AAPL - Apple Inc.

[Jurgis]

http://nymag.com/intelligencer/2018/12/global-u-s-growth-in-smartphone-growth-starts-to-decline.html

[Gregmal]

China is so important to Apple (sales and production). It makes sense to me that as the relationship between the US and China deteriorates we will see an impact on the financial results of muitinational companies like Apple. It will take time to play out. And it will depend how Bad the relationship gets. A big risk that is very hard for investors to quantify.

 

Good call. Big guidance cut, and now this POS is bringing the rest of the market down with it... Wish I had the fortitude to short this on the "I'll follow Warren" run up of $100 per share.

[gary17]

Warren should stop touching technology stocks... first IBM, now Apple lol

[Viking]

Apple issuing a cut to guidance this large is significant. That it is solely due to China is also instructive. Fedex reported weaker than expected guidance and also cited weakness in China (and Europe).

 

Regarding Apple, i own a little and my chief concern was possible weakness in sales in China (driven by a hatred of Trump, his style and his policies). I think part of Apple’s problem moving forward is Trump’s trade stance in China is starting to bite. I think we are starting to see the effects; the Chinese are going to buy fewer American products. Patriotism is going to kick in.

 

It will be interesting to see what Apple does in response. It makes sense to me that finding a second and possibly a third iPhone assembly region is of utmost importance.

[aws]

I wonder if Apple voluntary stopped repurchases once they knew about the soft sales.  Their diluted shares were 4.85 billion at end of the prior quarter and they guided to 4.77 billion shares in this release.  That and the undiluted shares listed in their 10Q were 4.745 billion on the date of filing versus 4.802 billion at quarter end, so they had already repurchased some 57 million shares in the first six weeks and maybe just 20-30 million more to get us to their updated guidance.  I can't see anyway they could have spent $20 billion like in the past three quarters as they would need to have bought well over 100 million shares back. 

 

That's a bit annoying that they spent ~20 billion in Q3 buying back at like $215/sh but probably bought almost nothing at 150-180/sh this quarter, but I guess if the after hours trading holds up they'll have the chance to buyback at 52 week lows now. 

[johnny]

The guidance cut is not being attributed solely to China.

 

"Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall"

 

As quantifiers go, primarily is quite weak. He could have said "the majority of which is...". It's also a statement about anticipated revenues. I think overall the XS line has disappointed.

 

I also suspect that the majority of the China hit has much much more to do with China's domestic situation than China/America. The Chinese have been making a big deal of weird anti-Apple pro-Huawei stuff, but this feels a bit forced and I'd say they see an opportunity to try and take credit for something that was already happening.

 

Has anybody been paying attention to how they present this "active device installed base" concept? He says they're up 100M units in 12 months, which doesn't really pass the smell test for me--they must be counting Airpods.

 

That's a bit annoying that they spent ~20 billion in Q3 buying back at like $215/sh but probably bought almost nothing at 150-180/sh this quarter, but I guess if the after hours trading holds up they'll have the chance to buyback at 52 week lows now.

 

This is consistent with the entire history of their repurchases. Cook views share buybacks as a way of managing proxies and managing the share price, but a first-order value creation tool.

 

Below $150, I think this is overdone. We're sub-10 PE, on a Q1 revenue drop of like ~5%. The iPhone franchise doesn't seem impaired to me; as we've covered in this thread, we're looking at a cycle stretchout, not user defections. I'll probably be buying tomorrow.

[Spekulatius]

Greater China was about 20% or AAPL’s revenues in 2017, so unless sales in China collapsed by 40%, an 8% revenue cut cannot be caused by China alone. Note also, that this warning occurred after the holiday season in the western world, which is not that relevant in China. Sales overall must have been pretty weak for the holiday season and China, while a contributing factor, is a scapegoat for the huge miss, imo.

[Gregmal]

Apple has the potential to be a slow moving train wreck.

 

Let's see, before Buffett, there were myriad concerns about lack of product innovation post Jobs, iPhone fatigue, waning iPad interest, and IMO some pretty stiff competition, especially from Samsung. All those concerns have done nothing but get bigger and more real, but then Buffett bought in and everyone dismissed all of that and the stock went on an absolute tear, fueled by euphoria and share repurchases. During this binge, China emerged as a major issue. Ignored by investors. And eventually, we'll see(I believe) that the entire crux of the Apple cult thesis will wane too. Essentially gross margins and the belief that coming out with a new phone every year and raising prices 20% would continue with the same insatiable demand is ridiculous. I love Apple products and have had them for over a decade. I use an iPhone 5s and every time I need a new one get a used one on Ebay for about $100. Break it, throw it, drop it in the water, put it in the microwave, lose it, whatever, I can get all the phone I need for the same price as a Motorola flip phone in 2002. Maybe cheaper. So to assume hundreds of millions of devices would continue to be sold, with marginal year to year improvement, fueled by mainly middle class and lower class people paying eye watering prices or carriers footing the bill(despite they themselves riddled with margin pressures galore); LOL yea to me, I don't know how anyone could expect this insanity to continue in perpetuity....It was a staggering run though.

 

 

 

[SHDL]

Well this is the AAPL stock I know, with all these sharp turns in sentiment and insane volatility. 

 

It makes sense to me that finding a second and possibly a third iPhone assembly region is of utmost importance.

 

They are apparently planning to expand their production in India:

 

https://www.reuters.com/article/us-apple-india-exclusive/exclusive-foxconn-to-begin-assembling-top-end-apple-iphones-in-india-in-2019-source-idUSKCN1OQ0M6

[Foreign Tuffett]

Apple has the potential to be a slow moving train wreck.

 

Let's see, before Buffett, there were myriad concerns about lack of product innovation post Jobs, iPhone fatigue, waning iPad interest, and IMO some pretty stiff competition, especially from Samsung. All those concerns have done nothing but get bigger and more real, but then Buffett bought in and everyone dismissed all of that and the stock went on an absolute tear, fueled by euphoria and share repurchases. During this binge, China emerged as a major issue. Ignored by investors. And eventually, we'll see(I believe) that the entire crux of the Apple cult thesis will wane too. Essentially gross margins and the belief that coming out with a new phone every year and raising prices 20% would continue with the same insatiable demand is ridiculous. I love Apple products and have had them for over a decade. I use an iPhone 5s and every time I need a new one get a used one on Ebay for about $100. Break it, throw it, drop it in the water, put it in the microwave, lose it, whatever, I can get all the phone I need for the same price as a Motorola flip phone in 2002. Maybe cheaper. So to assume hundreds of millions of devices would continue to be sold, with marginal year to year improvement, fueled by mainly middle class and lower class people paying eye watering prices or carriers footing the bill(despite they themselves riddled with margin pressures galore); LOL yea to me, I don't know how anyone could expect this insanity to continue in perpetuity....It was a staggering run though.

 

I largely agree with what you're saying, but in Asia iPhones are almost Veblen goods. People will stretch their budgets to buy them because they want to have the same phone as the wealthy people.

 

My take away is that China's economy may be slowing even more rapidly than many suspected.

 

LOL at Apple referring to China's "government-reported GDP growth." The awkward phrasing is a proxy for the awkward situation in which Apple knows the government #s are bunk, but can't risk saying so.

 

Finally, the biggest company in the world blaming its problems on weakness in the 2nd largest economy. will likely tank the markets tomorrow (today in Asia).

 

 

 

 

[orthopa]

Apple has the potential to be a slow moving train wreck.

 

Let's see, before Buffett, there were myriad concerns about lack of product innovation post Jobs, iPhone fatigue, waning iPad interest, and IMO some pretty stiff competition, especially from Samsung. All those concerns have done nothing but get bigger and more real, but then Buffett bought in and everyone dismissed all of that and the stock went on an absolute tear, fueled by euphoria and share repurchases. During this binge, China emerged as a major issue. Ignored by investors. And eventually, we'll see(I believe) that the entire crux of the Apple cult thesis will wane too. Essentially gross margins and the belief that coming out with a new phone every year and raising prices 20% would continue with the same insatiable demand is ridiculous. I love Apple products and have had them for over a decade. I use an iPhone 5s and every time I need a new one get a used one on Ebay for about $100. Break it, throw it, drop it in the water, put it in the microwave, lose it, whatever, I can get all the phone I need for the same price as a Motorola flip phone in 2002. Maybe cheaper. So to assume hundreds of millions of devices would continue to be sold, with marginal year to year improvement, fueled by mainly middle class and lower class people paying eye watering prices or carriers footing the bill(despite they themselves riddled with margin pressures galore); LOL yea to me, I don't know how anyone could expect this insanity to continue in perpetuity....It was a staggering run though.

 

Not picking a fight, just observing after reading your post as I think the thesis for many maybe what you indirectly describe.

 

1. You cite Iphone fatigue, lack of product innovation, stiff competition from Samsung yet you still use a 5s over and over and over it seems???

 

2. You may not be buying a new phone each time but presumably the person selling it to you is? Your very likely an accessory to the upgrade cycle or process of many. Its very unlikely that person just stopped using a phone. They could have switched to samsung but if they are selling a 5s its unlikely they didn't like the product as presumably they had it for years. Your $100 is likely the down payment or partial payment for their new phone etc.

 

It looks like your certainly part of the apple ecosystem.

 

 

 

Secondly didn't Apple go through this a couple of years go with slowing I phone sales? Why cant it just be as simple as the tariffs are working as implied and slowing China down? Recent GDP and PMI seem to confirm this. My immediate take on this is the attention that should be given to how much China is slowing more so then predicting the slow demise of this company.

[Gregmal]

Apple has the potential to be a slow moving train wreck.

 

Let's see, before Buffett, there were myriad concerns about lack of product innovation post Jobs, iPhone fatigue, waning iPad interest, and IMO some pretty stiff competition, especially from Samsung. All those concerns have done nothing but get bigger and more real, but then Buffett bought in and everyone dismissed all of that and the stock went on an absolute tear, fueled by euphoria and share repurchases. During this binge, China emerged as a major issue. Ignored by investors. And eventually, we'll see(I believe) that the entire crux of the Apple cult thesis will wane too. Essentially gross margins and the belief that coming out with a new phone every year and raising prices 20% would continue with the same insatiable demand is ridiculous. I love Apple products and have had them for over a decade. I use an iPhone 5s and every time I need a new one get a used one on Ebay for about $100. Break it, throw it, drop it in the water, put it in the microwave, lose it, whatever, I can get all the phone I need for the same price as a Motorola flip phone in 2002. Maybe cheaper. So to assume hundreds of millions of devices would continue to be sold, with marginal year to year improvement, fueled by mainly middle class and lower class people paying eye watering prices or carriers footing the bill(despite they themselves riddled with margin pressures galore); LOL yea to me, I don't know how anyone could expect this insanity to continue in perpetuity....It was a staggering run though.

 

Not picking a fight, just observing after reading your post as I think the thesis for many maybe what you indirectly describe.

 

1. You cite Iphone fatigue, lack of product innovation, stiff competition from Samsung yet you still use a 5s over and over and over it seems???

 

2. You may not be buying a new phone each time but presumably the person selling it to you is? Your very likely an accessory to the upgrade cycle or process of many. Its very unlikely that person just stopped using a phone. They could have switched to samsung but if they are selling a 5s its unlikely they didn't like the product as presumably they had it for years. Your $100 is likely the down payment or partial payment for their new phone etc.

 

It looks like your certainly part of the apple ecosystem.

 

Not disagreeing, and these discussion IMO are the most valuable.

 

I am certainly part of the "Ecosystem". I love all of it and have bought a MacBook Pro maybe 2 weeks ago. I am just saying, I go through computers maybe one every 5 years and I have only once in my life bought a brand new iPhone. I get the benefit largely of people buying the newest models and chucking away perfectly good phones that happen to be last years model(or 4 years ago model).

 

My main point is that I just don't see how things don't eventually fall off a cliff when the "juice" IMO comes from the insanity that had people making 40K a year pushing $1000 phones every 12-18 months. Or even more disturbing to me, is seeing how many of those people break their phones every couple months and get a new one, but thats another story. I think eventually this dies down because frankly, I haven't really seen anything revolutionary in terms of reasons to upgrade from year to year and it appears that the end consumer may be realizing this finally, as well.

 

So as a company I love AAPL. As an ecosystem it s great. I just think it s going to be challenging maintaining its status as a WS darling. I would also add that I kind of think AAPL falls into the category of "you're better off just buying an index" for 90% of normal investors. Everyone and their mother knows AAPL. Every firm with an analyst covers it. Maybe WB gets a direct line to Tim Cook, but does anyone else really have any sort of edge, or informational advantage/insight that is proprietary here? Most definitely not. Meaning you're either piggy backing someone else(not wise) or basing your conviction on numbers that everyone else in the world can see too, in other words meaning that the market is not really mispricing anything, and in fact just as efficient as it would be with an index fund... Reminds me of an episodes of Billions where they're holding a meeting and one of the lackluster PM's offers up AAPL. Ax goes "people don't pay us 2/20 for Apple"....

[meiroy]

Greater China was about 20% or AAPL’s revenues in 2017, so unless sales in China collapsed by 40%, an 8% revenue cut cannot be caused by China alone. Note also, that this warning occurred after the holiday season in the western world, which is not that relevant in China. Sales overall must have been pretty weak for the holiday season and China, while a contributing factor, is a scapegoat for the huge miss, imo.

 

Disclaimer: I don't follow Apple, don't even like the products.  Regarding China, you mentioned revenues, what about revenue growth in China as a percentage of total Growth? That is, how much of the growth expectations due to China is already built in into the price and what happens if it stops? Also, what happens if a switch is flicked and it goes down by nearly 100% and not 40%? Thanks.

[John Hjorth]

Attached is what I call a rational decryption of the press release with regard to new guidance for the quarter just ended. I hope it appears selfexplanatory, if you refer to the numbers in the top of the press release.

AAPL_-_Decryption_of_Press_Release_20190102_-_20190103.pdf

[alwaysinvert]

I saw someone say that there may be a signficant element of consumer boycott in China against Apple. This strikes me as entirely plausible - and it also puts the arrest of the CFO of Huawei into somewhat new light.

 

If you haven't heard of it, look up the THAAD boycott against South Korea for a precursor to this situation.

[rb]

I saw someone say that there may be a signficant element of consumer boycott in China against Apple. This strikes me as entirely plausible - and it also puts the arrest of the CFO of Huawei into somewhat new light.

 

If you haven't heard of it, look up the THAAD boycott against South Korea for a precursor to this situation.

Well that actually doesn't surprise me at all. I was actually expecting it to happen. It happened with THAAD and South Korea. It also happened in 2014 i believe with Japan. They had some spat over some deserted islands and Japanese car sales in China fell off a cliff. I don't see why it would be different this time around. It's probably not just the Huawei CFO, but the whole trade war thing as well.

[EliG]

CNBC interview with Tim Cook

 

https://www.cnbc.com/video/2019/01/02/apple-tim-cook-revenue-stocks.html

 

[johnny]

I saw someone say that there may be a signficant element of consumer boycott in China against Apple. This strikes me as entirely plausible - and it also puts the arrest of the CFO of Huawei into somewhat new light.

 

If you haven't heard of it, look up the THAAD boycott against South Korea for a precursor to this situation.

 

It is correct that there are a lot of top-down boycott signals being issued (certain companies providing bonuses/incentives for people to switch from Apple to Huawei, etc.) I'm unconvinced that this is truly explanatory. Remember, the PRC government knows exactly what Apple's unit performance is from day-to-day, and if they perceived the substantialy YoY decline (which they certainly did) there's every incentive for them to make it seem like The State/The People have chosen to punish Apple. The alternative, of course, is the much less palatable "general economic slowdown" narrative that would contradict their internal messaging.

 

There's definitely a big rah-rah patriotic element in the average Chinese weibo user, but remember that Apple's overall share in the country is already quite a minority--the consumption habits of the median maoist are immaterial to Apple--it is solely a luxury brand for tier-1-city-dwelling cosmopolitans, and they have not generally struck me as especially likely to go in for this sort of stuff.

[Spekulatius]

Greater China was about 20% or AAPL’s revenues in 2017, so unless sales in China collapsed by 40%, an 8% revenue cut cannot be caused by China alone. Note also, that this warning occurred after the holiday season in the western world, which is not that relevant in China. Sales overall must have been pretty weak for the holiday season and China, while a contributing factor, is a scapegoat for the huge miss, imo.

 

Disclaimer: I don't follow Apple, don't even like the products.  Regarding China, you mentioned revenues, what about revenue growth in China as a percentage of total Growth? That is, how much of the growth expectations due to China is already built in into the price and what happens if it stops? Also, what happens if a switch is flicked and it goes down by nearly 100% and not 40%? Thanks.

 

Revenue growth for China has been 16% in 3017, but actually was  subpar a couple of years before. Fact is that Apple has been struggling in China for a while now. I have no idea about the projections for revenue growth in China, but they better be modest in the near term.

[plato1976]

" they have not generally struck me as especially likely to go in for this sort of stuff" --- you don't know china well  :D

 

I saw someone say that there may be a signficant element of consumer boycott in China against Apple. This strikes me as entirely plausible - and it also puts the arrest of the CFO of Huawei into somewhat new light.

 

If you haven't heard of it, look up the THAAD boycott against South Korea for a precursor to this situation.

 

It is correct that there are a lot of top-down boycott signals being issued (certain companies providing bonuses/incentives for people to switch from Apple to Huawei, etc.) I'm unconvinced that this is truly explanatory. Remember, the PRC government knows exactly what Apple's unit performance is from day-to-day, and if they perceived the substantialy YoY decline (which they certainly did) there's every incentive for them to make it seem like The State/The People have chosen to punish Apple. The alternative, of course, is the much less palatable "general economic slowdown" narrative that would contradict their internal messaging.

 

There's definitely a big rah-rah patriotic element in the average Chinese weibo user, but remember that Apple's overall share in the country is already quite a minority--the consumption habits of the median maoist are immaterial to Apple--it is solely a luxury brand for tier-1-city-dwelling cosmopolitans, and they have not generally struck me as especially likely to go in for this sort of stuff.

[johnny]

I'm not making a comment about China generally, I'm making a comment about the yoga instructor in Shanghai who considers herself to have much more in common with an American yoga instructor than some farmer in Guizhou. That's your iPhone buyer, so that's the person you have to consider when you're wondering if there's going to be a groundswell of patriotic Huawei switchers.

 

Remember during the Iraq war, when all of those patriotic US Americans renamed french fries, poured french wine out in the streets, etc? It's probably very hard to remember, but before that boycott, some Americans used to drink french wine all the time. Now, I don't even know what a bottle of Bordeaux looks like.

[Gregmal]

CNBC interview with Tim Cook

 

https://www.cnbc.com/video/2019/01/02/apple-tim-cook-revenue-stocks.html

 

Eli adding so much value!

[plato1976]

as a Chinese, I am pretty sure the group of "patriots" (esp. those "xiao feng hong") are an reasonably educated group (though not the highest educated) rather than some farmer in Guizhou;

those farmers basically don't care about US-China relation, or iphone, or whatsoever

 

I'm not making a comment about China generally, I'm making a comment about the yoga instructor in Shanghai who considers herself to have much more in common with an American yoga instructor than some farmer in Guizhou. That's your iPhone buyer, so that's the person you have to consider when you're wondering if there's going to be a groundswell of patriotic Huawei switchers.

 

Remember during the Iraq war, when all of those patriotic US Americans renamed french fries, poured french wine out in the streets, etc? It's probably very hard to remember, but before that boycott, some Americans used to drink french wine all the time. Now, I don't even know what a bottle of Bordeaux looks like.

[shalab]

Well done! - looks like the buy backs will have more bang for the buck

 

Attached is what I call a rational decryption of the press release with regard to new guidance for the quarter just ended. I hope it appears selfexplanatory, if you refer to the numbers in the top of the press release.

[cameronfen]

I dont follow apple for the below reason, but isn't anyone worried what happened to Dell or IBM's thinkpad is going to happen to apple? Whatever Einhorn says/use to say, apple manufactures hardware.  People like apple software too, but android is certainly not a hugely inferior software.  I guess they have avoided losing laptop sales to low cost providers, but with iPhone more ubiquitous arent there more marginal customers?  I mean the obvious real reason Apple is doing poorly in China is because of low cost smart phones.  Xiaomi copycats liter the top 10 most used smart phone brands in China.  Now OnePlus is the best selling brand in India.  This seems to me why Apple is doing bad in Asia for a long time. It's not some temporary patriotism thing.  You can now buy a OnePlus 6T for $580 in the US while an iPhone XR costs $750  The phone is not any worse than a 800-1000 dollar Samsung.