AAPL - Apple Inc.

[Viking]

hardincap, your question regarding the impact on margins is spot on. When you figure it out let me know!  :)

 

Regarding the i-pad line, I don't think there is any doubt that Apple hit a home run by launching the mini. Yes, it did impact margins (significantly). However, by launching the mini Apple maintained its #1 share position in the tablet category. However, the pain to margins will be felt only for about 12 months (as sales on the regular ipad normalize). It looks like Apple will be launching a much improved ipad this fall (less metal around the edges/bezels and much lighter. I think when this happens ipad sales will start to once again show growth year-over-year. And of course ipad mini sales will continue to rocket. Add in all the new changes to iOS on the software side (like multitasking) and I am confident that total profits for the ipod line once again be growing later this year. I will take one year of margin stagnation; we now have two tablet products and Apple is positioned very well in the tablet category for the future.

 

My thinking is if Apple launches a low cost iphone things may play out in a similar way as what we have seen with tablets. There will be some cannibalization of regular iphone sales. Total profit in the iphone category may stagnate for a year. This is a much bigger margin risk with iphones than with ipads because phones drive the vast majority of the profits of Apple. However, if we use ipads as an example it is obvious that Apple should launch a low cost phone. This will further cement their position as the top brand with wealthy consumers (who use their devices to buy things) which will further cement their position as the number 1 platform for developers. At the end of the day, we all need more information to really make any kind of educated guess; there are too many important unknowns.

 

One of the keys for Apple is China Mobile - Apple needs to continue to expand distribution; I will be watching if China Mobile is part of the low cost phone puzzle.

[Guest valueInv]

the incremental change of IOS 6 to 7 is not a driver of aapl business. even though there are going to be folks unhappy with it; it's simply a given that it will incrementally improve. I agree that the underlying OS is now a commodity. it's the plumbing.  the market wants to see something from apple that goes beyond incremental improvements to existing products like PC Phone and tablet. That's why the stock is stuck in the mud.

 

So you sold your AAPL holding then?

[hardincap]

ipad unit sales grew 65% yoy last q, so its certainly continuing to grow. but its not a good comparison because 1) the margin contribution from iphones is multiples of that of ipads, 2) tablets is a much faster growing market, and 3) ipad mini is a complementary product to the ipad; many people own both.

 

if the masses opt to buy the cheaper iphone over iphone 5s and there isnt an offsetting growth in units sold, profits will get squeezed. its unclear how much, because 1) we dont know what the margin of the cheaper iphone will be, 2) we dont know how many people will choose it over 5s, 3) we dont know how much growth there will be in unit sales.

 

lots of unknowns. the important thing to keep in mind is that INNOVATION != PROFITS. iphone mini could be the greatest thing since sliced bread, but that doesn't necessarily mean shareholders will be rewarded. just look at the airline industry.

 

hardincap, your question regarding the impact on margins is spot on. When you figure it out let me know!  :)

 

Regarding the i-pad line, I don't think there is any doubt that Apple hit a home run by launching the mini. Yes, it did impact margins (significantly). However, by launching the mini Apple maintained its #1 share position in the tablet category. However, the pain to margins will be felt only for about 12 months (as sales on the regular ipad normalize). It looks like Apple will be launching a much improved ipad this fall (less metal around the edges/bezels and much lighter. I think when this happens ipad sales will start to once again show growth year-over-year. And of course ipad mini sales will continue to rocket. Add in all the new changes to iOS on the software side (like multitasking) and I am confident that total profits for the ipod line once again be growing later this year. I will take one year of margin stagnation; we now have two tablet products and Apple is positioned very well in the tablet category for the future.

 

My thinking is if Apple launches a low cost iphone things may play out in a similar way as what we have seen with tablets. There will be some cannibalization of regular iphone sales. Total profit in the iphone category may stagnate for a year. This is a much bigger margin risk with iphones than with ipads because phones drive the vast majority of the profits of Apple. However, if we use ipads as an example it is obvious that Apple should launch a low cost phone. This will further cement their position as the top brand with wealthy consumers (who use their devices to buy things) which will further cement their position as the number 1 platform for developers. At the end of the day, we all need more information to really make any kind of educated guess; there are too many important unknowns.

 

One of the keys for Apple is China Mobile - Apple needs to continue to expand distribution; I will be watching if China Mobile is part of the low cost phone puzzle.

[Palantir]

I wish they'd release a phone with the same brushed metal case as the Macbook Air. God that would look nice and sleek.

[Viking]

hardincap, the ipad mini is a great item because it allowed Apple to grow in a new market (smaller tablet market). Similarly, an cheaper iphone will allow Apple to grow sales in the mid-priced phone segment; sales in this segment will largely be incremental sales for Apple and the volumes could (over time) actually be bigger than for the regular iphone. This is a huge and growing segment of the phone market that is currently underserved by Apple (they try to serve it today with their older models). If they launch a cheaper phone I would expect Apple's total phone sales to grow faster than the market; sales growth in emerging markets would be huge; in developed markets the cheaper phone could become the go to device for many first time buyers. My hope is Apple is looking to be skate to where the puck is going and not simply try and milk a profitable item. I think they have a plan to own the smartphone category (not just the high end segment).

 

One big difference is with ipad mini they were first in. They are not first mover in the cheaper iphone market; however, when price is removed from the equation consumers prefer Apple so I would expect the cheaper phone to sell well versus the competition.

 

I remember when Cook was asked earlier this year about why they were only launching one new phone product each year given the size of the market. Cooks answer was that we should look what they did with the ipod. The learning is as the ipod market matured Apple launched over time a number of very different products. I fully expect Apple over the next 12 to 18 months to launch a range of iphone products (cheaper phone and a phone with a larger screen) and also complementary products (something wearable). 

[Guest wellmont]

the incremental change of IOS 6 to 7 is not a driver of aapl business. even though there are going to be folks unhappy with it; it's simply a given that it will incrementally improve. I agree that the underlying OS is now a commodity. it's the plumbing.  the market wants to see something from apple that goes beyond incremental improvements to existing products like PC Phone and tablet. That's why the stock is stuck in the mud.

 

So you sold your AAPL holding then?

 

 

no. :) but it's not a big position. And I am hoping that they will release some new products this year. ;) And I am hopeful that they will manage their capital with more attention to their owners. :)

[Guest valueInv]

the incremental change of IOS 6 to 7 is not a driver of aapl business. even though there are going to be folks unhappy with it; it's simply a given that it will incrementally improve. I agree that the underlying OS is now a commodity. it's the plumbing.  the market wants to see something from apple that goes beyond incremental improvements to existing products like PC Phone and tablet. That's why the stock is stuck in the mud.

 

So you sold your AAPL holding then?

 

 

no. :) but it's not a big position. And I am hoping that they will release some new products this year. ;) And I am hopeful that they will manage their capital with more attention to their owners. :)

So you think that the new products are going to be big enough to offset Apple's IOS problems?

 

You do know that Apple has the "worst capital allocation in history", right?

[DCG]

I think I might've said this before, but possibly the main area I'd like to see Apple lead the pack when it comes to changes with the iPhone 5s is to make the 32GB version the base model at $199 (retail price). I know that might hurt sales of older models (ie...when I'm up for my upgrade this fall, I might get the 32gb 5 compared to a 16gb 5s), but 16GB is really not large enough for retina-screen devices.

 

[Guest wellmont]

 

So you think that the new products are going to be big enough to offset Apple's IOS problems?

 

You do know that Apple has the "worst capital allocation in history", right?

 

the guys over at the verge are not thrilled with it. they basically say a lot of is still a mock up. it's rough. I would like them to release a bigger phone, a cheaper phone, and something that will blow everybody away, on the order of google glass or driver-less cars. :) let people know that there is still some innovation going on and that not everybody who made their money has retired to Carmel. as far a capital allocation they are no longer the worst in recorded history. :)

[Guest valueInv]

Uh-oh, now analysts are starting to use the "s" word:

 

http://finance.yahoo.com/news/samsung-analysts-ask-hard-questions-210603826.html

[Guest valueInv]

With iOS 7, Apple "remixes almost everyone in the industry":

 

http://www.theverge.com/2013/6/11/4418188/apple-ios-7-design-influences

 

It's nice to see an acknowledgment of all the other guys whose "innovations" Apple is incorporating into their new OS. 

 

This is definitely catch up on Apple's part.  More kaizen if you will (which is not a bad thing at all).  I like iOS 7, but I would be worried that Google will preview Key Lime Pie before iOS 7 drops in the Fall, and that we will see something that causes a lot of people to hold off on buying new phones until the holiday season.

 

Also, after watching the Keynote, it still seems that Apple is really lagging on the software and services side.  I laughed out loud when the guy was presenting on iWork and marveling about how this was all "running in the browser."

 

Good to see you're back Txlaw, I have a little nugget for you:

 

http://www.businessweek.com/stories/2007-06-15/clayton-christensens-innovation-brainbusinessweek-business-news-stock-market-and-financial-advice

 

Read the last paragraph - Clayton Christensen applied his disruptive innovate theory to predict the failure of the iPhone when it was introduced in 2007.

 

Enjoy  ;)

 

Christensen had a lot of company back then:

 

http://gigaom.com/2007/11/01/nokia-the-n810-tablet-the-long-view/

[Viking]

Does Apple have a moat? I think switching costs (time and money) are underappreciated, especially as the technology matures accross the various devices: http://blogs.barrons.com/techtraderdaily/2013/06/20/apple-goldman-tries-a-galaxy-s4-finds-significant-iphone-switching-costs/?mod=yahoobarrons

 

At WWDC one priority for Apple was continung to improve the user platform experience - how all devices work individually and also seamlessly together (phone, tablet, pc, tv, car). Based on what I have read it looks like they overdelivered (versus expectations). Should they launch a wearables item (like a watch) stickiness of ecosystem will increase. Should they launch an expanded TV/living room solution stickiness will increase even further. 

 

The one piece of hardware innovation showcased at WWDC was the Mac Pro and it simply blew the hard core crowd away. This product will not be a huge profit generator. However, it demonstrated how Apple continues to innovate TODAY on the hardware side. The updates to the Macbook Air also were great (with battery life lasting 15 hours in some reports).

 

It is clear that Apple is getting a little pissed off about the continuous talk about how they have fallen behind and lost their ability to innovate. All this negative press may actually be a good thing for Apple as it may help the various management teams focus their groups. Great artists often produced their best work when experiencing adversity... let's hope we see the same from Apple moving forward. 

[Guest valueInv]

http://feedproxy.google.com/~r/OmMalik/~3/JL9vh9DKG4o/

 

If this is correct, Apple has doubled both in India and China.

 

This is before a deal with China Mobile and before a low cost iPhone had been released.

 

[txlaw]

Something to keep in mind about all of the "tech" companies we discuss on the board:

 

http://www.youtube.com/watch?feature=player_embedded&v=zut2NLMVL_k

[Grenville]

Something to keep in mind about all of the "tech" companies we discuss on the board:

 

http://www.youtube.com/watch?feature=player_embedded&v=zut2NLMVL_k

 

Nice! thanks for posting.

[bargainman]

The one piece of hardware innovation showcased at WWDC was the Mac Pro and it simply blew the hard core crowd away. This product will not be a huge profit generator. However, it demonstrated how Apple continues to innovate TODAY on the hardware side. The updates to the Macbook Air also were great (with battery life lasting 15 hours in some reports).

 

Can you clarify why you think this is so innovative?  To me it just seemed like a faster machine, faster bus, no internal expansion, nice new design case.  Plus it's about 2 years late!!!  The creative crowd has been asking for an upgrade for 2 years!  Apple didn't even have teh sense to update their current MacPro to industry norms.  I actually know people who traded in their Adobe Creative Suite for Mac to get PC versions since they couldn't justify the cost.  Innovation is also about timing, and Apple has been very late to update this hardware.  I'm not sure they really deserve much credit for innovating on this one...

[Guest valueInv]

The one piece of hardware innovation showcased at WWDC was the Mac Pro and it simply blew the hard core crowd away. This product will not be a huge profit generator. However, it demonstrated how Apple continues to innovate TODAY on the hardware side. The updates to the Macbook Air also were great (with battery life lasting 15 hours in some reports).

 

Can you clarify why you think this is so innovative?  To me it just seemed like a faster machine, faster bus, no internal expansion, nice new design case.  Plus it's about 2 years late!!!  The creative crowd has been asking for an upgrade for 2 years!  Apple didn't even have teh sense to update their current MacPro to industry norms.  I actually know people who traded in their Adobe Creative Suite for Mac to get PC versions since they couldn't justify the cost.  Innovation is also about timing, and Apple has been very late to update this hardware.  I'm not sure they really deserve much credit for innovating on this one...

 

Whether they are late or not depends on what alternatives are available to people making buying decisions, not on how long their product cycles are.

 

They are going to be slow on updating desktops because they are a small and shrinking market. Their resources are better deployed on iPhones, iPads, wearables , TVs.

 

BTW, they were about 10 years 'late' to the tablet and smartphone markets also

[crumlee]

Nice writeup from Klarmanite (thanks for the correction Grenville):

 

AAPL US @ USD 390: World's most valuable brand priced for no growth. Yes, please. Target USD 600.

 

http://klarmanite.com/s/Apple-write-up-HSH.pdf

[Palantir]

Great minds think alike.

 

 

#confirmationbias

[Grenville]

Nice writeup from Seth Klarman:

 

AAPL US @ USD 390: World's most valuable brand priced for no growth. Yes, please. Target USD 600.

 

http://klarmanite.com/s/Apple-write-up-HSH.pdf

 

It's not Seth Klarman, just someone who follows his style.

[beerbaron]

Anybody starting buy around these prices. I'm tempted to make a synthetic short since the puts trade a 66 ad the calls at 55 more upside than downside.

 

BeerBaorn

[ASTA]

I bought today :) but my record on technology stocks is rocky nok and hpq comes to mind.

But as I looked at current holdings thread of the forum there were not many owning it so I am giving Apple some love.   

[Palantir]

I'm tempted to buy more...but there's no obvious catalyst...and I don't know how many more declines I can tolerate. I'll probably add some more at 380....

 

But PE = 9.5. If we back out 100B in cash (!), we get MCap= 274, versus FCF= 41. So a FCF return of 15%....

[hardincap]

Apple's ads sucking: http://appleinsider.com/articles/13/06/27/designed-by-apple-in-california-ads-rank-poorly-in-consumer-survey

 

 

[Guest valueInv]

Apple's ads sucking: http://appleinsider.com/articles/13/06/27/designed-by-apple-in-california-ads-rank-poorly-in-consumer-survey

 

Yes, that is according to agency hired by Samsung  :P

 

BTW, those are not necessarily targeted at consumers. You said that Cook should be doing more PR.

This is it. Its right in front of you. That ad is Cook's message. What he will do and what he won't.

 

It is a lot like the message Jobs sent in the "Think Different' campaign when he took over Apple.