AAPL - Apple Inc.

[DCG]

I heard many times o this thread that Buffett would never buy Apple. We'll, he sure wishes he had:

 

http://m.barrons.com/articles/BL-TB-41385

 

 

I completely agree with him that Tim Cook should completely ignore Carl Icahn (as should every one else on the planet).

[Guest valueInv]

I heard many times o this thread that Buffett would never buy Apple. We'll, he sure wishes he had:

 

http://m.barrons.com/articles/BL-TB-41385

 

 

I completely agree with him that Tim Cook should completely ignore Carl Icahn (as should every one else on the planet).

 

I think Icahn makes a valid point in that Apple should buy back as much as possible while the price is cheap. I don't agree that The number is $150b

[Guest valueInv]

Apple Cuts iPhone 5C Orders:

 

http://online.wsj.com/news/article_email/SB10001424052702304864504579138761727258256-lMyQjAxMTAzMDEwNjExNDYyWj

 

Thoughts?  Is this a precursor to price adjustments, or are they going to stick to their guns and work on capturing the $550+ phone market?

 

So people are opting for the more expensive 5s over the cheaper 5c? I wonder how this explains the disruption/commoditization theory......

[Liberty]

http://feedly.com/k/173Ab9i

 

For all of Jobs's genius, he was actually against iTunes for windows, and if he had his way, maybe everything that followed would never have happened -- iPod might have stayed niche, Apple might not have had the resources to do iPhone, etc.

 

Kudos to Schiller and Rubistein.

[txlaw]

Apple Cuts iPhone 5C Orders:

 

http://online.wsj.com/news/article_email/SB10001424052702304864504579138761727258256-lMyQjAxMTAzMDEwNjExNDYyWj

 

Thoughts?  Is this a precursor to price adjustments, or are they going to stick to their guns and work on capturing the $550+ phone market?

 

This could be a precursor to price adjustments.  Or a precursor to reversion to luxury market share. 

 

It's pretty clear to everyone that the iPhone 5C is just a way to disguise the iPhone 5 in new clothing.  Why disguise the iPhone 5?  IMO, because the iPhone 5 is good enough when compared to the 5S, and that poses a problem for Apple in terms of pricing.  Tim Cook says, hey, let's sell iPhone 5's in candy colored shells so that we can keep the pricing high and prevent the iPhone 4 and iPhone 5 (remaining inventory and phones that can go on the secondary market) from dominating the global market for iPhones, thereby decreasing ASPs.  And that will also decrease the number of people from upgrading to used iPhones instead of new ones.   

 

But I'm really not sure why anyone would get a 5C.  I actually played around with one the other day, and I found it to be a bit clunky in terms of feel (not the OS, the phone itself).  Might as well get an iPhone 5S or a used 5 instead if you want a really nice phone.  If you get an iPhone 5, you can put any number of cases on it to show how colorful you are.  And given the hardware problems on the 5S (lot of sensors are out of whack, apparently), the traditional iPhone 5 would be my phone of choice at this moment.

 

Anyways, this holiday season will be a very interesting one.  The Nexus 5 is going to come out.  And rumors are that there will be an LTE version of the Nexus 4 to compete with the likes of the iPhone 4 and iPhone 5c.  And then there are all of the other competitors out there as well.  So we'll get to see if Apple can dominate as they have in the past.

 

I am far more excited about the Mac refresh and the possible iPad Mini retina than the iPhones. 

[Myth465]

http://feedly.com/k/173Ab9i

 

For all of Jobs's genius, he was actually against iTunes for windows, and if he had his way, maybe everything that followed would never have happened -- iPod might have stayed niche, Apple might not have had the resources to do iPhone, etc.

 

Kudos to Schiller and Rubistein.

 

We argued with Steve a bunch [about putting iTunes on Windows], and he said no. Finally, Phil Schiller and I said 'we're going to do it.' And Steve said, 'Fuck you guys, do whatever you want. You're responsible.' And he stormed out of the room." - John Rubenstein

 

---

 

Jobs is funny...

[Viking]

Rumors that come from Apple's supply chain are usually a bunch of smoke and mirrors. Good luck to anyone who tries to use these rumors as an input to their investment decision. Tim Cook has repeatedy warned investors to be careful.

 

Next week we will see more new products from Apple. In two weeks we will get July-Sept business results and managements guidance for Oct-Dec quarter. We will all be in a much better position to comment once we have the facts.

[Guest valueInv]

Apple Cuts iPhone 5C Orders:

 

http://online.wsj.com/news/article_email/SB10001424052702304864504579138761727258256-lMyQjAxMTAzMDEwNjExNDYyWj

 

Thoughts?  Is this a precursor to price adjustments, or are they going to stick to their guns and work on capturing the $550+ phone market?

 

This could be a precursor to price adjustments.  Or a precursor to reversion to luxury market share. 

 

It's pretty clear to everyone that the iPhone 5C is just a way to disguise the iPhone 5 in new clothing.  Why disguise the iPhone 5?  IMO, because the iPhone 5 is good enough when compared to the 5S, and that poses a problem for Apple in terms of pricing.  Tim Cook says, hey, let's sell iPhone 5's in candy colored shells so that we can keep the pricing high and prevent the iPhone 4 and iPhone 5 (remaining inventory and phones that can go on the secondary market) from dominating the global market for iPhones, thereby decreasing ASPs.  And that will also decrease the number of people from upgrading to used iPhones instead of new ones.   

 

But I'm really not sure why anyone would get a 5C.  I actually played around with one the other day, and I found it to be a bit clunky in terms of feel (not the OS, the phone itself).  Might as well get an iPhone 5S or a used 5 instead if you want a really nice phone.  If you get an iPhone 5, you can put any number of cases on it to show how colorful you are.  And given the hardware problems on the 5S (lot of sensors are out of whack, apparently), the traditional iPhone 5 would be my phone of choice at this moment.

 

Anyways, this holiday season will be a very interesting one.  The Nexus 5 is going to come out.  And rumors are that there will be an LTE version of the Nexus 4 to compete with the likes of the iPhone 4 and iPhone 5c.  And then there are all of the other competitors out there as well.  So we'll get to see if Apple can dominate as they have in the past.

 

I am far more excited about the Mac refresh and the possible iPad Mini retina than the iPhones.

 

Yeah, it's all an evil conspiracy by Cook to make Christensen look like a fool.

[RichardGibbons]

So people are opting for the more expensive 5s over the cheaper 5c? I wonder how this explains the disruption/commoditization theory......

 

I think the problem is that the 5c isn't really significantly cheaper, and I think that's probably a mistake (though I agree that the 5s seems to be doing great).

 

I agree with the guy who said this about the Macintosh:

 

What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.

 

It looks to me like they're doing it again.  I'm curious if they'll figure it out....

[Guest valueInv]

So people are opting for the more expensive 5s over the cheaper 5c? I wonder how this explains the disruption/commoditization theory......

 

I think the problem is that the 5c isn't really significantly cheaper, and I think that's probably a mistake (though I agree that the 5s seems to be doing great).

 

I agree with the guy who said this about the Macintosh:

 

What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.

 

It looks to me like they're doing it again.  I'm curious if they'll figure it out....

 

Its not a mistake if it is pushing people to buy more expensive phones. It is a sales technique called anchoring (IIRC).

 

First of all, you are not going to know anything about 5c until after the holidays. Right now, it is mostly the early adopter crowd buying and obviously, they go for the 5S. The target segment for the 5c will get that wallets out after black friday. Anybody judging the 5c right now has no clue how the smartphone market works.

 

BTW, check your facts on the Macintosh. It never made much money during Jobs first tenure. IIRC, it was losing money.  So no, they didn't get greedy.

[Guest valueInv]

My, my what a change in the narrative:

 

http://www.bloomberg.com/news/2013-10-17/jobs-right-as-apple-consumers-prefer-5s-to-cheaper-iphone-tech.html

[Viking]

The smartphone category drives more than 50% of the profit for Apple; the US is the largest smartphone market for Apple.

 

Verizon just released results today and this gives us some insight into how smartphone sales performed at Apple in the US in calendar Q3. iPhone sales grew 26% at Verizon in Q3; total smartphones grew 12% at Verizon so Apple is growing much faster than its comperitors (in aggregate). iPhone now represents 51% of total smartphone sales (up from 46% a year ago). And some models were supply constrained at Verizon at the end of the quarter (5S) and this will push sales into Q4 (which bodes well for Q4 results). Looks to me like pretty good results for Apple.

 

Total smartphones = 7.6 million; growth 12%

iphone = 3.9 million; growth = 26%; share 51% (up from 46%)

[Liberty]

Phone now represents 51% of total smartphone sales (up from 46% a year ago).

 

Their share is actually bigger if you differentiate between devices that are nominally "smartphones" and devices that are actually bought and used as general computing devices.

 

What I mean is there's a very significant number of people who buy devices that could be called smartphones - they run a smartphone OS like Android, they can handle apps and web browsing and video and such - but they are actually used more as feature phones by their users. They make phone calls, send and receive texts, and maybe have one app (Facebook)... The only reason they got something that could be called a 'smartphone' is because cheap android models are basically the same price as dumb phones now. Eventually all phones will nominally be "smartphones", but not all of them will be used the same way...

 

Android's not a monolith (both in users and devices). If we could segment it better and separate real smartphones from what are basically glorified feature phones, and people who want a general computing device in their pocket from those who just want a cellphone, I think we'd see that Apple's share in the market in which they really compete in is even higher.

 

An indication of that is when you look at usage stats; how much web traffic comes from iOS devices vs others. How many dollars are spent on ecommerce sites from iOS vs. the rest. How many apps are installed and used per iOS device vs the rest. etc.

[Viking]

Liberty, yes, not all customers are created equal. When I worked at Kraft Foods 20% of their customer base (high volume customers) purchased products that represented about 80% of all profits at Kraft. With their limited marketing dollar, Kraft tried to get this 20% heavy user to buy one more product (via CRM).

 

The smartphone market likely has the exact same dynamic: 20% of the users likely represent 80% of the profit pool; these customers buy the most expensive devices, take out the most expensive plans at carriers, spend the most on app purchases etc.

 

My guess is Apple currently has the largest share of this 20% customer base. My second guess is all of Apple's efforts are to grow share primarily in this market segment. If Apple is able to continue to grow share with this 20% they will continue to do very well (and be VERY profitable).

[Liberty]

Viking, exactly, like in the desktop and laptop industry. Apple only has a relatively small marketshare, but it has most of the profits.

[Guest valueInv]

Liberty, yes, not all customers are created equal. When I worked at Kraft Foods 20% of their customer base (high volume customers) purchased products that represented about 80% of all profits at Kraft. With their limited marketing dollar, Kraft tried to get this 20% heavy user to buy one more product (via CRM).

 

The smartphone market likely has the exact same dynamic: 20% of the users likely represent 80% of the profit pool; these customers buy the most expensive devices, take out the most expensive plans at carriers, spend the most on app purchases etc.

 

My guess is Apple currently has the largest share of this 20% customer base. My second guess is all of Apple's efforts are to grow share primarily in this market segment. If Apple is able to continue to grow share with this 20% they will continue to do very well (and be VERY profitable).

 

Think of the flip side. The  profits from the 20% supports the 80%.

 

If a competitor takes away the 20%, the whole model falls apart.

This is why each point Apple gains in the high end does disproportionate

harm to Google. Simply looking at who had how much marketshare doesn't

tell you the whole story.

 

[DukeCrow]

But I'm really not sure why anyone would get a 5C.  I actually played around with one the other day, and I found it to be a bit clunky in terms of feel (not the OS, the phone itself).  Might as well get an iPhone 5S or a used 5 instead if you want a really nice phone.  If you get an iPhone 5, you can put any number of cases on it to show how colorful you are.  And given the hardware problems on the 5S (lot of sensors are out of whack, apparently), the traditional iPhone 5 would be my phone of choice at this moment.

 

I'd have to disagree with you on this. I think the 5C feels much better in the hand than the 5S. It is very solid, not so thin that I feel like it might slip out of my hand, but still light and thin enough to not feel clunky. I still wouldn't buy it because of the 5S's improved camera and performance, but I can definitely see how lay people wanting to buy an iPhone and not caring about all the tiny details could be attracted to it. And, of course, the colors are a breath of fresh air for people tired of the same black/white/etc phones.

 

Anyways, this holiday season will be a very interesting one.  The Nexus 5 is going to come out.  And rumors are that there will be an LTE version of the Nexus 4 to compete with the likes of the iPhone 4 and iPhone 5c.  And then there are all of the other competitors out there as well.  So we'll get to see if Apple can dominate as they have in the past.

 

I am far more excited about the Mac refresh and the possible iPad Mini retina than the iPhones.

 

It doesn't seem like the Nexus devices are ever serious competition. They just don't have the distribution and marketing to succeed on the level of iPhones and Galaxies.

 

As an investor, I have zero interest in the Mac refresh. It just doesn't move the needle for Apple anymore. What happens with the iPad mini will be far more interesting, in my opinion.

[DukeCrow]

Interesting study on Facebook mobile advertising.

http://venturebeat.com/2013/10/16/facebook-ad-profit-a-staggering-1790-more-on-iphone-than-android/

 

“Retailers are realizing significantly greater return from audiences on iOS than audiences on Android,” the report says. “For the first three quarters of 2013, RPC [revenue per click] on iOS averaged 6.1 times higher than Android and ROI [return on investment] on iOS averaged 17.9 times higher than Android.”

 

It’s not just that Android monetizes worse than iOS — it actually offers negative return on investment. In other words, while advertising on iOS brings retailer 162 percent more cash than they spend on the ads, advertising on Android returns 10 percent less than the cost of the ads.

 

One caveat that Slagen offered, however, is that the data changes with industry, and that gaming and e-commerce industries, for instance, did not see the same kind of massive iPhone/Android gulf in ROI. Still, customers with iPhones are simply worth more, he said.

 

Akamai also recently released a "State of the Internet" report.

http://www.akamai.com/dl/documents/akamai_soti_q213.pdf

 

The relevant portion of the mobile connectivity section:

Overall, throughout the quarter, Android Webkit trended to an average of just under 38% of requests, while Apple Mobile Safari saw almost 34% of requests. Other mobile browsers seen on cellular networks throughout the quarter included Opera Mini, BlackBerry browser, Google Chrome Mobile, Openwave Mobile Browser, and Microsoft Internet Explorer Mobile.

 

Expanding the data set to include all networks (not just those identified as “cellular”), we again (similar to the first quarter) see a pronounced gap between usage of Android Webkit and Apple Mobile Safari. As shown in Figure 34, usage of Apple Mobile Safari was approximately double that of Android Webkit during the first two months of the second quarter, while June saw it with a lead of approximately 60%. Interestingly, it appears that usage of both Safari and Webkit trended slightly lower over the course of the quarter, while usage of “other” browsers grew between 3– 4x. While not shown on the graph, usage of Microsoft Internet Explorer Mobile appears to have grown from approximately 0.5% at the start of the second quarter to over 7% at the end of the quarter. Averaged across the entire quarter, Apple Mobile Safari accounted for just over 54% of usage, while Android Webkit was responsible just over half of that, at 27.6%.

 

One caveat to the mobile browser usage data:

In June 2012, Akamai launched the “Akamai IO” destination site (http://www.akamai.com/io), with an initial data set that highlights browser usage across PC and mobile devices, connecting via fixed and mobile networks. The original Akamai IO data set came from sampling traffic across several hundred top-tier sites delivering content through Akamai, most of which are focused on a U.S. audience, biasing the data presented in favor of U.S. users. However, the initial release of an updated data source in mid-February 2013 expanded the sample set, providing us with a more global view of the data. Future updates will allow us to provide insight into browser version trends as well as geo-specific trends in upcoming issues of the State of the Internet Report.

[txlaw]

It doesn't seem like the Nexus devices are ever serious competition. They just don't have the distribution and marketing to succeed on the level of iPhones and Galaxies.

 

The Nexus 7 seems to be serious competition.  I agree that the Nexus 4 wasn't, and that was definitely because of distribution and marketing.  I would think Google has learned from this, but we'll see.  They do also have Motorola, which is sort of a schizophrenic way to do things if you ask me.

 

As an investor, I have zero interest in the Mac refresh. It just doesn't move the needle for Apple anymore. What happens with the iPad mini will be far more interesting, in my opinion.

 

I agree on the Mac refresh not really doing much for Apple -- as an investor. 

 

As someone who really likes Apple products, though, it's something I've been waiting for, particularly because they are releasing Mavericks at the same time.  Actually, one of the killer features of Mavericks plus the (new?) Apple TV box is that you can extend your desktop onto your TV (not just mirror your screen).

 

iPad Mini w/ retina will be great as well, if they release it.

[Liberty]

People on a podcast I was listening to recently quipped that the Nexus was created just so Google employees could buy it and pretend that it's what Android devices are.

 

Obviously that's not literally the case, but I don't think the Nexus has much commercial traction outside of certain circles. Seems like a competent device, though, but is that enough?

[DukeCrow]

The Nexus 7 seems to be serious competition.  I agree that the Nexus 4 wasn't, and that was definitely because of distribution and marketing.  I would think Google has learned from this, but we'll see.  They do also have Motorola, which is sort of a schizophrenic way to do things if you ask me.

 

Have you seen any sales estimates? Google doesn't release them, and the only estimate I've seen for the original 7 was around 5 million sold. And even that was likely a WAG based on Asus's reported results.

 

 

As someone who really likes Apple products, though, it's something I've been waiting for, particularly because they are releasing Mavericks at the same time.  Actually, one of the killer features of Mavericks plus the (new?) Apple TV box is that you can extend your desktop onto your TV (not just mirror your screen).

 

Yes, that is a really nice feature of Mavericks. Of course, it is of no use to me yet since I only own a Roku and a Chromecast  ;) I'm waiting on an Apple TV refresh before I buy one. Hopefully, I'll only be waiting about a week or so :)

 

[txlaw]

The Nexus 7 seems to be serious competition.  I agree that the Nexus 4 wasn't, and that was definitely because of distribution and marketing.  I would think Google has learned from this, but we'll see.  They do also have Motorola, which is sort of a schizophrenic way to do things if you ask me.

 

Have you seen any sales estimates? Google doesn't release them, and the only estimate I've seen for the original 7 was around 5 million sold. And even that was likely a WAG based on Asus's reported results.

 

For the new one?  I haven't seen any sales estimates yet, but I'm not really keeping track anyway.

 

You have to keep in mind that, with the Nexus devices, they are doing their job with much smaller sales figures.  Because the Nexus line is not intended to make up most of the Android market share.  They tend to be reference devices for the newest Android OS that the early adopters go for.  Although I think that, had the Nexus 4 been an LTE device that was widely distributed, it could have taken a large chunk of sales away from iPhone -- not having LTE was its major downfall.

 

It's really Nexus + Moto + Galaxy + whatever that needs to be compared to iPhone sales.  I just talk about Nexus to illustrate the "good enough" at low price point potential of the upcoming phones. 

[Liberty]

There are now reports that Apple has boosted 5S production by 75%. Who knows how accurate this is, but it shows why it's dangerous to try to figure out what's going on from these supplier reports because there are so many moving parts and you can't tell what's going on from just one or two items in isolation (ie. the recent thing sbout 5C production being reduced).

[Palantir]

5C is still a high end phone, I don't think anyone should read much into lagging 5C sales. If you're willing to pay 550 for a phone, many would get the 650 phone with the extra features...

 

 

The main worry is when a competitor phone is "good enough" and sells for 450, especially in EMs. I'm in India right now, and I see a lot of Samsungs, Xperias etc. If I was happy with an Xperia, (and Sony has brand value too), don't think I would pay the extra for an iPhone on an Indian salary.

 

Phones in the 450 range are some great phones too.

[Palantir]

Buffett: Yeah, I do not think that companies should be run primarily to please Wall Street, and largely shareholders who are going to sell. I believe in running Berkshire for the shareholders who are going to stay, and not the ones who are going to leave.

 

I agree with this, you need to run a firm with very long term benefits in mind, not for the sake of short termists who only want to leach out cash. Although I do support increased dividends.

 

The bolded part is also a direct refutation of the idea that"Buybacks are better than dividends at any price". Hardly true, because a management's job is to increase value of only continuing shareholders, and not the ones who are selling out.