Tuesday, March 12, 2013

iPhone is losing ground

Here's some of my latest thoughts on Apple:

I think the iPhone is losing ground..  Apple is not capturing marketshare like Samsung is..  I firmly believe that Apple has  the better product, and in the long run the Apple eco system is going to pay off.... but it's taking too long.  However - again, in my opinion, key mistakes have been made, and I believe the lack of a larger screen option is going to be painful.  That impact will be felt over seas and in the US.  Android growth, Microsoft's strategy, Amazon with their tablets, Even BB is threatening a real comeback.  We all know that all it takes is taking your eye off the ball, and in the blink of an eye, your playing catch up. What do I mean by key mistakes made?

With the resources that Apple has, there is no excuse for: 

1.  Not having China Mobile locked up already - This is probably the biggest point.  They are going to lose this opportunity to the companies that produce the good cheap phone.  There's no reason why Apple can't do this, and lock 100+ million into their eco system ASAP. Get in the game. TC always talks about first mover advantage - Where is it?  Whats the strategy?  I'm not saying it's too late, but TC should be leading the party.
2.  Young people LOVE the big screen.. Don't lose this demographic.  I'm seeing more and more of these gargantuan phones in the wild.. and its not just young people.  I have a friend close to 50, she just got a big Android phone and she's in love with it.  This is costing Apple market share....
3.  The maps disaster..  THIS WAS HUGE.  No telling how many people changed their buying decision on that alone.  The google maps availability came way too late.  This software should have never been launched.  Google maps blows Apple's solution out of the water.

That's just three examples - I know, I can hear the rebuttals already, It's not Apple's way, What about the margins??  Blah Blah Blah - I don't care.  This is Apple!  Devote the resources and quit losing marketshare.  If Apple doesn't turn this around, they are going to turn out like the Apple of old. (Pre iPod)  A small niche player in a really big pond - or should I say ocean.

To those that say, that was never Apple's strategy to dominate the world, I dispute that.  Over and over you hear Apple management say "we want everybody to own our products, we want everybody to enjoy our great solutions.  We want our products in everybody's hands.."  Well, how come you're not doing it?  This market - this opportunity, is just too large to miss out on..  

Someone asked me earlier -  "how will Apple's 5" phone (iPhone 6) be received outside the US?  

My opinion - SENSATIONALLY - That is, if they ever make it..  No one knows what they're going to do...  Maybe that should be huge mistake #4 on my list.  The inability to communicate a strategy, that is timely, effective, and worth waiting for the next refresh.

I need to see some changes before I jump back into this stock again...

The Thursday presentation for the new Galaxy will be watched closely by the world. Samsung is trying to achieve Apple-like mania, and they might be able to pull it off..  Once a copycat always a copycat I guess..  I'll be posting on Thursday about it...  


I do not own AAPL 

Saturday, March 9, 2013

Q2 2013 - Gross Margin YOY make for a tough compare

On my last post, I said that Apple would report an EPS of $12.00 for Q2 2013. It turns out I was being optimistic again.

Last years Gross Margin was a stellar 47.4%.  I'm giving Apple an optimistic GM of 39.1%, which is a 17.5% decrease from last year. This fact alone will wreak havoc on the EPS.  My calculations have Apple's EPS at $10.39, which is a 16% YOY decline....

Compounding the tough compare is the tax rate, which last year came in at 25.19%  This year, I have Apple at an optimistic 25.71% which places additional downward pressure on the EPS.  My preliminary numbers are as follows:

Revenue - 42,226,400,000   +8% YOY
EPS - $10.39   - 16% YOY
GM - 39.1%  - 17.5% YOY

iPhone - 37,500,000   +7% YOY
iPad - 17,500,000      +48% YOY
iPod - 6,300,000         -18% YOY
Mac - 3,800,000         -10% YOY
Software / iTunes / other - $3,750,000,000  +154% YOY

With this YOY tough compare, it appears that Apple's growth has come to a screeching halt. Long term, this is not true, as I see the GM's staying in the 38% range, and the growth will show up again in the Q3 and Q4 quarters as the "tough compares" go away. (Albeit - a slow rate of growth)

My opinion is that Wall Street will brutalize the stock with these YOY results in Q2, and I see the share price dropping to 390. Hopefully, it stabilizes and starts the climb back up as seasonal product refreshments generate excitement.  I still see the share price at 511 come March 2014, with a strong showing in the fall and Christmas quarters, continuing into early 2014.

The Samsung/Android juggernaut coupled with Microsoft's recent innovative resurgence is muting the iPhone growth, as well as iPad's, but not to the degree of the iPhone.  I view Microsoft as a huge threat to Apple, (and Samsung) with their new and improved integrated operating system strategy amongst all platforms. The Nokia/MS partnership is looking like it will be successful.  I personally have checked out the new windows 8 operating system, and I see it as a winner from MS.  The fact that MS office can be integrated on all platforms easily just enforces their position.

More to come

I do not own AAPL shares.

Thursday, February 28, 2013

March 1, 2014 price target

Happy March 1st!

Readers of this blog will notice a pretty radical change in sentiment here.  I have been giving AAPL much, much thought, and this is the most realistic post that I have made in a year, I believe.  If AAPL does what I think its going to do, I will get back in at the sub 400 level..  I see a very rough 3 - months ahead, and a comeback beginning in the midst of the Christmas quarter.  

On a personal note, I have backed off tremendously on my obsession with AAPL.  I believe that I was too involved, and spent too much time, and basically needed to unplug and come down to earth..  This has been a good change.  I want to post more on this blog, and would like to post some different ideas on stocks, and would love to hear some other ideas from you guys. I'll still post about AAPL, and participate in PED's smack-down, but hopefully with my feet planted firmly on the ground.  Below is my post in the Braeburn Group.

I welcome any / all comments.

AAPL Price on March 1 2014 = 511.50
TTM earnings March 1 2014 = 46.50  (PE = 11)
YOY EPS growth = 5.39%
Revenue growth = 5%
EPS by quarter - starting in Q2 = 12.00 / 10.00 / 9.50 / 15.00

This is going to be a difficult year for Apple.  This company will have to move mountains to get a PE north of 12.  The negative sentiment, FUD, coupled with the Android dominance, and emerging windows smartphone / tablet marketshare will flatline Apple’s growth. I believe the Amazon line up of Kindles will also see incremental growth. I do believe the growth will pick up again to as much as the 20 percentile range in the summer of 2014 when an Apple TV is launched, and growth in China takes hold.  I also see investor sentiment changing around the same time.  In the near term, I see AAPL dipping to the sub 400 level, especially after reporting fractionally negative growth in the Q2 earnings report. I see the stock coming back in the Christmas quarter because of the annual cycle of device upgrades. However, I do not see any large moves evidenced by my March 1, 14 price target.  I do not currently own any AAPL shares.

Dennis Hildebrand

"We have met the enemy...and he is us."

Sunday, January 20, 2013

Q1 13 - The most important earnings report of all.

Happy New Year!

Some updates - Some times you just have to turn off the noise.

Other than PED's quarterly smack down, I haven't been posting, and have really almost completely stopped participating in my favorite forum The Braeburn Group.  I have a couple of reasons for this:

  1. All of the negative news releases are depressing. It's come to a point of ludicrousness.  Yeah I know, that's not even a word, but I don't care because that's how it feels. How bad could it be?  Apple has been growing earnings, and continuing to launch popular products that sell extremely well.  It just seems as if the world is looking for Apple to fail, and so many are clamoring for FUD.  I get tired of hearing it, and reading about it.
  2. I have started a new job, and my total concentration is needed in navigating a successful transition.  The publishing company that I work for has gone to a 100% outsourcing model for our products, which are printed products, music CD's, and marketing materials.  This also includes an intense focus on a digital publishing transformation.  Very exciting, and requires my 100% focus.  The recent drop in the share price, coupled with all the nonsense being published about Apple is incredibly distracting.  Turn it off.

With that being said, I do have a set of numbers to share, and I'll do that here and now.  First let's look at what happened last year, compared with what I predicted.  As you will see, I underestimated by a large margin on EPS, but hit some of the metrics pretty accurately.

 Dennis prediction                 Actual

iPhones - 34m       37.04m -  missed by 3million - (killed me)                                                                    
iPads - 15m           15.4m   -  missed by 400k
iPods - 15m           15m      - dead nuts
Macs - 5.25m         5.2m    - missed by 50k
Rev - 43.36b          46.33b  - missed by 3b! (iPhones)
EPS - 11.59          13.87    - missed by $2.28 (iPhones and GM)

GM - 42.3%           44.7% - missed by 2.4%  

My iPhone estimates missed by 3 million and change, which of course is why I missed the revenue by 3 billion.  Also, my gross margin was off by a couple of percentage points which really affected the accuracy of my EPS number.  My iPads / iPods / and MAC numbers were VERY close.  In fact, I hit the iPod number right on the money - 

Here are my numbers for Q1 13:

Revenues: $63,485,000,000
Earnings:   $16.33
iPhone unit sales: 51m
iPod unit sales: 11.5m
Mac unit sales: 5.5m
iPad unit sales: 32m
GM%: 39%
Compared against my peers, these numbers are extremely bullish.  In fact, my iPad number is the highest of all participants in the quarterly smack down on Fortune.  I'm sticking with it.  I have said all along that I believe the iPad will overtake the iPhone in unit sales eventually. The only fly in my proverbial ointment, is if the mini cannibalized the regular sized pads.

Everything will be revealed Wednesday.  I think that Apple will need an EPS number north of 15 to be viewed positively.  Street consensus has actually called for a YOY decline in EPS.  This could bode well for us being that the expectations are usually extraordinarily high..  We shall see.