AAPL - Apple Inc.

[Guest valueInv]

Interesting gross margin question:

 

"Kathryn Huberty - Morgan Stanley: Peter as you mentioned in the press release today new products will ship this fall and historically gross margins do come down in a product transition quarter? But that's not reflected in your outlook. So can you talk about why this product cycle might be different?

 

Peter Oppenheimer - SVP and CFO: Katie, as I said in my prepared remarks we expect our gross margins to be between 36% and 37% which is consistent with what we expected in the June quarter and on a sequential basis that would mean that gross margin would be largely flat to slightly down. We are on track to have a very busy fall, I'd like to leave it there and go into more detail on October."

 

 

[Guest valueInv]

Apple continues to not innovate:

 

http://m.youtube.com/watch?v=Rt2wEwJb3Ek

[DCG]

Interesting gross margin question:

 

"Kathryn Huberty - Morgan Stanley: Peter as you mentioned in the press release today new products will ship this fall and historically gross margins do come down in a product transition quarter? But that's not reflected in your outlook. So can you talk about why this product cycle might be different?

 

Peter Oppenheimer - SVP and CFO: Katie, as I said in my prepared remarks we expect our gross margins to be between 36% and 37% which is consistent with what we expected in the June quarter and on a sequential basis that would mean that gross margin would be largely flat to slightly down. We are on track to have a very busy fall, I'd like to leave it there and go into more detail on October."

 

The only small surprise to me with his statement is he said October, where I was expecting a September iPhone 5S release.

[txlaw]

I agree with your general point. I think specific to this situation, the market for iphones and ipads are different. So what has been seen happen to iPads may very well as you suggest happen to iPhones too. The point I am arguing is that by the nature of each product (phone vs tablet), the effects will not be as drastic.

 

You might be right.  On the other hand, because phones are so important -- they are, IMO, the single most important computing device we each have -- the competition could heat up so much that the commoditization effects are just as drastic as what has happened with the "PC market," if not more so.

 

Right now, there is ferocious competition going on that AAPL will have to deal with for the foreseeable future.  And not just from the usual players.  You also have people like AMZN and Canonical trying to get a piece of the action.  And then you have the "web as the ultimate platform" evangelists (e.g., Mozilla) who continue to push web technology and standards and who want the major OS's to become irrelevant.

 

I'm very worried about this commoditization risk.  I actually used to believe that the "ecosystem" affect would not result in OS commoditization for AAPL, GOOG, and MSFT, but my thinking has changed on this over time. 

[Guest valueInv]

Interesting gross margin question:

 

"Kathryn Huberty - Morgan Stanley: Peter as you mentioned in the press release today new products will ship this fall and historically gross margins do come down in a product transition quarter? But that's not reflected in your outlook. So can you talk about why this product cycle might be different?

 

Peter Oppenheimer - SVP and CFO: Katie, as I said in my prepared remarks we expect our gross margins to be between 36% and 37% which is consistent with what we expected in the June quarter and on a sequential basis that would mean that gross margin would be largely flat to slightly down. We are on track to have a very busy fall, I'd like to leave it there and go into more detail on October."

 

The only small surprise to me with his statement is he said October, where I was expecting a September iPhone 5S release.

 

October is the date for earnings release?

 

There are 3 possibilities here:

 

1, they don't release new products this quarter

2, they release new products which lowers margins but existing products make up for it

3, they just don't want to talk about margins so they didn't change the numbers

[LC]

You might be right.  On the other hand, because phones are so important -- they are, IMO, the single most important computing device we each have -- the competition could heat up so much that the commoditization effects are just as drastic as what has happened with the "PC market," if not more so.

 

Right now, there is ferocious competition going on that AAPL will have to deal with for the foreseeable future.  And not just from the usual players.  You also have people like AMZN and Canonical trying to get a piece of the action.  And then you have the "web as the ultimate platform" evangelists (e.g., Mozilla) who continue to push web technology and standards and who want the major OS's to become irrelevant.

 

I'm very worried about this commoditization risk.  I actually used to believe that the "ecosystem" affect would not result in OS commoditization for AAPL, GOOG, and MSFT, but my thinking has changed on this over time.

 

I agree 100%. Smartphones are where the big money is and that is where the war will be waged. (As an aside, I don't think the smaller players will matter. The market is now or will soon be a duopoly of Apple vs Android)

 

Apple position in this war is different. Unlike in the old days of Mac vs. PC, Apple is now the favorite and Android is the underdog. It is Apple's war to lose.

 

Personally, I think they will be successful. I believe they have a better product.

 

But that point is moot. I think they are an attractive risk-reward investment because I boil the smartphone business into a binary event, which mimics the PC vs. Apple business of the past.

 

If Apple goes on to win this battle and clearly dominates Android in the US & Intl markets, today's price will be a steal. I think it's hard to argue that point.

 

But if Apple loses this battle (the way they "lost" the PC wars), they will still be active in the smartphone market the way they were active in the PC market-- as a niche, high-end product with a loyal customer base.

 

So in that scenario, will an investment at today's prices prove a loss of capital? I don't think so.

 

That really boils down the investment decision in my mind. I think it's a pretty safe risk-return investment.

 

Whether they put out a better product, whether they have a sticky ecosystem, etc. are all important factors to the business of selling phones. But I leave those decisions to the company.

[Palantir]

I could be wrong, but I think smartphones are just the beginning. I think they can make a range of form factors of smartphones, they can shrink the iPad and sell it as a phablet...they can make it smaller into a watch, bigger into a TV...I think a cheaper iPhone would be GREAT....

 

I am not suggesting that Apple should take the above suggestions, but that there are many options for expansion.

 

 

A new product that works into the iOS framework would be great and entrench their moat while introducing new users into it. I think an iOS Macbook Air like, dare I say, Surface could be very good, especially for students and younger people.

[VAL9000]

And then you have the "web as the ultimate platform" evangelists (e.g., Mozilla) who continue to push web technology and standards and who want the major OS's to become irrelevant.

 

I think this is the most important long-term trend developing today.  If it gains critical mass then both the OS and the underlying hardware will become commodity plays.  Everything will be about operating on the web layer, which is a huge win.

 

Apps are this century's 8-tracks.  You heard it here first.

 

[Guest wellmont]

firstadopter ‏@firstadopter 5m

 

New $GOOG Nexus 7 at $229 kicks $329 $AAPL iPad Mini's ass

Collapse

 

    Reply

    Retweet

    Favorite

 

9:35 AM - 24 Jul 13 · Details

 

[DCG]

And then you have the "web as the ultimate platform" evangelists (e.g., Mozilla) who continue to push web technology and standards and who want the major OS's to become irrelevant.

 

I think this is the most important long-term trend developing today.  If it gains critical mass then both the OS and the underlying hardware will become commodity plays.  Everything will be about operating on the web layer, which is a huge win.

 

Apps are this century's 8-tracks.  You heard it here first.

 

People have been saying that since the original iPhone was released though. Not to say that we're not a bit closer to that now, but there are still reasons to use apps over browser-based web apps for now.

[DCG]

firstadopter ‏@firstadopter 5m

 

New $GOOG Nexus 7 at $229 kicks $329 $AAPL iPad Mini's ass

Collapse

 

    Reply

    Retweet

    Favorite

 

9:35 AM - 24 Jul 13 · Details

 

Looks like they mainly just improved the resolution of the original Nexus 7.

 

Did they improve the web-browsing on it? I own the original Nexus 7 and while it's fine for reading (which is what I use it for), the web browser experience is awful. The wider screen of the iPad mini makes complete sense once you use the Nexus 7 for a while.

 

I can see myself selling my Nexus 7 and large iPad for an iPad mini with a retina screen. I was also hoping my daughter would use the Nexus instead of the iPad, but the selection of kids apps available for Android is awful.

 

The new Nexus 7 is a good value at $229 though.

 

[Guest wellmont]

 

Looks like they just improved the resolution of the original Nexus 7.

 

Did they improve the web-browsing on it? I own the original Nexus 7 and while it's fine for reading (which is what I use it for), the web browser experience is awful. The wider screen of the iPad mini makes complete sense once you use the Nexus 7 for a while.

 

I can see myself selling my Nexus 7 and large iPad for an iPad mini with a retina screen. I was also hoping my daughter would use the Nexus instead of the iPad, but the selection of kids apps available for Android is awful.

 

The new Nexus 7 is a good value at $229 though.

 

lots of improvements. most people are attracted to significantly lower prices for about the same value. you're mileage may vary.

[Palantir]

On the other hand, if people like Apple's user experience, they may as well invest in the $330 instrument. It is not that much more expensive. People will pay more to get good stuff.

[Guest wellmont]

On the other hand, if people like Apple's user experience, they may as well invest in the $330 instrument. It is not that much more expensive. People will pay more to get good stuff.

 

I like to pay less for good stuff. most people do. that's why this tablet, which by the way is going to have greatly expanded global distribution, is going to give higher priced tablets lots of trouble.

[Palantir]

People pay less if its a recurring expense like food, milk, electricity. But a tablet is a once in a few years investment, it's not the same.

[Guest wellmont]

People pay less if its a recurring expense like food, milk, electricity. But a tablet is a once in a few years investment, it's not the same.

 

I still believe people like to pay less for the same or better experience. whether it's food clothing shelter or tablets. your mileage may vary. I like to pay less and get moar.

[Palantir]

And most people don't necessarily agree with you.

 

Otherwise Mercedes would be out of business...

[Guest wellmont]

And most people don't necessarily agree with you.

 

Otherwise Mercedes would be out of business...

 

I don't think your analogy is a good one. but that's what makes a market.

[rkbabang]

And most people don't necessarily agree with you.

Otherwise Mercedes would be out of business...

 

No one is saying Apple will go out of business, but Mercedes sold 1.42M cars in 2012 (including Mercedes, Smart, and Maybach brands), while Toyota sold 9.75M and GM 9.29 million.

 

[hyten1]

i don;t think the analogy with cars is quite correct

 

the biggest difference is the ecosystem. in smartphone/pc/tablet space you can't really have a one off device (like in the car world, were some company can be a very special unique one off car and it can sell and make money, for example the zonda etc.)

 

the point is in pc/tablet/smartphone space, most likely winner takes all (and everyone else just left with very niche product/service, i guess similar to what happen to PC). more expensive device are probably differentiate by hardware and level of service.

 

so the question is who will be the winner and everyone else is, well "everyone else"

 

so the question is, what happens to these company (goog, msft, appl)  in the following scenarios

 

1. andriod wins

2. iOS wins

3. no one wins (OS is a commodity)

4. god for bid windows wins.

 

 

I think one key thing is all these company need to have service that is OS agnostic, that is the key. i think the worst position for that is appl, then again if iOS wins, it doesn't matter as much.

 

hy

 

 

 

 

 

[Guest valueInv]

People pay less if its a recurring expense like food, milk, electricity. But a tablet is a once in a few years investment, it's not the same.

 

I still believe people like to pay less for the same or better experience. whether it's food clothing shelter or tablets. your mileage may vary. I like to pay less and get moar.

 

C'mon Wellmont, don't you want to talk about something more interesting like iPhone marketshare outside US or the "worst capital allocation in corporate history"?

[Guest wellmont]

"apple had a weak quarter"

 

http://www.bloomberg.com/video/breaking-down-apple-s-earnings-report-Ee7vYfSTTVW439P_ISZFQQ.html

[DCG]

They should just let David Einhorn run the business, right Wellmont?

[Guest valueInv]

And then you have the "web as the ultimate platform" evangelists (e.g., Mozilla) who continue to push web technology and standards and who want the major OS's to become irrelevant.

 

I think this is the most important long-term trend developing today.  If it gains critical mass then both the OS and the underlying hardware will become commodity plays.  Everything will be about operating on the web layer, which is a huge win.

 

Apps are this century's 8-tracks.  You heard it here first.

 

Are 8 tracks slower than mp3 players?

 

http://sealedabstract.com/rants/why-mobile-web-apps-are-slow/

[Viking]

I think most people are greatly undervaluing the longevity of Apple and Android ecosystems. Most people have made an enormous investment in money and, just as importantly, time in one ecosystem or the other. I think the TIME investment people have made to learn an ecosystem is way underappreciated.  Most people will learn the logic of one or the other. This will take many, many hours and will normally be a very fulfilling experience (of discovery). They will then add more devices (phone, then tablet, then PC etc) and learn how to get the most out of the new device and marvel at how seamlessly it works with the first (and second) device.

 

The key here is it takes months for the average person to become comfortable with a new ecosystem. (I am not talking about techies here or people who love to tinker with electronic devices). Many people (boomers) are at an age where they ARE NOT looking for new things; people get very conservative as they age; they also DO NOT like change (or to have to learn new things).

 

And the more devices each ecosystem roles into their ecosystem the more sticky it becomes. MP3 player, phone, tablet, computer, TV; the car is coming for Apple with 2014 models; we have seen lots of speculation about wearable devices tied to health coming in 2014. 

 

A friend of mine is a computer programmer; very bright fellow and also a thinker and very practical. I asked him a few months ago what his ecosystem was... Apple was the answer. I asked why; he said it is easy and it works well. His whole family is on Apple products (ipod for daugher; iphones for older son, wife and himself; ipad; imac. He has no plans to change as he loves the experience; he told me no sane man would force entire family (daughter, son, wife and himself) to learn a new ecosystem or spend a bunch of money to convert all the hardware to a different ecosystem. This is just one example; I do think it is representative of a large part of Apple's North American business.

 

People are simply too busy with their daily lives to contemplate switching ecosystems when what they have works well. Further, if you already own a bunch of devices and if you want to add a tablet will $100 be enough of a price difference to get you to purchase off ecosystem (where you have already spent a couple of thousand dollars?

 

Which manufacturer has the highest customer satisfaction levels? Apple, by far. Every one of its devices has the highest customer satisfaction ratings, individually. But most people own multiple Apple devices and this makes their loyalty to the system much, much higher than the loyalty rating of any one device. I think this is the phenomenon that most people are completely missing today and explains why Apple (and Android to a lesser extent) are in such a dominant and strong position.

 

As an aside I think this also means non Apple and Andoid platforms are in trouble. RIM will continue to shrink and eventually will get purchased. I think Microsoft is really in trouble with its Windows business (to the consumer) unless they find a way to get traction in tablets; at a minimum they need to show they can grow Windows phone organically (after having lived off of Nokia Symbian coversions for the past 18 months. I think the next 12 months are going to tell us alot about Microsoft's near term growth prospects with the consumer.

 

Interesting Microsoft Summary: http://www.mondaynote.com/2013/07/22/the-rebirth-of-windows-mobile/