AAPL - Apple Inc.

[hyten1]

folks i nibble a little like i said before, just curious when will you initiated a full position (I guess it really depends on your own definition of full position) for me prob 5 to 10% of my aum

 

right now i am sub 1% in appl, like some have said

 

i wish this thing plummets so i can setup a position, sub 400's? that is approx 280 after cash if they can generate 30 to 40bil a yr (how sustainable is that) this will be a nice little winner.

[Guest valueInv]

84% of AT&T smartphone sales were iPhones this quarter.

[Parsad]

folks i nibble a little like i said before, just curious when will you initiated a full position (I guess it really depends on your own definition of full position) for me prob 5 to 10% of my aum

 

right now i am sub 1% in appl, like some have said

 

i wish this thing plummets so i can setup a position, sub 400's? that is approx 280 after cash if they can generate 30 to 40bil a yr (how sustainable is that) this will be a nice little winner.

 

Hi Hyten,

 

That's the thing, we never know how far something will drop.  For us, a full position is 15%...and our max goes up to 25%.  Currently this is a 5% position.  I hope it goes to $300.  Cheers!

[alwaysinvert]

If you priced Apple at the same level as Google's current multiple backing out cash after all current liabilities and debt are paid, Apple would trade at $850-900 a share.  But Google is trading at a somewhat lofty multiple!  So reduce Apple's multiple after backing out cash to 12-15 times.  That would give you a share price of somewhere between $650-750.  Where it was before the current correction. 

 

The market assumed that Apple would grow at 25% plus a year for the next ten years.  Now they think Apple is going to grow at less than 5% a year for the next ten years.  The truth lies somewhere in the middle!  Cheers!

I don't think it's unlikely that top line can grow at 5% a year or even 10% for a long while yet, but bottom line? Maybe buying today will prove correct but there's just no precedent for margins like these in this kind of business keeping steady while keeping/growing volumes. Consumer electronics are among the world's most cutthroat markets. Commoditization and deflation is bound to happen in this particular space too, and not even Apple is absolutely immune to that.

 

I think I'd still rather buy Microsoft and I don't even own that stock.

[polangevin]

RIMM soaring, AAPL crashing -who would have predicted this just a few weeks ago. Short term anything can happen.

 

Don t own any AAPL stock (sold it when it was $70-how smart am I) but own and have bought a lot of their products over the last 10 years + have been willing to pay up for their products. I suspect that this will continue in the future FWIW.

 

I think AAPL will do fine. Expectations just need to be adjusted.

 

Agree that price seems to be irrational- could they just not have any growth, just maintain current profit/market share and just buyback their stock at 7x earnings with their free cash flow-that would result in decent return. (Of course you never know what management will do-maybe they will do something dumb- but with current price I think you have some safety built in.)

 

In fact, if they "just maintain market shares" that means they'll keep growing because the tablet market will be growing at a 20 to 28% annual rate according to IDC and Gartner and the smartphone market is about 12-18%.

[jeffmori7]

If you priced Apple at the same level as Google's current multiple backing out cash after all current liabilities and debt are paid, Apple would trade at $850-900 a share.  But Google is trading at a somewhat lofty multiple!  So reduce Apple's multiple after backing out cash to 12-15 times.  That would give you a share price of somewhere between $650-750.  Where it was before the current correction. 

 

The market assumed that Apple would grow at 25% plus a year for the next ten years.  Now they think Apple is going to grow at less than 5% a year for the next ten years.  The truth lies somewhere in the middle!  Cheers!

 

Well said Sanjeev, as always. Thanks for pointing out the obvious so clearly. I think we could say that growth will stagnate in NA/Europe, but China is such a driver for them.

 

Did you sell your DELL stake or you bought with other funds?

[gokou3]

when you can essentially buy back a 3rd of your outstanding shares with cash on hand, I'd say that's a pretty decent margin of safety.

 

How much of their cash is on shore vs trapped outside US?  Anyone has researched on that?

 

I must say, at this price, I am getting mildly interested.

[Parsad]

If you priced Apple at the same level as Google's current multiple backing out cash after all current liabilities and debt are paid, Apple would trade at $850-900 a share.  But Google is trading at a somewhat lofty multiple!  So reduce Apple's multiple after backing out cash to 12-15 times.  That would give you a share price of somewhere between $650-750.  Where it was before the current correction. 

 

The market assumed that Apple would grow at 25% plus a year for the next ten years.  Now they think Apple is going to grow at less than 5% a year for the next ten years.  The truth lies somewhere in the middle!  Cheers!

 

Well said Sanjeev, as always. Thanks for pointing out the obvious so clearly. I think we could say that growth will stagnate in NA/Europe, but China is such a driver for them.

 

Did you sell your DELL stake or you bought with other funds?

 

We've been averaging out of Dell, so some of those funds went to Apple...as mentioned, Apple is a better company, better competitive advantages, better balance sheet, much more stickier...so you can pay up a bit more with Apple than Dell.  We've got a ton of cash though as alot of our investments went up through 3rd & 4th quarter 2012 and so far 1st quarter 2013.  If it keeps dropping, we'll buy lots more and swing big!  Cheers! 

[Tim Eriksen]

 

Amen. I didn't buy today as I think it will fall further. Next quarter is probably not going to be pretty.

 

That is essentially what Apple said.  Take their estimates (which are no longer low balled) and work it out

                          Mar 2013 Quarter                Mar 2012 Quarter 

Revenues                $42B                                      $39B                          Higher by 8%

Gross Margins          38%                                        47%                        Lower (47% was an unusually high quarter)

Gross Profit              $16B                                      $18.5B                      Lower

R&D, SG&A              $ 3.8B                                    $  3.2B                      Higher (growing faster than sales)

Op Income              $12.1B                                    $15.4B                      Lower by 20%

EPS                          $9.80                                    $12.30                      Lower by 20%

 

Do investors focus on top line 8% growth or bottom line 20% decline?  Betting that they will focus on the top line is dangerous to me. 

[polangevin]

when you can essentially buy back a 3rd of your outstanding shares with cash on hand, I'd say that's a pretty decent margin of safety.

 

How much of their cash is on shore vs trapped outside US?  Anyone has researched on that?

 

I must say, at this price, I am getting mildly interested.

 

69% offshore (basically 97B$) as per Oppenheimer at the conference call.

[polangevin]

 

Amen. I didn't buy today as I think it will fall further. Next quarter is probably not going to be pretty.

 

That is essentially what Apple said.  Take their estimates (which are no longer low balled) and work it out

                          Mar 2013 Quarter                Mar 2012 Quarter 

Revenues                $42B                                      $39B                          Higher by 8%

Gross Margins          38%                                        47%                        Lower (47% was an unusually high quarter)

Gross Profit              $16B                                      $18.5B                      Lower

R&D, SG&A              $ 3.8B                                    $  3.2B                      Higher (growing faster than sales)

Op Income              $12.1B                                    $15.4B                      Lower by 20%

EPS                          $9.80                                    $12.30                      Lower by 20%

 

Do investors focus on top line 8% growth or bottom line 20% decline?  Betting that they will focus on the top line is dangerous to me.

 

How can you conclude that Apple forecast aren't "low balled" anymore? When the analyst asked the question to Oppenheimer on the call, he basically repeated what he said on the prepared remarks. They passed from a single point forecast that they think the can conservatively achieve to a range forecast that they think they can conservatively achieve. Why wouldn't the range be as conservative as the single point forecast?

 

Knowing that iPhone 5 and Macs chanel inventories are now fine should help gross margin record a better level than what we they announced for Q1 so we might see flat earnings again for Q2 and back to growth for Q3 and Q4 from easier comparison standpoint.

[Guest valueInv]

 

Amen. I didn't buy today as I think it will fall further. Next quarter is probably not going to be pretty.

 

That is essentially what Apple said.  Take their estimates (which are no longer low balled) and work it out

                          Mar 2013 Quarter                Mar 2012 Quarter 

Revenues                $42B                                      $39B                          Higher by 8%

Gross Margins          38%                                        47%                        Lower (47% was an unusually high quarter)

Gross Profit              $16B                                      $18.5B                      Lower

R&D, SG&A              $ 3.8B                                    $  3.2B                      Higher (growing faster than sales)

Op Income              $12.1B                                    $15.4B                      Lower by 20%

EPS                          $9.80                                    $12.30                      Lower by 20%

 

Do investors focus on top line 8% growth or bottom line 20% decline?  Betting that they will focus on the top line is dangerous to me.

 

How can you conclude that Apple forecast aren't "low balled" anymore? When the analyst asked the question to Oppenheimer on the call, he basically repeated what he said on the prepared remarks. They past from a single point forecast that they think the can conservatively achieve to a range forecast that they think they can conservatively achieve. Why wouldn't the range be as conservative as the single point forecast?

 

Knowing that iPhone 5 and Macs chanel inventories are now fine should help gross margin record a better level than what we they announced for Q1.

 

They pretty much communicated that they are not lowballing anymore.

[hardincap]

 

Amen. I didn't buy today as I think it will fall further. Next quarter is probably not going to be pretty.

 

That is essentially what Apple said.  Take their estimates (which are no longer low balled) and work it out

                          Mar 2013 Quarter                Mar 2012 Quarter 

Revenues                $42B                                      $39B                          Higher by 8%

Gross Margins          38%                                        47%                        Lower (47% was an unusually high quarter)

Gross Profit              $16B                                      $18.5B                      Lower

R&D, SG&A              $ 3.8B                                    $  3.2B                      Higher (growing faster than sales)

Op Income              $12.1B                                    $15.4B                      Lower by 20%

EPS                          $9.80                                    $12.30                      Lower by 20%

 

Do investors focus on top line 8% growth or bottom line 20% decline?  Betting that they will focus on the top line is dangerous to me.

 

How can you conclude that Apple forecast aren't "low balled" anymore? When the analyst asked the question to Oppenheimer on the call, he basically repeated what he said on the prepared remarks. They past from a single point forecast that they think the can conservatively achieve to a range forecast that they think they can conservatively achieve. Why wouldn't the range be as conservative as the single point forecast?

 

Knowing that iPhone 5 and Macs chanel inventories are now fine should help gross margin record a better level than what we they announced for Q1.

 

They pretty much communicated that they are not lowballing anymore.

 

it was a narrow range they gave estimates for. i cant imagine them being able to forecast that accurately, so i think they're once again lowballing. perhaps not by as much

 

[Guest wellmont]

 

Amen. I didn't buy today as I think it will fall further. Next quarter is probably not going to be pretty.

 

That is essentially what Apple said.  Take their estimates (which are no longer low balled) and work it out

                          Mar 2013 Quarter                Mar 2012 Quarter 

Revenues                $42B                                      $39B                          Higher by 8%

Gross Margins          38%                                        47%                        Lower (47% was an unusually high quarter)

Gross Profit              $16B                                      $18.5B                      Lower

R&D, SG&A              $ 3.8B                                    $  3.2B                      Higher (growing faster than sales)

Op Income              $12.1B                                    $15.4B                      Lower by 20%

EPS                          $9.80                                    $12.30                      Lower by 20%

 

Do investors focus on top line 8% growth or bottom line 20% decline?  Betting that they will focus on the top line is dangerous to me.

 

seems to me they are already focused on the bottom line. the march quarter is not their strongest yet if you annualize it you get close to $40 a share in earnings. (estimates before this release were in the $48 range. The stock is at $450. This is not an expensive stock (1/3 of mv is in cash) even on reduced earnings, which I believe the market is quickly discounting. And if they ever start to get aggressive with returning capital, the shares won't stay here.

[Palantir]

You guys are all making sense. BUT Mr Market deserves respect. My guess - All the momo/growth investors that have piled on to this stock will be looking to get out and value investors pile in, and we have some sort of "market segmentation" effect. I suspect the stock will be in "purgatory" for a while until Apple can come up with a new story and coherently tell Wall Street "We're a moderately-fast growing blue chip that pays regular dividends".

 

 

But that's just my $0.02. I'm a young guy with zero experience on the buy side unlike many of the posters here.

[premfan]

Its looking like apple is a solid buy here. Are the share buybacks the cataylst everyone is seeing?

[Guest valueInv]

You guys are all making sense. BUT Mr Market deserves respect. My guess - All the momo/growth investors that have piled on to this stock will be looking to get out and value investors pile in, and we have some sort of "market segmentation" effect. I suspect the stock will be in "purgatory" for a while until Apple can come up with a new story and coherently tell Wall Street "We're a moderately-fast growing blue chip that pays regular dividends".

 

 

But that's just my $0.02. I'm a young guy with zero experience on the buy side unlike many of the posters here.

 

You're assuming that Apple will do nothing to fix its problems.

[PlanMaestro]

Apple’s Semi-Soft Quarter In Charts.

http://www.splatf.com/2013/01/apple-dec12earnings-charts/

 

http://farm9.staticflickr.com/8496/8412015331_64655f638d.jpg

Screen shot 2013-01-24 at 7.38.27 PM by PlanMaestro, on Flickr

 

http://farm9.staticflickr.com/8497/8413116640_6de1817c39.jpg

Screen shot 2013-01-24 at 7.38.39 PM by PlanMaestro, on Flickr

[stahleyp]

Why do some people make the assumption that apple will continue to innovate? We may have had a taste of what apple will be like without Jobs...perhaps like it was in the 90s? After going through his biography, the man had a ton of involvement in things, even the little things. This one, while intriguing, is in the too hard pile for me.

[Viking]

Will Apple continue to innovate? All we can do here is take Tim Cook at his word and he says they have lots in the pipeline. My assumption is this includes some breakthrough innovation. Yes, this is pure speculation on my part... and this highlights the ket risk in investing in Apple even at crrent levels.

 

One of the challenges with forcasts from Apple is where do they put the innovation in the forcast? Let's assume they plan on launching a new TV in early March - I know this is not going to happen, but let's pretend. Where do they put this in their forecast? Or let's say they plan on launching a new, larger iphone (phablet) in May - do they put this in their fiscal Q3 guidance?

 

My guess is they do not put any of this into the guidance as they do not want to either:

1.) tip off the competition

2.) tip off consumers (so they delay purchase of current items)

 

So regarding forecasts, this leaves analysts basically taking prior year and assuming similar refreshes etc. To the extent Apple DOES LESS innovation then earnings estimates will likely be too high. Should Apple DO MORE innovation then earnings estimates will likely be too low.

 

Obviously the kind of innovation it does also matters:

1.) Breakthrough innovation (i.e. ipod, iphone, ipad) seems to happen about every three years. This is the stuff that is coming in future years and is not really built into any models.

2.) Product Re-Design: my understanding is iphone gets a complete re-do only every two years and this happened last fall. This sort of stuff is built into models.

 

When you combine how secretive the company has to be with the speed of change in consumer electronics right now you get a company that is really impossible for analysts to properly forecast or value. My read is this will simply make Apple a super volatile stock. When it is in the early stage of a new breakthrough innovation (let's assume TV is launched and it is mind blowing and crazy good) the revenue and earnings forcasts will increase a bunch and the stock will rocket - you will have increasing earnings and the market attaching a higher PE multiple to Apple's earnings at the same time (hello . At other times (like right now) Apple will be three years into their last breakthrough innovation, growth and earnings will be slowing/lower. Slowing/lower earnings and lower multiple means a much lower stock price.

[stahleyp]

viking, thanks for that. To play devil's advocate, what else would cook say though? :P

 

anyone who has apple really should read his biography. The dude even went so far as to change their business cards at Next by moving the period on Steve P. (oops!) Jobs! He studied a ton of art and stuff like that and had a super amount of input on their design and aesthetics. Yeah, they have Ive but, according to the biography, steve was quite a bigger influence.

 

also, let's all be honest about future innovation: apple tv hasn't set the world on fire. Could the next product, yeah, but that's a pretty big bet.

[LC]

My issue is there is no margin of safety. As a previous poster mentioned, the momentum/growth investors are probably pulling out. But are the underlying business economics as favorable moving forward?

 

Apple was the first mover for an entire decade. They reinvented the portable CD player. They reinvented the phone/camera/"notebook". What can they reinvent next? Smartphones/phablets are becoming commodities and I don't buy the "stickiness" of their ecosystem argument. In fact I think Google has a stickier ecosystem, but that's another argument.

 

I see Apple going two ways: either they (1) maximize their current products and turn into a mature cash cow of a company and repatriate their cash to return to shareholders, or (2) go the typical tech company route and burn through all their cash trying to reinvent their way to the top of the food chain again. I fear they will follow the latter route, and I don't think there is an obvious product they can reinvent (and integrate into their ecosystem) next.

 

I'd love to hear any alternate perspectives!

[kevin4u2]

Cramer discussing what happened on the conference call. 

 

http://video.cnbc.com/gallery/?play=1&video=3000143376&__source=internal|promo|headerunit|&par=internal

[rkbabang]

My issue is there is no margin of safety. As a previous poster mentioned, the momentum/growth investors are probably pulling out. But are the underlying business economics as favorable moving forward?

 

Apple was the first mover for an entire decade. They reinvented the portable CD player. They reinvented the phone/camera/"notebook". What can they reinvent next? Smartphones/phablets are becoming commodities and I don't buy the "stickiness" of their ecosystem argument. In fact I think Google has a stickier ecosystem, but that's another argument.

 

I see Apple going two ways: either they (1) maximize their current products and turn into a mature cash cow of a company and repatriate their cash to return to shareholders, or (2) go the typical tech company route and burn through all their cash trying to reinvent their way to the top of the food chain again. I fear they will follow the latter route, and I don't think there is an obvious product they can reinvent (and integrate into their ecosystem) next.

 

I'd love to hear any alternate perspectives!

 

In my opinion the TV is the obvious next step.  But I think for Apple to produce iPad or iPhone like sales/profits in TVs the iTV has to be as different from every other TV on the market today as the iPhone was from every other phone on the market when it came out.  If Apple comes out with a TV that just looks nicer, or comes with a slightly better interface for connecting to the web/iTunes, or has some other minor improvements, I don't think people are going to pay a premium.  I already have a TV with Netflix, FB, youTube, built in. These web-enabled TVs are a dime a dozen now. What does the iTV need to have, look like, or do?  That's a good question that I don't know the answer to.

[Viking]

LC, my view is we are going to be blown away by new stuff that comes out over the next few years. I think the ipad has really opened up the possibilies. Up til then you had computers and smart phones. Alternative touch screen devices (to computers and smart phones) are just getting started with tablets leading the way.

 

Here is an interesting video put together by Corning (they want to sell the glass):

 

One frustration I had (about a year ago) is I wanted to use my TV to watch stuff on the internet and to access files on my computer (pictures, video). I have a windows computer. I went on line and read up on how to do it and spent about an hour. I then called the local computer fix it shop and talked to there resident expert who told by not to bother trying to set it up properly as it was too complicated.

 

Why can I not access all of my information on all of my electronic devices: smart phone, tablet, desktop, TV, car console? Simple example, but why do we not have electronic picture frames that we simply tap and update to the picture we want? Why do we not have a music player in a couple of rooms that automatically plays the music we want (I am not talking about a docking station)? Why do we call a TV a TV at all? Is it not simpler to have a bunch of screens (like TV, lapt top, desk top, tablet, smartphone) located throughout our house that all have the same functionality (they can act as TV's, phones, music players, word processors etc). Why do we not have screens in more rooms?

 

We have all sorts of technology out there but much of it is waiting for someone to make it consumer friendly. Some may say much of this is possible today... the opportunity is to make is so simple anyone can take advantage of it (when I hear the stories of 3 year olds and 80 year olds usinf their ipads it puts a smile on my face because it is not so much the technology that does it but the ability to make it easy enough for a 3 or 80 year old to use. I think this is the beauty of Apple that is underappreciated today.

 

It like that Lord on the Rings saying... "and one ring to rule them all". The big play with Apple is the belief that they will be the one to pull all of this together. And at the core of this is the cloud and the OS. Nothing can happen until the cloud is ready. Once the hub is ready then you simply start adjusting your OS and devices to leverage this hub. I do not expect people to buy a bunch of Apple products overnight. However, over time there will be a huge incentive for people to not only stick to the Apple ecosystem but to also convery devices as they need to be replaced.

 

Can anyone compete with Apple? Samsung looks to be in a tough position  (one ring to rule them all) as they do not own Android. There are also questions about how well all the Android products will work together. I don't think xbox is enough for Microsoft.

 

I think there is a very real chance that Apple has this whole thing figured out (scripted out years ago) and they are simply working their play book and getting everything lined up to go. The cash hoard allows them to work the plan without having to worry about quarterly results; they also may deliver a dud and having the cash would give them time to recover. They look to be very deliberate in how they are executing their plan (don't want to overtax the organization) and the fact that all product categories were updated last fall (at the same time) seems strange and hopefully points to some breakthrough innovation in the first part of this year. It may take a couple of years more before we see the complete picture. Personally, I can't wait to see what they come up with; there are so many opportunities Apple probably feels like an undersexed man in a brothel (to quote Mr. Buffett). And this is likely why Cook gets so frustrated in conference calls... he can't say anything other than "the pipeline is full and we feel great about it". And no, I have not been drinking and I don't do drugs!  :)

 

PS: I also liked RIM about 18 months ago (when it was trading in the $50 range). Fortunately I figured out Bailsilie was a dummy and only sustained a flesh wound (love Monty Python). So my track record with tech is pretty pathetic...