Monday October 26, 2020: $115.05 +$0.01 +0.01%

[Dave]

It’s Monday and AAPL is red at -$0.88 at the moment. Buckle up.

Apple supplier Luxshare unnerves Foxconn as U.S.-China feud speeds supply chain shift

TAIPEI/SHANGHAI (Reuters) - Apple's top iPhone assembler, Taiwan-based Foxconn, has set up a task force to fend off the growing clout of Chinese electronics manufacturer Luxshare, which it believes poses a serious threat to its dominance, three sources with knowledge of the matter said.

The project was initiated by Foxconn's founder Terry Gou, according to one of the sources, to target Dongguan-based Luxshare, which is little-known internationally but is poised to become the first mainland China-headquartered firm to assemble iPhones - a turf until now dominated by Taiwanese manufacturers.

The task force, which the sources say was created last year, has been looking into Luxshare's technology, expansion plan, hiring strategy and whether the company - which currently makes only 5% of Foxconn's revenue - is supported by any Chinese government entity.

While the U.S.-China trade war and the coronavirus crisis have intensified pressure on global supply chains, an increasingly acrimonious tech feud between the economic giants has also prompted Beijing to strengthen efforts on creating world-leading local tech firms - and Luxshare's growth trajectory fits into that mould.

"Luxshare is set to rise ... it's just a matter of how fast it could be," one of the sources said.

"It makes sense for China to build up its own supply chain and Luxshare is in line with that state policy."

[Dave]

Evercore: Apple share price should keep working higher

ALL YOU NEED TO KNOW: AAPL stock should keep working higher driven by a trifecta of a) strong non iPhone demand, b) Services acceleration and c) iPhone super cycle (thank you carrier subsidies) though we caution gross-margins remain a wild card for Dec and softer iPhone sales in Sept-qtr. We think iPhone sales could be below street estimates for Sept-qtr reflecting ASP (SE strength) and lack of new models.

Our Sept-qtr estimates stand at $62B/0.69 with iPhone sales at $26.9B (vs. street at $64B/0.71, with iPhone at $29B).

What we see driving the stock higher is a) Dec-qtr (qualitative) guide and commentary that shows iPhone 12 demand will stay STRONGER FOR LONGER, b) robust demand across hardware not related to iPhones and c) Services acceleration as the new iPhone with robust demand will drive uptick. We see iPhone demand inflecting higher over the next 6 months once all models are formally released and investors can make a more informed decision coupled with materially attractive carrier subsidies. We see sizable upside to FY21 estimates driven by, a) higher ASP’s we see higher phone usage and carrier subsides driving consumer shift higher, b) services acceleration persists driven by ARPU and new offerings, c) Other hardware – we see Macs & iPads staying stronger on a multi quarter basis.

Maintains Outperform rating and $135 price target.

My take: As friends of the blog have remarked, it’s not clear how analysts could be surprised by September iPhone sales. Apple gave them plenty of warning that the new iPhones wouldn’t be arriving until October.

[Dave]

NYT: Antitrust scares Google more than Apple

The Justice Department, which is asking for a court injunction preventing Google from entering into deals like the one it made with Apple, argues that the arrangement has unfairly helped make Google, which handles 92 percent of the world’s internet searches, the center of consumers’ online lives…

Apple now receives an estimated $8 billion to $12 billion in annual payments — up from $1 billion a year in 2014 — in exchange for building Google’s search engine into its products. It is probably the single biggest payment that Google makes to anyone and accounts for 14 to 21 percent of Apple’s annual profits. That’s not money Apple would be eager to walk away from…

A forced breakup could mean the loss of easy money to Apple. But it would be a more significant threat to Google, which would have no obvious way to replace the lost traffic. It could also push Apple to acquire or build its own search engine. Within Google, people believe that Apple is one of the few companies in the world that could offer a formidable alternative, according to one former executive. Google has also worried that without the agreement, Apple could make it more difficult for iPhone users to get to the Google search engine…

According to a former senior executive who spoke on the condition of anonymity because of confidentiality contracts, Apple’s leaders have made the same calculation about Google as much of the general public: The utility of its search engine is worth the cost of its invasive practices…

In 2005, Apple and Google inked what at the time seemed like a modest deal: Google would be the default search engine on Apple’s Safari browser on Mac computers.

Quickly, Mr. Cook, then still a deputy to Mr. Jobs, saw the arrangement’s lucrative potential, according to another former senior Apple executive who asked not to be named. Google’s payments were pure profit, and all Apple had to do was feature a search engine its users already wanted…

Then the relationship soured. Google had quietly been developing a competitor to the iPhone: smartphone software called Android that any phone maker could use. Mr. Jobs was furious. In 2010, Apple sued a phone maker that used Android. “I’m going to destroy Android,” Mr. Jobs told his biographer, Walter Isaacson. “I will spend my last dying breath if I need to…”

Yet the companies’ partnership on iPhones continued — too lucrative for either side to blow it up. Apple had arranged the deal to require periodic renegotiations, according to a former senior executive, and each time, it extracted more money from Google.

“You have to be able to maintain those relationships and not burn a bridge,” said [Bruce] Sewell, Apple’s former general counsel, who declined to discuss specifics of the deal. “At the same time, when you’re negotiating on behalf of your company and you’re trying to get the best deal, then, you know, the gloves come off.”

Around 2017, the deal was up for renewal. Google was facing a squeeze, with clicks on its mobile ads not growing fast enough. Apple was not satisfied with Bing’s performance for Siri. And Mr. Cook had just announced that Apple aimed to double its services revenue to $50 billion by 2020, an ambitious goal that would be possible only with Google’s payments.

By the fall of 2017, Apple announced that Google was now helping Siri answer questions, and Google disclosed that its payments for search traffic had jumped. The company offered an anodyne explanation to part of the reason it was suddenly paying some unnamed company hundreds of millions of dollars more: “changes in partner agreements.”

My take: Insisting on periodic re-negotiation of the kickback was a smart move on Apple’s part. It took the nut from $1 billion to $8 to $12 billion in the space of six years. Talk about taking off the gloves!

A good discussion in the comments section.

[Dave]

Toni Sacconaghi: Apple could take a 20% hit without Google’s kickbacks

. . . . .

“There’s a risk, if you play it out, that there actually could be more financial impact to Apple than there is for Google,” said Toni Sacconaghi, an analyst for Bernstein. He estimates that Apple’s stock could fall as much as 20% if the deal with Google were to be eliminated entirely. At the same time, he and others say, any damage could be far less if Apple is able to offset it through other deals involving Google and its competitors, as many investors and analysts say could happen.

My take: For Sacconaghi, Apple’s glass has been half empty for nearly a decade. But to his credit, here’s what he told CNBC in January:

Google pays $8 billion a year and ultimately generates $25 billion a year from search on iOS, on Apple’s operating system. And the reason it pays that much we believe is that if it doesn’t someone else—like Microsoft—might.

The worry of course for Apple is let’s say one day Microsoft says “search isn’t that important to us, we have other priorities. In which case there is no counter bid and Google could turn around and say we’re only going to pay you half a billion Apple, and that would be very risky to Apple.

And hence, could you have a stalking horse, is there something Apple could do that would provide an inexpensive insurance policy to keep Google and/or Microsoft at the table bidding for this asset.

[bud777]

Perhaps Apple could get a seat on Google's board and then just steal the search engine. That's allowed, isn't it?

[davidstevenson]

Oct 26, 2020 5:15:00 GMT -8 bud777 said:

Perhaps Apple could get a seat on Google's board and then just steal the search engine. That's allowed, isn't it?

No need to steal what you can poach. All Apple needs to do is add 1 billion to its new-hire program to beef up its capabilities for on-device search such as for spotlight, App Store and say Apple news+(For Internet search). Both Google and Facebook are headquartered an easy commute to Cupertino.

[Dave]

Oct 26, 2020 5:15:00 GMT -8 bud777 said:

Perhaps Apple could get a seat on Google's board and then just steal the search engine. That's allowed, isn't it?

Bud, I think that is an excellent idea.

[4aapl]

Oct 26, 2020 6:11:18 GMT -8 davidstevenson said:

Oct 26, 2020 5:15:00 GMT -8 bud777 said:

Perhaps Apple could get a seat on Google's board and then just steal the search engine. That's allowed, isn't it?

No need to steal what you can poach. All Apple needs to do is add 1 billion to its new-hire program to beef up its capabilities for on-device search such as for spotlight, App Store and say Apple news+(For Internet search). Both Google and Facebook are headquartered an easy commute to Cupertino.

Start with diverting the low hanging fruit. When someone "searches" by typing in a URL, like CNN, take that "top hit" or "siri recommends" and grab the revenue for it. It's "search" but without much work.

Personally I have no idea of the current revenue sharing or codebase used, so this might already be happening. But that, plus some "siri recommends" options, all before the Google or other search engine results, would be the easy way to get this moving.

Likewise, a revenue sharing plan with the various search engines, and a simple "select your search engine", might get Apple around any agreements that look questionable. I think it already asks you to select your search engine on initial setup, but my browser prefs and bookmarks have been migrated for 25 years now. I know other browsers ask that, and I believe Safari does too when setting up a fresh system and possibly even with migration, but I can't say that with 100% certainty.

Replicating search engines that have improved for years must be tough, just as Apple Maps has had bumps over the years when compared to Google Maps. The simple stuff is relatively easy. But there is plenty of room for complexity. OTOH, if Apple wanted in big time, they could afford a purchase and a push. But for now, if seems like the light move in that direction is the better way, a safety net while also potentially shifting some income to be more direct.

[Dave]

Well, at least we closed in the green ($0.01) when all of the major indexes were red. Green is good.

[JDSoCal]

I'll take one cent green on a down market day like this.

[4aapl]

Oct 26, 2020 12:11:35 GMT -8 Dave said:

Well, at least we closed in the green ($0.01) when all of the major indexes were red. Green is good.

The crazy thing is to take a look at levels. The S&P 500 closed at 3400, just a hair above the 3393 top it had back in Feb. On a decent sized move down without real change I'd expect heading down for 2-3 days, and so may nibble a little more for the diversification portion of the portfolio, tomorrow.

OTOH, what was AAPL at back in Feb? It looks like 81.81 and 81.96 were the high intraday points, or call it 82. Instead of being flat, that's a 40% gain.

Admittedly I'd prefer to be bopping around $130 right now, and I'm still kicking myself for not selling more of those Oct '22 250's for $10-11+. But 115 isn't too bad, in comparison to just about anything including Jan/Feb levels, the low, or even the Sept low.

Hopefully Apple will give a little shock and aww on Thursday, right before our 3 day weekend here in NV. But if not this time, in a really tough time with a lot of variables and unknowns, we at least know that Apple is pretty solid and has things heading in the right direction.

[aaplcrazie]

Doing my Bit.....

2.4Ghz 8 Core 64 GB's 2TB's 5600 8GB

[chinacat]

I was kind of expecting a rest period after the incredible run up to 500.  The Fall release announcements were a bit too late to have a full effect on Friday’s numbers, but holiday sales should be pretty strong, if somewhat affected by pandemic financial effects.

[mark]

I'm guessing that there will be bad pandemic news reported for about the next 8 days or so. If the market takes that as its cue, we should see some hefty downward pressure on the S&P500. As far as Apple goes, earnings calls can sometimes change its whole trajectory quite rapidly (as we saw recently).

[crispin]

There'll be bad pandemic news reported for a lot longer than that, as we're not even close to having this controlled. Hopefully if we get some competent people working on it we can slowly start to turn things around. But it will be a long haul. Sadly, Apple doesn't exist in a vacuum, so I fully anticipate prolonged doldrums.

Oct 26, 2020 15:36:20 GMT -8 mark said:

I'm guessing that there will be bad pandemic news reported for about the next 8 days or so. If the market takes that as its cue, we should see some hefty downward pressure on the S&P500. As far as Apple goes, earnings calls can sometimes change its whole trajectory quite rapidly (as we saw recently).

[4aapl]

Oct 26, 2020 16:11:57 GMT -8 crispin said:

Sadly, Apple doesn't exist in a vacuum, so I fully anticipate prolonged doldrums.

While Apple might not operate in a vacuum, it is in an alternate universe than some industries and businesses.

Oil/restaurants/bars/casinos/cruiselines/travel/hotels/trade shows/sports. Some have hope, but it's hard to get too excited even if bottom feeding is tempting at times. My IGT stock was always a lagger, where consumers needed to feel flush enough to gamble, and then casinos needed to feel flush enough to upgrade their slot machines.

But Apple? Does the uptick in work from home and learn from home offset those that have been furloughed or laid off, specifically with Apple's customer base. What about when you add in people spending less on the above industries, so those still getting paid have fewer other expenses than normal?

I don't know. But last quarter's earnings announcement showed that there was unexpected liveliness, and I can see how that might continue. It's not as easy as looking at Clorox, or a drug maker that is in play.

Even if Apple does well, AAPL might not react as favorably if the rest of the market is taking a hit. Or maybe it would be the place to put money, one of the ships that made it out of the storm. It's hard to know, just as guessing out the next 1-3 months anytime this year was pretty unlikely. Still, Apple is one of those maybe 5-20% that are not being hit by virus related issues anywhere as much as the average company, hence the 40% appreciation while the S&P 500 is flat compared to Jan/Feb. Just as it's been, it continues to be tough to guess 1-3 months out, at least for me. But in general I see a bit more positiveness, both individually and when compared to the averages.

[crispin]

You may well be right, and if I'm wrong I'll be pleasantly surprised. The prediction game is a fool's errand as they say though. As a long term buy and hold investor I suppose there's some predictive assessment I'm making, but I'm much more comfortable with those odds than anything in the shorter timeframe. To be clear, I'm not saying Apple will perform poorly in the coming year - I view it more like an olympic swimmer carrying a covid cinderblock on their back. Sure Apple can stay above water, but it sure would be a lot easier without the damn cinderblock.

Oct 26, 2020 19:26:22 GMT -8 4aapl said:

Oct 26, 2020 16:11:57 GMT -8 crispin said:

Sadly, Apple doesn't exist in a vacuum, so I fully anticipate prolonged doldrums.

While Apple might not operate in a vacuum, it is in an alternate universe than some industries and businesses.

Oil/restaurants/bars/casinos/cruiselines/travel/hotels/trade shows/sports. Some have hope, but it's hard to get too excited even if bottom feeding is tempting at times. My IGT stock was always a lagger, where consumers needed to feel flush enough to gamble, and then casinos needed to feel flush enough to upgrade their slot machines.

But Apple? Does the uptick in work from home and learn from home offset those that have been furloughed or laid off, specifically with Apple's customer base. What about when you add in people spending less on the above industries, so those still getting paid have fewer other expenses than normal?

I don't know. But last quarter's earnings announcement showed that there was unexpected liveliness, and I can see how that might continue. It's not as easy as looking at Clorox, or a drug maker that is in play.

Even if Apple does well, AAPL might not react as favorably if the rest of the market is taking a hit. Or maybe it would be the place to put money, one of the ships that made it out of the storm. It's hard to know, just as guessing out the next 1-3 months anytime this year was pretty unlikely. Still, Apple is one of those maybe 5-20% that are not being hit by virus related issues anywhere as much as the average company, hence the 40% appreciation while the S&P 500 is flat compared to Jan/Feb. Just as it's been, it continues to be tough to guess 1-3 months out, at least for me. But in general I see a bit more positiveness, both individually and when compared to the averages.

[4aapl]

Oct 26, 2020 21:01:08 GMT -8 crispin said:

You may well be right, and if I'm wrong I'll be pleasantly surprised. The prediction game is a fool's errand as they say though. As a long term buy and hold investor I suppose there's some predictive assessment I'm making, but I'm much more comfortable with those odds than anything in the shorter timeframe. To be clear, I'm not saying Apple will perform poorly in the coming year - I view it more like an olympic swimmer carrying a covid cinderblock on their back. Sure Apple can stay above water, but it sure would be a lot easier without the damn cinderblock.

Well, that's what I am pondering and asking. We've all mostly viewed covid as a cinderblock, that in Apple's case has turned out to not be as bulky as initially expected.

But, given Apple's customer base, what if that cinderblock was really just a battery pack for a motor helping give that swimmer a little extra boost. It's not streamlined in any way....we're talking a lead-acid battery instead of a fit forming LiPo or something. But, given unique factors of Apple, maybe instead of struggling through with an added weight this is actually a booster.

Sometimes things can work in mysterious ways. Our family has needed a few extra devices for schoolwork. And on the noise canceling headphones bought for a trip a year ago, now suddenly a microphone is also an important feature. Things might not be perfect, but Apple looks like they are not just dealing with the waves, but possibly even getting a little boost from them. They might not be fully surfing the wave, but like paddle boarding into the beach they seem to be feeling a little ++ action while moving with the wave.

[davidstevenson]

Oct 26, 2020 6:11:18 GMT -8 davidstevenson said:

Oct 26, 2020 5:15:00 GMT -8 bud777 said:

Perhaps Apple could get a seat on Google's board and then just steal the search engine. That's allowed, isn't it?

No need to steal what you can poach. All Apple needs to do is add 1 billion to its new-hire program to beef up its capabilities for on-device search such as for spotlight, App Store and say Apple news+(For Internet search). Both Google and Facebook are headquartered an easy commute to Cupertino.

Just as a follow up, on Wednesday Business Iinsider has a article on apples hire from Google last year at the VP level with respect to search. If anybody has an iPhone, you can find the article under the Apple news in the stocks app on iPhone for Wednesday, October 28.