AAPL - Apple Inc.

[Liberty]

Now I'm really confused.  Apple gained marketshare while selling fewer phones into a growing market.  How?

 

They're gaining market share in the segment where they compete, which is the high-end. They're obviously not gaining market share in the low end, which is growing faster than the high-end but is also not profitable.

 

It's like looking at Porsche's market share in the overall car market vs. their market share of the premium segment.

[VAL9000]

i don't own shares in Apple but I like to point out the whole HK is a tax-free region - so when the YUAN and the HKD are at parity ; it make sense to buy in Hong Kong.  People also like shopping in Hong Kong - it's the same as Chinese visitors in LV headquarters in Paris buying lots of bags (one lady I saw once had 20).  These are stuff available in China - people just like to buy them outside of China lol      Ever heard of Chinese buying up all the formula milk in New Zealand / Australia ?

 

HK being a tax-free region is interesting and not something I knew.  Still, I'm going to guess that the cost of traveling and staying in HK far exceeds the cost of paying tax in mainland China..  even when divided across many thousands of dollars bought during an HK shopping spree.

 

iPhone 6s price comparison across Asia:

http://i0.wp.com/www.mobileworldlive.com/wp-content/uploads/2015/10/iphone6stable.png

 

As of Oct 2015, the 6s iPhone in China was selling at about $100-$200 more than in most Asian markets. Hong Kong was the cheapest market in Asia for the 6s. The regulatory approval process in China had setback the launch date by more than a month for iPhone 6 and 6s. See

https://www.techinasia.com/china-regulators-give-final-approval-iphone6

 

As China waited for iPhone to go on sale in mainland, the price of grey market imports skyrocketed to USD 1,600 and in some cases as much as USD 5,000. See

https://www.techinasia.com/china-wait-grey-market-iphones-selling-5000-official-release-date-sight

 

Combine this with the fact that iPhone got released in Hong Kong before any other market and you have a making of a very active grey market.  Chinese new portal Sina carried photos of a Chinese smuggler who was caught carrying 146 iPhones strapped to his belly (i.e. USD 76,000 - $180,000). See

https://www.techinasia.com/gray-market-iphones-china

 

Recently, due to protests against mainland Chinese visitors led a new law to be passed that scraped unlimited-entry visas for residents of Shenzhen visiting Hong Kong. See

http://www.bbc.com/news/world-asia-china-32282029

 

So what was the reason for these protests. If you live in San Francisco Bay Area, the reasons are not too different from the San Francisco locals protesting against tech employees who work in the Bay Area but live in San Francisco and probably causing a surge in prices. See

http://qz.com/616843/negative-news-about-hong-kong-kept-mainland-visitors-away-this-lunar-new-year/

 

Because of the new law, same day visitors have dropped in Hong Kong. See here:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/01-overflow/AAPL%20HK.jpg

 

The point about there being more competition now is valid, but that does not explain why sales in Hong Kong fell by a whooping large number. For those of us who live in a part of the world that is so far away from Hong Kong, I am just explaining the probable cause for this large drop.

 

I get why there's a large drop, thanks I think this is really interesting. 

 

My point is that if they don't buy them in HK then they're going to buy them elsewhere.  Most likely in mainland China.  Taking that one step further, I think saying that the greater China sales drop is central to HK when so much of HK's retail economy is from mainland China is just a deflection.  That's why I'm skeptical of Tim's answer about China weakness really just being an HK thing.

[VAL9000]

Now I'm really confused.  Apple gained marketshare while selling fewer phones into a growing market.  How?

 

They're gaining market share in the segment where they compete, which is the high-end. They're obviously not gaining market share in the low end, which is growing faster than the high-end but is also not profitable.

 

It's like looking at Porsche's market share in the overall car market vs. their market share of the premium segment.

 

So you're saying the high end smartphone segment is shrinking faster than iPhone sales are shrinking?  I find this hard to believe, but:

If yes, watch out.

If no, what am I missing?

 

[Liberty]

Now I'm really confused.  Apple gained marketshare while selling fewer phones into a growing market.  How?

 

They're gaining market share in the segment where they compete, which is the high-end. They're obviously not gaining market share in the low end, which is growing faster than the high-end but is also not profitable.

 

It's like looking at Porsche's market share in the overall car market vs. their market share of the premium segment.

 

So you're saying the high end smartphone segment is shrinking faster than iPhone sales are shrinking?  I find this hard to believe, but:

If yes, watch out.

If no, what am I missing?

 

I realize I didn't answer your question, I kind of jumped in the middle of the stream and answered something different (how it can be possible to gain market share at the high-end while losing overall market share). I don't know how Nielsen gets these numbers, we'll have to look at their report.

[KCLarkin]

Now I'm really confused.  Apple gained marketshare while selling fewer phones into a growing market.  How?

 

Sorry for making an unverifiable claim (i dont trust neilsons numbers). But if you look over the last two or three years, It is hard to say that Apple is facing increased competition in the premium market.

 

But, there is some evidence that the smartphone market is not a growing market, at least last quarter:

https://www.strategyanalytics.com/strategy-analytics/blogs/devices/smartphones/smart-phones/2016/04/28/global-smartphone-shipments-decline-3-percent-in-q1-2016#.VyHunfCs-K1

[giofranchi]

Products are too expensive vs. value delivered. 

 

If what you say is right, I have very wrong ideas about Apple's products (I instead believe they are cheap if compared to the value delivered), and therefore I don't deserve to make any money with this investment of mine.

We will see.

 

Cheers,

 

Gio

[rishig]

China is the largest market for iPhones after the Americas. To be able to answer if the long-term value of Apple is intact, one needs to think about the Chinese consumer preferences. In my prior posts, I had posted evidence that the fall in sales in Hong Kong seem to be due to temporary reasons (and have affected all luxury good companies).

 

Also, if one has to answer why the Chinese choose the iPhone, one has to think of it as a "premium" product. Here is some contradictory evidence that "Apple iPhone, once a Status Symbol in China, is losing its luster":

http://www.nytimes.com/2016/04/28/technology/apple-china-iphone-earnings.html?_r=0

http://www.wsj.com/articles/can-apples-tim-cook-keep-the-iphone-buzzing-in-china-1453775120

 

I have no position here.

[fareastwarriors]

Uncle Carl is out.

 

http://www.cnbc.com/2016/04/28/icahn-we-no-longer-have-a-position-in-apple.html

Icahn: We're out of Apple, and it's China's fault

[Jurgis]

Uncle Carl is out.

 

http://www.cnbc.com/2016/04/28/icahn-we-no-longer-have-a-position-in-apple.html

Icahn: We're out of Apple, and it's China's fault

 

Icahn might be dramatic, but there's some risk that Chinese government could restrict things enough so that Apple phones are no longer attractive to own. That would be a large loss of sales. Not sure how to quantify this risk.

[johnny]

China

 

The China/Apple relationship is interesting. There are obviously constituencies within the party love to mess with Apple, but the country is limited in what it really can do without sparking a massive trade war / diplomatic crisis. In general, a large enough chunk of the Chinese population is sufficiently skeptical about state propaganda that the annual People's Daily attacks on the company don't really impact it that much. Most importantly, skepticism about the party and the media is concentrated in the sliver of Chinese consumers who can entertain the notion of buying Apple products in the first place. So I don't think they can dislodge Apple as a prestige brand in this way.

 

I see the biggest issue/risk being a dispute between the two over data security or privacy. But I'm not sure the party necessarily wants to open up that can of worms. A propaganda assault on Apple over its valuing of privacy over state interests may itself backfire and be destabilizing.

 

Icahn

 

I also don't take Icahn at his word when he gives his reason for exiting. Hey may have exited simply because he figures the easy gains are simply gone. Apple was a "no brainer" not simply because the products were strong and the brand was revered. The key factor for Icahn was, I think, an expectation that Apple was going to transition from being a company with a reputation for a defiantly sub-optimal capital structure to one that generally follows the modern corporate playbook for capital returns. That catalyst has catalyzed, and that was the easy money. He probably realized that, at this point, money on Apple is purely a bet on revenue growth, and decided to move on. I think talking about China specifically just gave him an easy out, while being generally complimentary and positive about the company/Tim.

 

 

[bci23]

I think the stuck cash overseas is a real problem for the company. Investors almost have to discount it because that cash cannot be distributed to shareholders without paying a big chunk of taxes and the reinvestment options are restricted to basically treasuries which yield nothing. The FCF generated in the US is all they can really work with to cover interest on current debt, pay dividends, and buyback stock. The $150b tender carl wanted just isn't in the cards. I think Carl also probably has no confidence in significant tax reform happening anytime soon.

[johnny]

I'd say there is like an 80% chance a repatriation deal gets done in Hillary's first term. They can easily keep the buyback machine going with debt until then.

[philippoc93]

Out of curiosity, what facts guide you towards attributing a probability of 0.8 that a deal will be struck with a Hillary administration?

 

If they can get this done, it would be huge....

[johnny]

Just a soft feeling really. Recall that Obama was trying to get a deal done, but it didn't quite work. I think the factors that prevented it were unique to his administration:

 

1. Obama was a uniquely toxic brand for a lot of Republicans. Making a deal with him was considered politically dangerous (remember Speaker Boehner?) and so there seems to have been a deep reluctance to consider anything short of offers-that-couldn't-be-refused. Since those offers weren't forthcoming, nothing got done.

 

2. There was widespread consensus (delusion) that Obama was "as bad as it could get". That he was sort of a nadir for conservative political power, and so making a big tax deal with him would be like selling during a panic, so to speak. It's easy to forget now, but a -lot- of people expected Romney to win in 2012, including many democrats.

 

For Hillary, here is what I see:

 

1. She is not loved, but to the extent she is disliked, it is for reasons that don't make her as perilous to deal with. She is seen as untrustworthy, scheming, self-interested, dishonest, etc. None of this is quite the same as being perceived by a vocal minority of primary voters as a crypto-communist with an eye towards implementation Shariah law.

 

2. I think it is pretty clear to many conservatives that Obama is nowhere close to as bad as things can get: they simultaneously overestimated how far left Obama was -and- underestimated how far left many voters are willing to go. Observing Hillary, despite all of the structural tailwinds she enjoyed, almost get usurped by a no-apologies, bona-fide socialist has, I think, sent a strong chill down the spines of a lot of intelligent conservatives and business interests, and there is no longer any delusion that simply obstructing her administration and waiting things out until 2020 or 2024 is a viable strategy.

 

Sorry that I couldn't give you the analysis in spreadsheet form. The tone of the general could mess everything up. But if it ends up being Trump v. Hillary, with high-profile pro-business types like Buffett, Bloomberg, etc. all talking up Hillary's economic credibility, she's going to be in a good position to make something happen.

[Palantir]

iPad results still sucky...will they shrink that into an "Other" category?

[Liberty]

iPad results still sucky...will they shrink that into an "Other" category?

 

Probably only if they put the Mac business in "Other" too.

[KCLarkin]

Gotta love a company where you want to put a Nike sized business into the Other category.

[Palantir]

Yeah, except Nike doesn't show 19% YoY sales declines.

[johnny]

Given the iPhone is indisputably a multi-year cycle product, and given the perfectly reasonable claim that the 6 pulled a lot of 2016 (maybe even 2017) demand forward, I don't think it is fair to compare the YOY sales numbers to something as non-seasonal as shoe sales.

[EliG]

 

Echo sold 3 million units. Gets stories that it’s next great business for Amazon.

 

Apple Watch sold 12 million units, gets panned as a flop.

[fareastwarriors]

http://www.cnbc.com/2016/05/02/tim-cook-the-most-important-thing-for-apple-long-term.html

 

Tim Cook on Jim Cramer's Mad Money....

[CorpRaider]

Did Steve Jobs, Bill Gates, Jeff Bezos, Larry Ellison, Zuckerberg, Page or Brin...ever appear on this program?

[Graham Osborn]

I think it's easy to overlook the obvious on AAPL.  Whatever they were before, they reinvented themselves as a mobile hardware company.  And sooner or later, hardware gets commoditized.  If you wanted to dominate the PC, you wanted to be Microsoft or Oracle, not IBM or Xerox.  If you wanted to dominate the Internet, you wanted to be Google or Facebook, not Apple or Samsung.  Characteristically, commodity producers tend to have the lowest multiples right before their largest price declines.  Similarly, this is why software and cloud companies command such high multiples (way too high in some cases).  The tricky thing in tech is commodity producers generally only get one cycle per commodity - whereas a conservatively-financed oil company might enjoy many cycles over a span of decades.

[Guest roark33]

Calling Apple a tech commodity company is sort of a joke, right?  Pricing power does not occur in a commodity, but the higher ASP on an apple vs. samsung device is staggering.  You may argue that apple is becoming a tech commodity business, but I have yet to see that in the pricing.  Apple TV vs chrome cast or kindle vs. iPad or whatever microsoft is selling these days.  If they were a commodity product, Apple's ASP would be declining fairly rapidly.  I just don't see that.  Maybe I am looking in the rearview mirror and that may be the case in 2016, given 2015's explosive numbers, but the current brand loyalty does not evidence a commodity company. 

[Picasso]

Apple is a stock with a big retail investor base, so it kind of makes sense for Tim Cook to go on Mad Money.  He also did the same thing the last time the stock was here when the China thing was weighing on shares in 2015.  Kind of funny because the market was discounting what Tim Cook wasn't seeing yet... Now you are seeing what the market was discounting and he's trying to sell the long-term story.

 

http://www.nytimes.com/2015/08/25/technology/tim-cook-of-apple-seeks-to-quell-china-fears-in-email-to-jim-cramer.html?_r=0

 

I sort of like that Tim Cook is down to earth about certain things, like going on Mad Money or whatever.  He's in a tough spot where everyone seems to be short-term focused and every time the stock falls you get people coming out saying Elon Musk should run Apple, or Tim Cook should be fired, or they should buy Netflix, etc.  He's actually doing a pretty good job.  It's the investor base that seems to be completely unreasonable.  Like Icahn asking for a $200B+ debt issuance to fund a buyback before blowing out of his stake.