AAPL - Apple Inc.

[Ross812]

Bookies and card players make the best investors. You have to recognize what you know, what you don't, then handicap the heck out of it. This is essentially what Graham teaches about the balance sheet for liquidation value, handicaps (80% - A/R, 100% cash, 20% prop/equip ect...) It doesn't matter if you are and engineer or a psych major as long as you can be brutally honest with yourself and discount what you don't know. 

 

Apple is a growth stock, if it closed up shop tomorrow you would loose money because it's stock price is not backed by marketable assets. So what is it worth? Analysts say its 5 yr growth rate is 21%, but this year they only grew at 10%. If you think 10% then what is an acceptable PEG for you? 1? So pick this up at a P/E of 10 in which case wait for it to fall another $65.

 

You can argue the Galaxy vs the iPhone. The iPad vs the Surface but what really matters is that the Surface and the Galaxy now exist and consumers have a choice. Will Apple continue to grow like it did? Nope, it has competition. Personally, I am not going to touch it because to me Apple is a profit margin story.  Apple already came out with an iPad mini and now they are rumored to be coming out with a lower cost iPhone. To me, Apple's greatest enemy right now is its self. They are trying to increase volume by being more price competitive which is an experiment which could blow up on them if individuals choose a iXxxx mini instead of their flagship product. Apple's profit margin is 27% while Samsung's is 10%. If Apple takes a 7% profit margin hit (they will still have a 2x profit margin over Samsung!) they have to increase revenue by 34% just to maintain earnings. I am confident that the profit margin will come down as this always happens when you have competition. Apple does have competition, they wouldn't be making the iMini anything if they didn't need to.

[berkshiremystery]

Bookies and card players make the best investors. You have to recognize what you know, what you don't, then handicap the heck out of it. This is essentially what Graham teaches about the balance sheet for liquidation value, handicaps (80% - A/R, 100% cash, 20% prop/equip ect...) It doesn't matter if you are and engineer or a psych major as long as you can be brutally honest with yourself and discount what you don't know. 

 

Apple is a growth stock, if it closed up shop tomorrow you would loose money because it's stock price is not backed by marketable assets. So what is it worth? Analysts say its 5 yr growth rate is 21%, but this year they only grew at 10%. If you think 10% then what is an acceptable PEG for you? 1? So pick this up at a P/E of 10 in which case wait for it to fall another $65.

 

You can argue the Galaxy vs the iPhone. The iPad vs the Surface but what really matters is that the Surface and the Galaxy now exist and consumers have a choice. Will Apple continue to grow like it did? Nope, it has competition. Personally, I am not going to touch it because to me Apple is a profit margin story.  Apple already came out with an iPad mini and now they are rumored to be coming out with a lower cost iPhone. To me, Apple's greatest enemy right now is its self. They are trying to increase volume by being more price competitive which is an experiment which could blow up on them if individuals choose a iXxxx mini instead of their flagship product. Apple's profit margin is 27% while Samsung's is 10%. If Apple takes a 7% profit margin hit (they will still have a 2x profit margin over Samsung!) they have to increase revenue by 34% just to maintain earnings. I am confident that the profit margin will come down as this always happens when you have competition. Apple does have competition, they wouldn't be making the iMini anything if they didn't need to.

 

... and the competition for more generic choices will intensify in a few weeks.

 

Leaked images show 'the next Blackberry' - and it looks suspiciously like an iPhone

2012-12-12 DailyMail UK

http://www.dailymail.co.uk/sciencetech/article-2247092/Blackberry-10-Leaked-images-new-phone-looks-suspiciously-like-iPhone.html

 

[alwaysinvert]

Which discipline makes great investors?  (question posed at those who say engineers don't)

 

Not so much a discipline as those who practice a lifestyle and carry specific traits.  Even-tempered, entrepreneurial, independent thinkers who live frugal lives.  They have to be analytical, but at the same time can simplify a problem into its most basic components, and take a rational view of the possible outcomes. 

 

To tell you the truth, I think Liberal Arts students probably have the best possible chance at being good investors because they've had exposure to diverse disciplines.  Cheers!

+1 on this. That doesn't make the average liberal arts student a better investor than the average engineer, however. Simply because the average liberal arts student is much dumber than the average engineer and therefore more prone to serious mistakes. If you as a liberal arts student however are decent at arithmetic and Bayesian thinking you have a serious edge against the engineers because they generally undervalue worldly wisdom and overvalue technical specifics. I can't even count all the times I have heard engineers laugh at behavioral econ, psychology and even biology.

 

I know a lot of (former) professional card players - many of them instantly grasp the the basics of value investing because they are often well-versed in Bayesian logic. The smart ones who don't get it almost exclusively are engineers or advanced math/physics people - to them EMH is much more appealing. It's neat. It's clean. It's quantifiable. Man meet hammer.

[vinod1]

 

I scored low on the psychopath test that people passed around.   

 

I agree with the comment about common sense.

 

 

I took William Bernstein comment about psychopaths out of context. I think he is really referring to asset allocators, those who can hold on to a specific asset allocation (stock/bond ratio) disregarding mob mentality.

 

Buffett, Munger, Graham, Watsa, etc. hardly fit the psychopath profile.

 

I would say common sense along with intestinal fortitude. It is hard to execute on the common sense when you have already lost some money. To me, it seems finding/valuing a company and buying it at a discount seems to be the easy part. What really matters is what you do when it drops quite a bit as most value opportunities seem to do. This part is the tough one and I think this is where people fail.

 

Vinod

 

[Kraven]

The discussion of the profession that produces the best investors seems entirely off track to me.  I don't think it has anything to do with what profession someone comes from.  To be a good investor takes a modicum of skill to analyze and value a stock and the ability to keep emotions in check.  I am not sure which profession that is, but presumably all jobs have their share of people that can do that from ditch digger to CEO to professional ballplayer to waiter at Friday's.

[Viking]

Here is a somewhat comical/interesting perspective on Apple: http://macdailynews.com/2013/01/12/michael-saylor-if-you-sell-apple-stock-now-you-must-be-a-moron-with-video/

 

What really appeals to me with Apple is the brand value and the ecosystem (software, hardware etc). Apple has to be one of the most desired brands on the planet. As they launch more products, all of which work seamlessly together, they are also building their moat. I still buy computers with Microsoft software because it is easy and allows me to access all my old stuff.

 

Apple is in the process of building a massive user base (with its software at the core); every device it launches it locks in existing customers and brings in new customers. Regarding breakthrough innovation, I don't think they are near being done; although this only happens every 3 to 6 years (and no one knows the timing for the next big idea). Bottom line, I see lots of opportunity for growth for Apple (in both sales a profits). My hang up with Apple has always been the law of large numbers... I am going to put this concern in a box for a while and focus instead on the underlying business which looks impressive. 

[gfp]

You have to love today's closing price on AAPL considering options expiration and 2 years worth of open interest built up in the Jan contracts.

[berkshiremystery]

Just for curiosity seekers....

 

Al Gore buys lots of AAPL

2013-01-18

http://www.tuaw.com/2013/01/18/al-gore-buys-lots-of-aapl/

 

According to Forbes, the politician/environmentalist just spent US$440,000 to buy 59,000 shares of Apple stock. Of course, he exercised stock options that he received for serving on Apple's Board of Directors and bought the stocks at a very, very reasonable $7.475 per share. Based on Apple's closing stock price as of Thursday afternoon, that purchase is worth a cool $30 million.

 

-----

 

http://www.marketwatch.com/investing/stock/aapl/insiders?pid=12333

 

 

[gokou3]

Thought this would be somewhat relevant:

 

http://jeffmatthewsisnotmakingthisup.blogspot.ca/2013/01/the-most-interesting-comment-weve-heard.html

 

  Verizon had their earnings call this morning.  And since they sell a lot of iPhones (among other things), it was worth listening to for a whole host of reasons—not least of which was to hear whether the issue of cell phone subsidies would come up.  Low and behold, it did:

 

Now having said that, on the subsidy side of the house, you can see that the price of the handsets continued to decline. We now have the Windows platform in our mix, and we saw some steady, albeit slow, increase in some of the uptake of that platform. But as we get more and more platforms in the mix -- and now we have RIM out there again -- there is going to the incremental competition, there will be subsidy reduction, as there was in the basic phone history in the ecosystem.

—Verizon CFO Frank Shammo, January 19, 2013

[rkbabang]

Just for curiosity seekers....

 

Al Gore buys lots of AAPL

2013-01-18

http://www.tuaw.com/2013/01/18/al-gore-buys-lots-of-aapl/

 

According to Forbes, the politician/environmentalist just spent US$440,000 to buy 59,000 shares of Apple stock. Of course, he exercised stock options that he received for serving on Apple's Board of Directors and bought the stocks at a very, very reasonable $7.475 per share. Based on Apple's closing stock price as of Thursday afternoon, that purchase is worth a cool $30 million.

 

-----

 

http://www.marketwatch.com/investing/stock/aapl/insiders?pid=12333

 

 

 

Why not?  He invented the internet after all.  Why shouldn't such an engineering genius share in some of the tech industries profits after sacrificing himself by leading a selfless life in public service.  Having the inventor of the internet on the board must have been priceless to a company like Apple. I wouldn't be at all surprised to hear him say that he invented the smartphone.  Thank god for algore will his gifts to humanity never stop?

 

[Guest valueInv]

Thought this would be somewhat relevant:

 

http://jeffmatthewsisnotmakingthisup.blogspot.ca/2013/01/the-most-interesting-comment-weve-heard.html

 

  Verizon had their earnings call this morning.  And since they sell a lot of iPhones (among other things), it was worth listening to for a whole host of reasons—not least of which was to hear whether the issue of cell phone subsidies would come up.  Low and behold, it did:

 

Now having said that, on the subsidy side of the house, you can see that the price of the handsets continued to decline. We now have the Windows platform in our mix, and we saw some steady, albeit slow, increase in some of the uptake of that platform. But as we get more and more platforms in the mix -- and now we have RIM out there again -- there is going to the incremental competition, there will be subsidy reduction, as there was in the basic phone history in the ecosystem.

—Verizon CFO Frank Shammo, January 19, 2013

 

This would be great for Apple.

[hardincap]

why?

 

Thought this would be somewhat relevant:

 

http://jeffmatthewsisnotmakingthisup.blogspot.ca/2013/01/the-most-interesting-comment-weve-heard.html

 

  Verizon had their earnings call this morning.  And since they sell a lot of iPhones (among other things), it was worth listening to for a whole host of reasons—not least of which was to hear whether the issue of cell phone subsidies would come up.  Low and behold, it did:

 

Now having said that, on the subsidy side of the house, you can see that the price of the handsets continued to decline. We now have the Windows platform in our mix, and we saw some steady, albeit slow, increase in some of the uptake of that platform. But as we get more and more platforms in the mix -- and now we have RIM out there again -- there is going to the incremental competition, there will be subsidy reduction, as there was in the basic phone history in the ecosystem.

—Verizon CFO Frank Shammo, January 19, 2013

 

This would be great for Apple.

[Viking]

Here is a very good earnings preview for Q1: http://seekingalpha.com/article/1125031-apple-earnings-preview-can-shares-rebound

[Guest valueInv]

Numbers at Verizon:

 

http://www.pcmag.com/article2/0,2817,2414556,00.asp

 

During a quarter when they couldn't meet demand due to manufacturing issues.

[DCG]

Thought this would be somewhat relevant:

 

http://jeffmatthewsisnotmakingthisup.blogspot.ca/2013/01/the-most-interesting-comment-weve-heard.html

 

  Verizon had their earnings call this morning.  And since they sell a lot of iPhones (among other things), it was worth listening to for a whole host of reasons—not least of which was to hear whether the issue of cell phone subsidies would come up.  Low and behold, it did:

 

Now having said that, on the subsidy side of the house, you can see that the price of the handsets continued to decline. We now have the Windows platform in our mix, and we saw some steady, albeit slow, increase in some of the uptake of that platform. But as we get more and more platforms in the mix -- and now we have RIM out there again -- there is going to the incremental competition, there will be subsidy reduction, as there was in the basic phone history in the ecosystem.

—Verizon CFO Frank Shammo, January 19, 2013

 

This would be great for Apple.

 

Why?

[Guest valueInv]

This would be great for Apple.

Why?

 

Look at the numbers. iPhone outsold all Android devices put together 2 to 1 at the operator which put Android on the map. This is in spite of month long waits for iPhones for about half the quarter. Half of the iPhone sales were 4 and 4S. In other words, people are willing to buy 1, 2 year old devices if the upfront cost is low. People want iPhones, they just can't afford them!

 

If Apple levels upfront costs, it levels the playing field and you should see market share rise (like at US operators). Operators can no longer play one device maker against another by playing games with subsidies. No more 2 year contracts, the operator has less control over the customer. With less control, their ability to bundle things, to differentiate becomes more difficult. They become more of a dumb pipe and more commoditized.

 

Apple gains even more of the customer relationship with say a 2 year financing plan. It has more cash than it rivals to offer financing. It gains leverage over operators. It becomes a reseller of operator SIM cards, disintermediating operators. It can offer better. more profitable plans, bundle different services, etc.

 

As icing on the cake, Apple can better earn interest rate on the cash it deploys for financing.

[Ross812]

Thought this would be somewhat relevant:

 

http://jeffmatthewsisnotmakingthisup.blogspot.ca/2013/01/the-most-interesting-comment-weve-heard.html

 

  Verizon had their earnings call this morning.  And since they sell a lot of iPhones (among other things), it was worth listening to for a whole host of reasons—not least of which was to hear whether the issue of cell phone subsidies would come up.  Low and behold, it did:

 

Now having said that, on the subsidy side of the house, you can see that the price of the handsets continued to decline. We now have the Windows platform in our mix, and we saw some steady, albeit slow, increase in some of the uptake of that platform. But as we get more and more platforms in the mix -- and now we have RIM out there again -- there is going to the incremental competition, there will be subsidy reduction, as there was in the basic phone history in the ecosystem.

—Verizon CFO Frank Shammo, January 19, 2013

 

 

Look at the numbers. iPhone outsold all Android devices put together 2 to 1 at the operator which put Android on the map. This is in spite of month long waits for iPhones for about half the quarter. Half of the iPhone sales were 4 and 4S. In other words, people are willing to buy 1, 2 year old devices if the upfront cost is low. People want iPhones, they just can't afford them!

 

If Apple levels upfront costs, it levels the playing field and you should see market share rise (like at US operators). Operators can no longer play one device maker against another by playing games with subsidies. No more 2 year contracts, the operator has less control over the customer. With less control, their ability to bundle things, to differentiate becomes more difficult. They become more of a dumb pipe and more commoditized.

 

Apple gains even more of the customer relationship with say a 2 year financing plan. It has more cash than it rivals to offer financing. It gains leverage over operators. It becomes a reseller of operator SIM cards, disintermediating operators. It can offer better. more profitable plans, bundle different services, etc.

 

As icing on the cake, Apple can better earn interest rate on the cash it deploys for financing.

 

This sounds like you're reaching. The Verizon CFO says "We are seeing a lot more competition and platform choice in the devices we offer. With more competition we will gradually reduce the subsidies we are giving for phones." I see this to mean, if the iPhone used to be subsidized from $600 to $200 price and now there are four good devices at the $500, we will be subsidizing those to the devices to $200. If Verizon said they were going to do away with subsidies entirely (like T-mobile), I could see Apple start to finance their devices. Verizon doesn't want to get out of the business of subsidizing phones. You pay a $20-30 inflated bill a month for a $400 (600-200) loan from Verizon. They are not getting out of that business anytime soon! If the rumors of the iPhone mini are true then you are going to see Apple putting their software on inferior devices to compete on price. Even if the new device is sold at their typical margin; they will be trading revenue to get more iDevices in the hands of consumers. How can you hear: “there is more competition and we no longer have to subsidize devices to the degree we used to” and reply “competition? great! Now apple will be able to make even more money.”

[DCG]

Thought this would be somewhat relevant:

 

http://jeffmatthewsisnotmakingthisup.blogspot.ca/2013/01/the-most-interesting-comment-weve-heard.html

 

  Verizon had their earnings call this morning.  And since they sell a lot of iPhones (among other things), it was worth listening to for a whole host of reasons—not least of which was to hear whether the issue of cell phone subsidies would come up.  Low and behold, it did:

 

Now having said that, on the subsidy side of the house, you can see that the price of the handsets continued to decline. We now have the Windows platform in our mix, and we saw some steady, albeit slow, increase in some of the uptake of that platform. But as we get more and more platforms in the mix -- and now we have RIM out there again -- there is going to the incremental competition, there will be subsidy reduction, as there was in the basic phone history in the ecosystem.

—Verizon CFO Frank Shammo, January 19, 2013

 

 

Look at the numbers. iPhone outsold all Android devices put together 2 to 1 at the operator which put Android on the map. This is in spite of month long waits for iPhones for about half the quarter. Half of the iPhone sales were 4 and 4S. In other words, people are willing to buy 1, 2 year old devices if the upfront cost is low. People want iPhones, they just can't afford them!

 

If Apple levels upfront costs, it levels the playing field and you should see market share rise (like at US operators). Operators can no longer play one device maker against another by playing games with subsidies. No more 2 year contracts, the operator has less control over the customer. With less control, their ability to bundle things, to differentiate becomes more difficult. They become more of a dumb pipe and more commoditized.

 

Apple gains even more of the customer relationship with say a 2 year financing plan. It has more cash than it rivals to offer financing. It gains leverage over operators. It becomes a reseller of operator SIM cards, disintermediating operators. It can offer better. more profitable plans, bundle different services, etc.

 

As icing on the cake, Apple can better earn interest rate on the cash it deploys for financing.

 

This sounds like you're reaching. The Verizon CFO says "We are seeing a lot more competition and platform choice in the devices we offer. With more competition we will gradually reduce the subsidies we are giving for phones." I see this to mean, if the iPhone used to be subsidized from $600 to $200 price and now there are four good devices at the $500, we will be subsidizing those to the devices to $200. If Verizon said they were going to do away with subsidies entirely (like T-mobile), I could see Apple start to finance their devices. Verizon doesn't want to get out of the business of subsidizing phones. You pay a $20-30 inflated bill a month for a $400 (600-200) loan from Verizon. They are not getting out of that business anytime soon! If the rumors of the iPhone mini are true then you are going to see Apple putting their software on inferior devices to compete on price. Even if the new device is sold at their typical margin; they will be trading revenue to get more iDevices in the hands of consumers. How can you hear: “there is more competition and we no longer have to subsidize devices to the degree we used to” and reply “competition? great! Now apple will be able to make even more money.”

 

I tend to agree with this.

 

The other issue I see facing the smartphone industry is I think the 2-year upgrade cycle can change to more of a 3-year cycle. Over the last decade or so, buying a new phone every 2 years typically meant getting a vastly improved device. Now, as the industry has matured (for lack of a better term), the improvement in smartphones has become more incremental than innovative. I can see people waiting longer periods of time before upgrading their phones.

[Yours Truly]

3-year contracts are the norm here however there has been a push for 2-year contracts but I doubt that will happen as most customers are unwilling to pay a large upfront cost for any device

[VAL9000]

The other issue I see facing the smartphone industry is I think the 2-year upgrade cycle can change to more of a 3-year cycle. Over the last decade or so, buying a new phone every 2 years typically meant getting a vastly improved device. Now, as the industry has matured (for lack of a better term), the improvement in smartphones has become more incremental than innovative. I can see people waiting longer periods of time before upgrading their phones.

 

I fully agree on the spec side.  If you look at phones, we're bumping up against maximums.  1080p 5" screens, 2 gigs of ram, 41MP cameras - these are nearly PC-level specs.  The next couple of iterations are going to be less exciting in terms of hardware specs and more about price competition.  I believe the subsidies will be lifted because the base cost of the phone is dropping through the floor.  Nexus 4 is an amazing phone and you can buy it for $300 unlocked.  Get that down to $200 in a couple of years and the contract part will go away.

 

This is a double-edged sword for carriers.  On one hand they can reduce subsidies.  On the other hand, there's less incentive for customers to sign multi-year contracts.

 

And yes it makes sense that the upgrade cycle will lengthen.  But then the cost component will matter less.  You can upgrade every year for $200, vs. today a new iPhone every three years would be a minimum of $216 per year.

[gokou3]

How can you hear: “there is more competition and we no longer have to subsidize devices to the degree we used to” and reply “competition? great! Now apple will be able to make even more money.”

 

RDF at work, that's how.

[Palantir]

*drumrolll*

[DCG]

Best on EPS, slightly under revenue estimates. Down about 6% at the moment.

[Parsad]

Best on EPS, slightly under revenue estimates. Down about 6% at the moment.

 

Whether on purpose or due to competition, their margins have come down quite a bit, and look to drop another percent in the next quarter.  Revenue growth was gangbusters, but they are making less money on each sale.  More competitive pricing means market share, but it also shrinks profits.  iPads seem to be cannibalizing Mac sales nearly as much as they are killing PC sales.  Cheers! 

[DCG]

So making $13 billion in 3 months is bad, but Netflix not posting a loss results in the stock going up 30%.  Makes sense.