AAPL - Apple Inc.

[Guest valueInv]

Why would you take the bet that they will defy history? You can most likely get the same returns with companies that aren't subject to these kind of unknowns.

 

Oh and yes, I've actually heard plenty of people say that Samsung's galaxy S3 is much better than the latest Iphone. I've also noticed that smartphones from competitors are becoming increasingly higher quality for much much lower prices than anything that Apple sells. The difference is slinking month after month. Hell, I've heard people complaining about Apple's ecosystem (Itunes!). I'm not saying Apple won't grow (both in revenue as profits) but am just trying to explain how natural market forces will sooner or later strike a big dent in Apple's smartphone/tablet market shares, margins, ... and that we could even see the first signs of it already today. Hindsight is too easy.

 

To be absolutely clear: I'm neither bearish or bullish on AAPL, I just don't know.

 

Which people are you talking to?

http://techcrunch.com/2012/07/23/ios-soars-ahead-of-android-development-as-apple-quietly-makes-move-into-the-enterprise-market

http://blog.flurry.com/bid/85911/App-Developers-Signal-Apple-Allegiance-Ahead-of-WWDC-and-Google-I-O

 

App store revenues are actually accelerating:

http://techcrunch.com/2012/07/24/apple-app-store-hits-650000-apps-250000-designed-for-ipad-5-5b-paid-out-to-devs/

 

BTW:

http://www.bloomberg.com/news/2012-06-27/apple-said-to-prepare-itunes-overhaul-improving-storage-sharing.html

[premfan]

Apple is the dominant player in the biggest market in the history of mankind. The mobile market is in its infancy. No one will come close to putting a dent in apples market share for at least another business cycle.

 

 

disclosure : no position 

[oddballstocks]

I can remember the first time I ever played with an iPhone; I was giddy with amazement at being able to surf the internet with something the size of my hand and immediately wanted one.  If there's something that's clearly better than the iPhone out there like the iPhone was to the Blackberry in 2008 (a year after it was out and you could clearly see the popularity of the iPhone) please let me know.  So far, the only thing I see is many people with products nearly as good as the iPhone and iPad but not as good - primarily because of the multiple product ecosystem/stickiness and fairly large lead with third-party apps I believe Apple has. 

 

 

I had a similar experience.  I was backpacking with my brother and he had the original iPhone.  We were near a highway and he pulled up a weather radar.  It was on one bar of Edge and probably took a half hour, but I was blown away.  The ability to access something like that in a remote area blew my mind, I had the same feeling, I had to get one as well.  I haven't been let down so far.

[DCG]

I Wish just one news source would post a headline like 'Analysts did a bad job at predicting Apple's earnings; another strong quarter for Apple', compared to the current headline about them missing estimates. this is of course not just true for Apple - same thing when analysts always blame the company every time their predictions are wrong.

[alertmeipp]

maybe this will end up like auto market, human invention to the man-kind; but companies in there won't make much money at the end.

 

IF that's the case, Prem's bet on RIMM is a high-risk low return one.

[stahleyp]

For the bulls on Apple, what will make you sell it? How do you know that you won't get into the same mindset trap as RIMM investors? The whole "oh, well, they'll come back. The stock is down 10% now. I'm not gonna sell" philosophy. I think you can successfully trade it, but you have to keep that in mind - you're trading it and not investing (well, in the value investing sense). I have no position but look at it like this (as others have already mentioned).

 

They stock isn't very expensive by most valuation metrics (that's a plus).

It's the top company in one of the world's fastest growing industries (plus).

It's relatively "sticky" people love the company and products (plus).

 

The visionary is gone. Say what you will about the engineers and Cook, but from almost everything I've read, Jobs is the main pillar of this company and he's no longer around (negative).

There are a ton of companies who want that market share - huge, huge competition (negative)

The carriers would like to lower their costs and would like to see Apple successful, but not too, too successful (negative)

Leaders can get destroyed in a hurry (RIMM, NOK, XRX, Netscape, etc) in these disruptive industries. (negative).

It's pretty hard to move the market cap of a $600 billion company (negative).

 

I suppose it's all about where you want to lay your chips. No one, outside of Apple, can predict where this company will be in 10 years. As anything else, the investment might work out splendidly. Apple might continue to innovate like crazy and people will continue to pay high prices for their products....or maybe not. For what it's worth, I've been wrong on Apple for a long time now. I'm shocked they have continued to innovate like the have.  I'm comfortable being wrong though.

 

[premfan]

Good point. The middlemen who service the mobile market will be the big winners.  I like prem's investment in rim. Its high reward low risk in my opinion. As long as they survive as a company its a homerun. The mobile market will keep getting larger. I see no end to the mobile market. I cant function without my smart phone.  The main issue is its going to take a looooong time for a turnaround. If no turnaround they will be sold. Averaging down for prem is a great idea. 

[premfan]

Hi stahley,

 

Great post. A couple things:

 

 

-Huge competition creates more liquidity to the market hence a future bigger market. The market leader in the future will have a bigger piece of the pie cause of all the liquidity thrown at it.

 

-Yes leaders get destroyed in disruptive industries all the time. The key is the product hits a market that is much superior to the market leader. I see no product that currently competes with apples products.

 

 

 

[stahleyp]

Good insights, too, premfan.

 

I ran across this article...kinda funny.

 

http://www.cnn.com/2012/07/25/opinion/obeidallah-iphone/index.html?hpt=hp_c3

[berkshiremystery]

Good insights, too, premfan.

 

I ran across this article...kinda funny.

 

http://www.cnn.com/2012/07/25/opinion/obeidallah-iphone/index.html?hpt=hp_c3

 

Hilarious,...  ;D

I laughing my ass off,... very funny point of view.

 

Even our worst moment, the time I accidentally dropped the iPhone in the toilet bowl, didn't slow us down. Despite everyone saying my iPhone would never be the same after this incident, it was better than ever....

 

....However, when I'm eligible for a new phone in six months, I can't promise I'll stay with my iPhone. But if I do buy a new phone, I'll probably change my service carrier to help me forget. Not that I'll ever be able to.

 

[DCG]

For the bulls on Apple, what will make you sell it? How do you know that you won't get into the same mindset trap as RIMM investors? The whole "oh, well, they'll come back. The stock is down 10% now. I'm not gonna sell" philosophy.

 

This sounds like a momentum investors approach. Sell just because other people sell?

 

This is the same thing that happened last year in the quarter before the new iPhone release. Stock dropped 5% when they missed earnings due to people waiting for the new iPhone. Demand for the iPhone 5 still seems incredibly strong.

 

-Seems like Europe is an issue right now though.

[stahleyp]

For the bulls on Apple, what will make you sell it? How do you know that you won't get into the same mindset trap as RIMM investors? The whole "oh, well, they'll come back. The stock is down 10% now. I'm not gonna sell" philosophy.

 

This sounds like a momentum investors approach. Sell just because other people sell?

 

This is the same thing that happened last year in the quarter before the new iPhone release. Stock dropped 5% when they missed earnings due to people waiting for the new iPhone. Demand for the iPhone 5 still seems incredibly strong.

 

-Seems like Europe is an issue right now though.

 

I wouldn't suggest to sell just because other people are selling. If you know more than other market participants know, it might be a good reason to back up the truck and add more. However, I fail to see how anyone can know, with a high degree of certainty anyway, what the future will bring in an industry like this. Many, many have fallen.  Will Apple still reign 5 years from now? The odds are against it, but that doesn't mean they won't still be victorious. I really have no idea.

[VAL9000]

My thoughts on Apple are..

 

Long term, they will continue to be pressured by stiffening competition.  This will result in margin compression or lower market share over time.  What time-frame looks like, we have no idea, but it's probably more than a year and less than ten.  Feel free to argue this all you want, but I take it as an economic axiom: high margin businesses attract competitors, who then destroy industry profits.  We can take about moat this and brand that..  but really, this is consumer electronics.  We're talking about the industry that included the Walkman, Beta, the Discman, Atari 2600, Nintendo NES, and the Mac.  None of which are relevant today.  None of which reigned for more than 10 years.  iProducts and Beta are probably closest in analogy, where iProducts are first mover, better tech, and run on a proprietary system that is tightly controlled..  making Android the VHS du jour.  But I'll leave it at that because board members tend to get very worked up over analogies..  it's just interesting to me.

 

Short term, you're betting on product cycle.  The most recent quarter perfectly reflects that.  iPhone sales are down from 35mm Q1 to 26mm Q2.  What is the reason for this?  Survey says: delaying purchase until the next version of the product is released.  This is remarkable.  You've got a 9mm unit sales step down on an anticipated and as-yet-unannounced product release.  Steve Jobs said that he prefers the consumer market because people vote with their wallets.  Well, here's at least $6bn in revenue that depends on the perceived quality of the iPhone 5.  Keep in mind that those 9mm people have said "I am not buying Apple today" and not "I am buying Apple in 3 months time."  The decision to buy hasn't been made yet, only the decision to not buy.  In other words, Apple must win all of these customers again with the release of iPhone 5.  I suspect that an even greater number of purchases will be delayed this quarter, further upping the ante.

 

I'm with tombgrt on this:  The long term picture isn't clear and the short term picture is a betting man's game.  Well maybe I'm more specifically bearish on AAPL in the long term, and in the short term it's interesting fun but not my cup of tea.

 

[jjlin]

I always think of the Munger quote about evaluating barriers to entry — in this case, if you gave anyone in the world even a trillion dollars, there's no way to even get close to what Apple is doing and will continue to do for the intermediate term.

 

What they are doing is incredibly, incredibly difficult and they have a lock on most of the key resources required to do it: Everything from the components to the manufacturing to even the shipping, not to mention the design talent (nobody comes close), the brand, the distribution network, customer loyalty (I believe a recent survey showed 94% of iPhone owners will buy another iPhone: http://thenextweb.com/apple/2011/08/04/94-of-iphone-users-will-buy-another-most-blackberry-users-just-want-one-already/ ), and most importantly, developer mindshare (Microsoft in the PC era, anyone?). Anyone that does mobile development starts with iOS with Android second. Oh yeah, and the whole iPad thing — creating and utterly dominating the fastest-adopted consumer technology device of all time. When you are making all the profit in an industry and your competitors are struggling to keep up, and you are still dominating even when they are willing to sell at a breakeven to a loss (Kindle fire, Nexus 7), I would say you have a pretty strong position.

 

This company has been setting the pace for the last five years or so and everyone in the industry has been scrambling to figure out how to compete with them and coming up short. That this company trades at a P/E ratio of under 14, not including the $117B in cash, given all this is a bit puzzling unless the explanation is most people fail to understand how utterly they dominate the competition.

 

Disclosure: I woke up earlier than normal to sell some stuff in order to add to my AAPL position this morning anticipating folks reacting to earnings.

 

"For the bulls on Apple, what will make you sell it? How do you know that you won't get into the same mindset trap as RIMM investors? The whole "oh, well, they'll come back. The stock is down 10% now. I'm not gonna sell" philosophy."

 

Stuff to look for:

- The products are no longer great

- Loss of developer mindshare

- Everyone else comes around to my understanding of how and why this company is impossible to beat  ;)

 

[tombgrt]

You are underestimating what $1 trillion dollars can do, especially in technology where things are constantly changing. It's almost arrogant to believe that AAPL will always be on top of future technology that we can't even perceive of yet. They don't have to screw up big to lose market share, a temporary loss of focus or slowdown in innovation in its short product cycles for ex. is enough to make them lose part of the cake. No brand or "customer loyalty" will save them if something better comes along, neither will their distribution network (how is that an advantange for the consumer that will keep competitors out?). This isn't KO. They have an ecosystem but how many people are really bound to it that they can't change? A minority imo. This isn't MSFT's windows + office.

It's bound to happen sooner or later imo and I doubt wether it will be foreseeable.

 

Apple sure has this god-like status in the US... I don't feel it here. You have what you could call 'believers' (most often bound to the ecosystem as well) but most are equally happy to use an Android. The attitude to anything else than Iphone has changed in the last 1-2 years. If you wanted the best phone before that period, you needed an Iphone. A lot of people don't necessarily believe that anymore in my experience. It shows how short these cycles really are.

[DCG]

However, I fail to see how anyone can know, with a high degree of certainty anyway, what the future will bring in an industry like this.

 

There really aren't many industries that you can predict the future with a high degree of certainty.

[Guest valueInv]

Apple sure has this god-like status in the US... I don't feel it here. You have what you could call 'believers' (most often bound to the ecosystem as well) but most are equally happy to use an Android. The attitude to anything else than Iphone has changed in the last 1-2 years. If you wanted the best phone before that period, you needed an Iphone. A lot of people don't necessarily believe that anymore in my experience. It shows how short these cycles really are.

 

It sounds like you don't believe in Apple because of your personal view on their products rather than an objective evaluation of the company and its prospects. The data seems to indicate something very different from what you're saying. I already posted data on how the iPhone was holding its own on this thread yesterday.

 

I also see a contradiction in the points you're making. On one hand you're view on Apple are "Neither bullish nor bearish, I don't know" but then you talk about why they are not likely to not do well.  If you don't know or if its too difficult , how do you know they're not a good investment?

Does it make sense to form an opinion on something you don't understand?

 

[tombgrt]

Just stating the facts of 1) general unpredictability of the future (in general and technology) and 2) my personal environment. Sure, I said "It's bound to happen sooner or later imo and I doubt wether it will be foreseeable."; that wasn't really in line with not forming an opinion. The odds are likely against them in the long term (opinion or fact?) but that doesn't mean I'm bearish. For me it's a bad investment because I don't have a clue what the market will look like in 3-5 years.

 

You have to have some form of opinion on the general predictability of the future and technology to say "I don't know and am neither bullish nor bearish.".

[DCG]

Just stating the facts of 1) general unpredictability of the future (in general and technology) and 2) my personal environment. Sure, I said "It's bound to happen sooner or later imo and I doubt wether it will be foreseeable."; that wasn't really in line with not forming an opinion. The odds are likely against them in the long term (opinion or fact?) but that doesn't mean I'm bearish. For me it's a bad investment because I don't have a clue what the market will look like in 3-5 years.

 

You have to have some form of opinion on the general predictability of the future and technology to say "I don't know and am neither bullish nor bearish.".

 

Sure the law of averages will eventually catch up to them. It's already caught up to Coke, but their ok to invest in?

 

Yes, technology is tough to predict; maybe a bit more than other industries, but let me know an industry that's easy to predict.

 

Even if you mention a company like Coke, were you able to predict about a decade ago that there would be a pretty wide-scale change where people would cut down on cola consumption and switch to water and juice? Coke reacted to this trend by acquiring various different companies, but they've still had a pretty hard time producing strong growth.

 

 

[texual]

I invested in Apple in 2003 and 2004 when I got hold of the original iPod and had a mac. I was one of the only people I knew who used these products and I got many friends interested and became followers. My investment ended in 2010 after the last part of my investment thesis came to a close. I originally invested into the idea that the iPod would be the music player consumers love. Then after iTunes and the laptops become standard college fare, their parents would become hip to them. That ended around 2007 when everyone I knew had a macbook and an ipod. I shifted my investment thesis to the iPhone being a major catalyst. After that the last piece was clear: iPad. I dont see any further successes coming from Apple after these three major, incredible successes. Chances are, even the apple tv will not be such a great product - case in point: after I took my last shares of apple off the table I waited for another slam dunk tech investment. This year I put all that money into MSFT ;)

[Guest valueInv]

I dont see any further successes coming from Apple after these three major, incredible successes. Chances are, even the apple tv will not be such a great product - case in point: after I took my last shares of apple off the table I waited for another slam dunk tech investment. This year I put all that money into MSFT ;)

Why don't you see any further successes? Why do you think AppleTV will fail?

[stahleyp]

Just stating the facts of 1) general unpredictability of the future (in general and technology) and 2) my personal environment. Sure, I said "It's bound to happen sooner or later imo and I doubt wether it will be foreseeable."; that wasn't really in line with not forming an opinion. The odds are likely against them in the long term (opinion or fact?) but that doesn't mean I'm bearish. For me it's a bad investment because I don't have a clue what the market will look like in 3-5 years.

 

You have to have some form of opinion on the general predictability of the future and technology to say "I don't know and am neither bullish nor bearish.".

 

Sure the law of averages will eventually catch up to them. It's already caught up to Coke, but their ok to invest in?

 

Yes, technology is tough to predict; maybe a bit more than other industries, but let me know an industry that's easy to predict.

 

Even if you mention a company like Coke, were you able to predict about a decade ago that there would be a pretty wide-scale change where people would cut down on cola consumption and switch to water and juice? Coke reacted to this trend by acquiring various different companies, but they've still had a pretty hard time producing strong growth.

 

Coke still makes Coke. Fifty years from now, I'll hazard to guess that they'll still make Coke. In 50 years, what do you think is more predictable: Coke will make Coke or Apple will still make phones?

[stahleyp]

I dont see any further successes coming from Apple after these three major, incredible successes. Chances are, even the apple tv will not be such a great product - case in point: after I took my last shares of apple off the table I waited for another slam dunk tech investment. This year I put all that money into MSFT ;)

Why don't you see any further successes? Why do you think AppleTV will fail?

 

You gotta remember that Apple TV has been around since 2007. There is a huge difference in failing and not being a blockbuster product.

[Guest valueInv]

For the bulls on Apple, what will make you sell it?

 

1, When I see Apple fall behind competitors features-wise in a pretty significant way.

2, When I see Apple fall below 10% marketshare in smartphones and tablets

3, When I see them make more than one strategic blunder

4, When I see product quality fall enough to tarnish the brand

5, When I see the core leadership team leave and don't have confidence in the new team

 

How do you know that you won't get into the same mindset trap as RIMM investors?

I didn't get into the RIMM mindset trap. I sold RIMM 6 months after the iPhone came out. I process every piece of Apple info I can get my hands on and constantly question my thesis. I am always scanning for Apple threats. I consider my investment a hypothesis that needs to be constantly validated by data and facts.

 

The whole "oh, well, they'll come back. The stock is down 10% now. I'm not gonna sell" philosophy.

My biggest disappointment is that it didn't fall 10% today.

 

I think you can successfully trade it, but you have to keep that in mind - you're trading it and not investing (well, in the value investing sense).

I have held Apple for over 10 years and not sold a single share. I think that qualifies it as a investment for me. I think it is the best values out there but evaluating it requires a different circle of competence . That said, it does not have a margin of safety like say J&J. But then I don't consider many stocks on this board to have a big margin of safety (RIMM, FTP, even MSFT currently, etc). In many ways, margin of safety seems to be in the eye of the beholder.

 

No one, outside of Apple, can predict where this company will be in 10 years.

I don't think even anyone inside Apple can predict where Apple will be in 10 years. It is just the nature of tech (and many other industries). Do you think Gilette will hold the position it has today in 10 years?

 

http://online.wsj.com/article/SB10001424052702303624004577338103789934144.html

 

Tech is not an isolated vertical. The industry is constantly trying to disrupt other industries and is succeeding in many cases. The winners are frequently not the incumbents.

[Guest valueInv]

I dont see any further successes coming from Apple after these three major, incredible successes. Chances are, even the apple tv will not be such a great product - case in point: after I took my last shares of apple off the table I waited for another slam dunk tech investment. This year I put all that money into MSFT ;)

Why don't you see any further successes? Why do you think AppleTV will fail?

 

You gotta remember that Apple TV has been around since 2007. There is a huge difference in failing and not being a blockbuster product.

Sorry, I don't mean the current product. I mean the new one that Apple is likely working on and that Steve Jobs talked about. Call it iTV, if you will.