AAPL - Apple Inc.

[blainehodder]

buying disney or visa or mc would be a serious miss-allocation of capital for apple, and would fail finance 101. you would have to pay over 30x earnings to capture one of those prizes. The market would scoff at such a deal that would mean entering a business apple has little understanding of, at a time when apple stock is trading at 10x earnings. it would be a surefire way for visa or mc to be valued at 12x earnings, as it would be inside apple. the obvious answer to the too much cash question is a dutch tender auction for some shares at around $550. as far as putting pressure on apple ceo, I would posit that without shareholder pressure apple would not be buying back any stock at all (except to replace compensation issuance) or even paying more than a token dividend.

 

Can you explain your thinking on the tender?  I cannot get my mind around tenders.  Why purposely pay more for an asset than the price that is offered in the market?

 

Imagine if BRK was trading at book value... would Buffett tender at 1.2 times book, or would he scoop up the shares in the open market 20% cheaper?

 

I imagine the only way a tender ever makes sense is when you think your open market purchases will bid the price up past your tender, and for some unknown reason your weighted average of the open market purchases would be higher...  that seems like an unlikely gamble.  Otherwise you just seem to be transferring long term shareholder wealth to the people who sell out.

[Guest wellmont]

what incentive would holders have to sell if you offered them market prices? if they were willing to sell at market prices they would. and buyers are market prices certainly would not be sellers at market prices. tenders are always done at a premium because it's the only way you can get a lot of stock in one bite. if you believe that $550 is under intrinsic value then the purchase creates value. apple CEO said the stock was undervalued at $550. henry singleton barry diller john malone john bryne used dutch tenders many times at premiums to market prices to create long term value. In fact it would not surprise me that once the current brk CEO vacates his position, the bod may soon thereafter initiate a dutch tender offer for brk shares at a premium to the then prevailing market price.

[blainehodder]

what incentive would holders have to sell if you offered them market prices?

 

I guess what I am saying is that a liquid company like Apple should be able to retire meaningful amounts of stock in the open market if they desired.  I could be wrong, but 12M shares trade on average for Apple.  28M on high volume days.  A trading shop could have probably lifted 7M shares today without the market price moving meaningfully upward.  Why not take the slower route instead of spiking the price?

[Guest wellmont]

what incentive would holders have to sell if you offered them market prices?

 

I guess what I am saying is that a liquid company like Apple should be able to retire meaningful amounts of stock in the open market if they desired.  I could be wrong, but 12M shares trade on average for Apple.  28M on high volume days.  A trading shop could have probably lifted 7M shares today without the market price moving meaningfully upward.  Why not take the slower route instead of spiking the price?

 

if they could buy "meaningful" amounts of stock in the open market the price would rise no? besides listen to Apple CEO. he says he is "agnostic" as to the price he pays to buyback stock. this is wrong, but that's his thinking. he isn't making a dent in the cash hoard. he keeps adding cash to his balance sheet. he needs to "lose" some cash quickly. dutch tender is the way to do it. apple is an elephant. elephants move around the jungle very slowly. icahn wants the elephant to move faster.

[Liberty]

I also doubt we'll see a big acquisition. They could certainly partner with Visa and/or Mastercard and/or AXP for a payment system, though. They don't need to run the pipes, just own the important IP over it that makes the experience better and more secure for customers. It's not like Visa will ever own the smartphone hardware, so the best they can do is partner with someone like Apple and make that a differentiator against Mastercard (or vice versa). Apple strongly dislikes being dependent on other companies, but here they could play one against the other and switch if there are problems, and anti-trust will never allow that industry to consolidate.

 

Sales were a bit slow in the US, and while we'll never know, things might have been different if they hadn't screwed up the product mix between the 5c and 5s and supply had been less constrained during the quarter (can't blame them, it's basically guesswork when you do something new). That in itself is not a bad problem to have; you launch something cheaper, but your customers overwhelmingly go for your flagship product... But it's obvious the high-end US market is starting to saturate for everybody.

 

Same with the carrier contract thing. It seems like it's just delaying sales, rather than losing them. This approach by carriers doesn't give an advantage to Android, and we know that iPhone customers are very sticky to the brand and that more android users switch to iphone than vice versa, so it's basically just making their business a bit less seasonal (buy when contract expires rather than whenever Apple launches a new phone).

 

The growth rates in international markets were all pretty impressive, and China should do well too, though it'll ramp up over the year as China Mobile's 4G network rolls out to more cities (only in a few right now).

 

iPhone 6 launch will be particularly interesting because more of China will be ready from day 1, and it should be a much more visible change to go from 5s to 6 than from 5 to 5s. All else being equal, the "S" years are probably always a harder sale to people who don't really understand the internal changes...

 

A few more random thoughts:

 

Television content is moving in the direction of unbundling. That's good for Apple, because if the content owners can't force big expensive bundles on their customers anymore (because of competition from netflix and other over the top stuff), then it doesn't make much difference for them to monetize their content through Comcast or Apple TV/iTunes.

 

I think new category products, whatever they are, should be looked at as both individual new businesses and as part of the Apple ecosystem. So if they launch a cool new wearable device, or a new uber-AppleTV that has storage, a great GPU, a game controller, a bunch of content, and some innovative UI, it'll bring money in on its own if successful, but it'll also make iPhones and iPads and Macs stickier to existing customers and more attractive to new ones because it's all going to integrate together tightly. Same with iOS in the car.

 

So if I'm a iPhone owner and buy the cool new wearable or AppleTV, I'm less likely to switch to Android in the future because I'd lose functionality with these other cool things. And if I'm an Android user and see Apple launch this cool new thing and I want it, I'm more likely to consider also getting an iPhone/iPad next time I upgrade so that I can get the most out of the ecosystem. It's the same as how iPods sold a lot of Macs, and iPhones sold iPads and Macs...

 

In other words, a new category doesn't have to be as big as the iPhone to move the needle (I don't think anything will be as big as that), but as long as it's pretty big and shoves people in the direction of the iPhone and iPad and Mac, and iTunes and the App store, it could make a big difference.

 

I agree that a big dutch tender would be a good way to go, especially if they are as confidant as they say they are in their new product pipeline. Doing it before those are out would probably be best.

[Palantir]

It seems to me the real culprit in Apple's sales is the iPod, those earnings just really collapsed. That being said, I'm disappointed with the performance of the iPad, I think this line has a lot of potential, and potential for expansion, and I think with four different iPads, they should have done better than 7% growth.

 

Also, an iPad 2 at $400 is highway robbery.

[Guest valueInv]

It seems to me the real culprit in Apple's sales is the iPod, those earnings just really collapsed. That being said, I'm disappointed with the performance of the iPad, I think this line has a lot of potential, and potential for expansion, and I think with four different iPads, they should have done better than 7% growth.

 

Also, an iPad 2 at $400 is highway robbery.

 

Their mix is still tilting towards the iPad Mini. Unit growth was 14%.

[thefatbaboon]

I'd be all for a tender.  Worked nicely for General Dynamics back in the day.  The m&a isn't something I was advocating, more my attempt to understand why the capital return they've adopted doesn't actually do anything to reduce a net cash position of $140bn.  Perhaps it's as simple as them not wanting a balance sheet with lots of offshore cash backing onshore borrow.  But the reluctance seems weird given that everyone seems to be doing it these days.

[Guest valueInv]

I'd be all for a tender.  Worked nicely for General Dynamics back in the day.  The m&a isn't something I was advocating, more my attempt to understand why the capital return they've adopted doesn't actually do anything to reduce a net cash position of $140bn.  Perhaps it's as simple as them not wanting a balance sheet with lots of offshore cash backing onshore borrow.  But the reluctance seems weird given that everyone seems to be doing it these days.

 

Apple rarely does things because everyone else is doing them.

 

In the long run, in the tender the most efficient way to return the most capital to shareholders?

It seems to me that the longer the stock is underpriced, the more chances they have to buy it back cheap.

 

Right now, it looks like the cheap buyback window will be open till at least the summer if not fall or longer.

[Guest valueInv]

Good one:

 

http://ben-evans.com/benedictevans/2014/1/28/market-share

 

[Guest valueInv]

There is so much you can learn from this article:

 

http://vintagezen.com/2013/9/26/on-first-thought

[Palantir]

If AAPL's FCF fell by 40% (Say subsidies started shrinking etc and other scenarios), the FCF yield would be 29/331 = 8.3%, which is still cheap. At prices below $500, this is a no brainer....come on Mr Market you can do it!!!!!!!!!!!!!!!!!

[Liberty]

Subsidies for ipads:

 

http://www.macrumors.com/2014/01/29/att-cellular-ipad-discount/

[Steve]

 

FCF was $20b in most recent quarter....

[Guest valueInv]

Another great one:

 

http://www.apple.com/30-years/1-24-14-film/#video-1242014-film

 

They've taken it to the next level.

 

Man, they shoot all these great commercials but you hardly see them on TV.

[fareastwarriors]

Apple Quietly Builds New Networks

 

Company Boosts Internet Infrastructure, Lays Groundwork for More Traffic Amid Broader Ambitions

 

http://online.wsj.com/news/articles/SB10001424052702304851104579361201655365302?mod=WSJ_hp_LEFTWhatsNewsCollection

[Liberty]

Interesting making of from the 30 year mac ad:

 

http://youtu.be/vslQm7IYME4

[Guest valueInv]

Not bad:

 

http://www.sitepoint.com/browser-trends-february-2014-safari-success/

[SpecOps]

I think AAPL is just waiting for a new product to launch and show the market it can still create new trends from nothing. They did it first with iPod, then with iPhone, then iPad. All it takes is the next big thing and the stock will be at growth multiples again.

 

And that could be in 2014

http://www.businessinsider.com/tim-cook-apple-new-products-2014-1

[Guest valueInv]

Apple's competitive advantage:

 

http://www.loopinsight.com/2014/02/05/clarity/

[Palantir]

Steve Wozniak: Apple Should Make an Android Phone

 

http://www.wired.com/gadgetlab/2014/02/woz-interview/

[DCG]

Woz seems to get more insane by the week.

[Guest valueInv]

Looks like we'll see

sapphire glass iPhone 6:

 

http://gigaom.com/2014/02/06/apple-reportedly-acquires-enough-supplies-to-make-200m-sapphire-iphone-displays/

[fareastwarriors]

Apple Repurchases $14B of Own Shares in 2 Weeks

 

CEO Cook Says Company Wanted to Be 'Aggressive' and 'Opportunistic'

 

 

http://online.wsj.com/news/articles/SB10001424052702303496804579367543198542118?mod=WSJ_hp_LEFTTopStories

 

 

- Apple Inc. AAPL  has bought $14 billion of its own shares in the two weeks since reporting financial results that disappointed Wall Street, Chief Executive Tim Cook told The Wall Street Journal.

 

In an interview, Mr. Cook said Apple was "surprised" by the 8% decline in its shares on Jan. 28, the day after it reported quarterly results, and wanted to be "aggressive" and "opportunistic."

 

With the latest purchases, Mr. Cook said Apple had bought back more than $40 billion of its shares over the past 12 months, which Mr. Cook said was a record for any company over a similar span.

 

"It means that we are betting on Apple. It means that we are really confident on what we are doing and what we plan to do," said Mr. Cook, speaking in a conference room at the company's corporate headquarters here. "We're not just saying that. We're showing that with our actions."

 

 

 

We've looked at big companies. We don't have a predisposition not to buy big companies. The money is also not burning a hole in our pocket where we say, 'let's make a list of 10 and pick the best one,'" said Mr. Cook. "We have no problem spending ten figures for the right company, for the right fit that's in the best interest of Apple in the long-term. None. Zero."

[Kiltacular]

Apple Repurchases $14B of Own Shares in 2 Weeks

 

CEO Cook Says Company Wanted to Be 'Aggressive' and 'Opportunistic'

 

 

http://online.wsj.com/news/articles/SB10001424052702303496804579367543198542118?mod=WSJ_hp_LEFTTopStories

 

 

- Apple Inc. AAPL  has bought $14 billion of its own shares in the two weeks since reporting financial results that disappointed Wall Street, Chief Executive Tim Cook told The Wall Street Journal.

 

In an interview, Mr. Cook said Apple was "surprised" by the 8% decline in its shares on Jan. 28, the day after it reported quarterly results, and wanted to be "aggressive" and "opportunistic."

 

With the latest purchases, Mr. Cook said Apple had bought back more than $40 billion of its shares over the past 12 months, which Mr. Cook said was a record for any company over a similar span.

 

"It means that we are betting on Apple. It means that we are really confident on what we are doing and what we plan to do," said Mr. Cook, speaking in a conference room at the company's corporate headquarters here. "We're not just saying that. We're showing that with our actions."

 

 

 

We've looked at big companies. We don't have a predisposition not to buy big companies. The money is also not burning a hole in our pocket where we say, 'let's make a list of 10 and pick the best one,'" said Mr. Cook. "We have no problem spending ten figures for the right company, for the right fit that's in the best interest of Apple in the long-term. None. Zero."

 

Bravo! Extremely impressive