking at tablet and smart phone sales from Q4, my key take away is how Microsoft is not getting any traction at all. I wonder if the Skype aquisition is not costing them carrier support (critical for success in selling phones); if true that aquisition becomes even more expensive. Regarding tablets, they are betting that the tablet market is not all that different from the desktop business (hence launching a product that tries to do both) and this looks like a big mistake.

 

This is a massive issue for them moving foward. Fortunately, they have a large and profitable enterprise business and Windows will rule on the desktop. Perhaps opportunity in the enterprise will offset the risk in Windows and their overall profitability will continue to grow. It is quite funny to look at what the 'experts' were predicting for market share for Microsoft earlier in 2012 and what actually was delivered; most everyone was way, way too optomistic. 

 

Great article on tablets: http://techpinions.com/an-homage-to-the-tablet/13580

[PlanMaestro]

Amazon, Apple, and the beauty of low margins. (HT/ Hardcore Value)

http://www.eugenewei.com/blog/2012/11/28/amazon-and-margins

 

 

[Guest hellsten]

The new sites love to post click-bait, sensational articles. Thats what drives revenue. Apple continuing to succeed is not a story. The  "fall of Apple after Jobs" is a great story, "Mismanagement under Cook" is another great one. Take a look at today's story:

 

That is basically what Phil Rosenzweig says in "The Halo Effect"; the general media and business books are selling stories, not facts because the readers want feel-good stories, not cold facts. To make matters worse, the stories they sell are usually based on cognitive biases. This is why I try to take most news and articles I read with a healthy degree of skepticism.

 

"The fall of Apple after Jobs" makes a great story, but nobody will ever now what the reason was, although many books will be written about the subject. I wonder if Tim Cook realizes that he will be blamed for everything :)

 

Same story with MSFT. I'm blaming Steve Ballmer for messing up MSFT after Gates left, even though profits and revenue have gone up significantly. My guess is that Tim Cook will be in the same position as Ballmer 5-10 years from now. But I don't expect to see the monkey dance from Tim.

[Guest valueInv]

Samsung spends 13-14x Apple on marketing?

 

http://ben-evans.com/benedictevans/2013/2/3/galaxy-versus-android

[stahleyp]

Kinda funny. Apple is now listed on the magic formula website.

[PLynchJr]

It's actually been a Magic Formula stock for quite some time now (several months at least).

[Guest valueInv]

Finally:

 

http://techcrunch.com/2013/02/05/apple-now-hiring-for-a-new-online-store-in-russia-ramping-up-emerging-market-strategy/

[Guest wellmont]

Globally, Samsung shipped 213 million smartphones last year, compared with 135.8 million for Apple and 35 million for Nokia Oyj (NOK1V), Strategy Analytics said. The worldwide market grew 43 percent to 700 million. That's not quite double correct?

 

The Korean company may sell 59.7 million smartphones in the first quarter 2013 double the tally for Cupertino, California-based Apple, Lee Sun Tae, a Seoul-based analyst at NH Investment & Securities, said before the earnings announcement. that's double apple according to this estimate right? that means that samsung according to this estimate made on jan 25 2013, is selling smartphones faster than Apple is.

 

Samsung was the biggest seller of smartphones in China in the third quarter, according to IDC. Apple slipped to sixth behind four local suppliers including Lenovo Group Ltd., ZTE Corp. and Huawei Technologies Co., highlighting the U.S. company’s lack of a low-cost iPhone.

 

In China, nationwide smartphone sales may rise 44 percent this year to 300 million, led by cheaper units, according to IDC. The Samsung 7568 Galaxy smartphone is available for as little as 1,299 yuan through China Mobile Ltd. (941) The cheapest iPhone on Apple’s China website, an 8-gigabyte iPhone 4, costs 3,088 yuan. The latest iPhone 5 starts at 5,288 yuan. Neither company provides sales data by region.

 

Look for this trend in China to continue until Apple releases a phone there that most people can afford. Until then expect Samsung galaxy to continue to be the leading SP in the world, and in the most important wireless market in the world, China.

 

 

[Palantir]

This is a good article theorizing about Apple TV

http://seekingalpha.com/article/1156811-is-apple-s-threat-real-in-the-living-room

 

I think that you can clearly see their plans. Apple TV started out as a product with Intel x86 chips running OS X, and has now moved to an ARM architecture running iOS, which will mesh it with iPad and iPhone.

 

So imagine this hardware mounted to a 50 inch LCD panel with a dual or even quad core ARM Chip which you can port your iPhone and iPad apps to. You could download videogames on the app store, rent movies for a fraction of the cost, surf the internet, etc. Jony Ive could fashion a white, brushed metal case, with super thin edges.[/daydreaming]

[siddharth18]

Whitney Tilson - has bailed out of APPL.

 

Ahh what do they say about Whitney Tilson always being the ultimate contrarian indicator?

[compoundinglife]

Whitney Tilson - has bailed out of APPL.

 

Ahh what do they say about Whitney Tilson always being the ultimate contrarian indicator?

 

Time to back the truck up!

[bmichaud]

Einhorn Suing Apple:

 

http://www.reuters.com/article/2013/02/07/us-apple-greenlight-idUSBRE9160MI20130207

 

[Guest valueInv]

Einhorn Suing Apple:

 

http://www.reuters.com/article/2013/02/07/us-apple-greenlight-idUSBRE9160MI20130207

Hear, hear. Just made my day.

[Olmsted]

Indeed.  And the perpetual preferred is an interesting idea.  I would argue it's not terribly tax-efficient though.  If one wanted to distribute cash flows to shareholders efficiently, a distribution of bonds would be best - AAPL could deduct the coupon from taxes.

[DCG]

Suing a company for not spending their cash? Only in America.