Thursday, 04/25/13: $408.38

[Deleted]

Morning all.

For those in doubt about Apples future earnings growth, I will present to you the most important sentence uttered from TC on Tuesdays conference call, in his commentary regarding tough year on year comparisons:

"These compares are made further challenging until we anniversary the launch of the iPad mini, which as you know we strategically priced at a lower margin."

There you are. Pretty simple really. Net income growth will continue from apples financial Q12014 onwards (the anniversary of the iPad mini).

[Deleted]

Just a note on the "fall releases" comment by TC.

Whenever Apple produces a entire new product category, there is usually an introduction several months before the actual release of a product (see original iPhone & iPad releases).

So if "something new" was introduced at WWDC in May, a likely release date would be sometime in the Fall.

Coincidentally (or perhaps not) WWDC would also be the best place to introduce a new iOS product category that was going to require some new SDK modifications/additions for developers to master.

[tourist]

I agree. WWDC has been used to announce new hardware, software, and service products in the past. Any product that would be enhanced by third-party app support when shipped would most likely be announced there.

[rob_london]

I must be getting old but many of the guys giving investment advice on the Motley Fool webcasts look as if they've barely starting shaving.

[phoebear611]

Haven't seen this in forever : APPLE RAISED TO BUY VS LONG-TERM BUY AT HILLIARD LYONS

[rob_london]

Argus analyst report on AAPL: "Our fundamental valuation model points to a price above $1000."

[Deleted]

PED published lowered price targets for Apple, giving the analysts room for raising them. Down is up in this case.

tech.fortune.cnn.com/2013/04/25/apple-analysts-price-targets-2/

[Deleted]

Apr 25, 2013 5:03:44 GMT -8 marcellus said:

PED published lowered price targets for Apple, giving the analysts room for raising them. Down is up in this case.

tech.fortune.cnn.com/2013/04/25/apple-analysts-price-targets-2/

Brian White is the closest to being correct (IMO)

[Deleted]

Apr 25, 2013 6:34:14 GMT -8 @greggthurman said:

Apr 25, 2013 5:03:44 GMT -8 marcellus said:

PED published lowered price targets for Apple, giving the analysts room for raising them. Down is up in this case.

tech.fortune.cnn.com/2013/04/25/apple-analysts-price-targets-2/

Brian White is the closest to being correct (IMO)

Reaching $800 is not out of reach, assuming Apple delivers on the next iPhone and iPads (EPS growth will follow) and strong rumors/announcement of Apple's next new product category.

Pick one: iWatch. iTV. Mobile payments.

Incidentally, I think Red could prove prescient with AAPL post-FQ2 2013 earnings (resumption of institutional interest after the noise settles down).

JP Morgan cut its price target the most, so they must be buying...(they're not really all that different from Goldman).

[Deleted]

Couldn't resist. I was going to wait for Monday, but this morning's Gap and volume action caused me to rethink it.

Bought May Wk1 $390 Calls this morning at $19.75 (break even $410.00). Placed order to STO May Wk1 $395 Calls at $20.00. The latter will require AAPL to rise to about $415, a level it hit yesterday and neared today.

If AAPL jumps to a point higher than $435 I may consider some Put Spreads.

[Deleted]

Apr 25, 2013 6:41:23 GMT -8 marcellus said:

Incidentally, I think Red could prove prescient with AAPL post-FQ2 2013 earnings (resumption of institutional interest after the noise settles down).

I especially agree with this. Its been my contention for quite a while that the institutions were sitting on their collective hands until they got a bit more clarity from Apple.

Yesterday's conference call was very informative, much more so than in the past.

As a side note, it sounded like, to me, that TC has been getting voice lessons. His drawl was much less pronounced and there seemed to be an edge to his voice that hadn't been there in the past. He sounded more authoritative in his presentation.

[tuffett]

Apr 24, 2013 22:38:17 GMT -8 @burgess said:

Morning all.

For those in doubt about Apples future earnings growth, I will present to you the most important sentence uttered from TC on Tuesdays conference call, in his commentary regarding tough year on year comparisons:

"These compares are made further challenging until we anniversary the launch of the iPad mini, which as you know we strategically priced at a lower margin."

There you are. Pretty simple really. Net income growth will continue from apples financial Q12014 onwards (the anniversary of the iPad mini).

The iPad Mini should not be responsible for the lack of earnings growth. Lower margins - yes, but on the whole they should be adding earnings to the pie, even after accounting for cannibalization. Remember that a large number of iPad Mini buyers are first time customers that may not have bought the full size iPad at all and are pure extra profit for Apple.

Earnings are down because there was a large drop in iPhone ASP. This is because a larger percentage of iPhone buyers are option for the older models. Phones are now good enough for many people that the latest and greatest isn't worth an extra $100-200. We are seeing the results. The same will happen to other phone vendors.

Apple needs a breakthrough feature/service on the next iPhone or it will suffer the same fate and margins will continue to stagnate or drop a bit further.

[rob_london]

Apr 25, 2013 7:07:34 GMT -8 tuffett said:

Apr 24, 2013 22:38:17 GMT -8 @burgess said:

Morning all.

For those in doubt about Apples future earnings growth, I will present to you the most important sentence uttered from TC on Tuesdays conference call, in his commentary regarding tough year on year comparisons:

"These compares are made further challenging until we anniversary the launch of the iPad mini, which as you know we strategically priced at a lower margin."

There you are. Pretty simple really. Net income growth will continue from apples financial Q12014 onwards (the anniversary of the iPad mini).

Earnings are down because there was a large drop in iPhone ASP. This is because a larger percentage of iPhone buyers are option for the older models. Phones are now good enough for many people that the latest and greatest isn't worth an extra $100-200. We are seeing the results. The same will happen to other phone vendors.

You may well be correct but it is worth noting that the ASP for both Macs and iPods increased in the last quarter to levels last seen in 2011. Could it not be argued that earlier models were good enough for most people.

[Deleted]

I haven't seen this much green in the Futures in a long time.

<Edited to add color>

[nathanstevens]

Apr 25, 2013 7:07:34 GMT -8 tuffett said:

Earnings are down because there was a large drop in iPhone ASP. This is because a larger percentage of iPhone buyers are option for the older models. Phones are now good enough for many people that the latest and greatest isn't worth an extra $100-200. We are seeing the results. The same will happen to other phone vendors.

Didn't I see somewhere the the galaxy S4 is starting at 249 instead of 199? It will be interesting to see how that works out.

[Mav]

Stop being so selective with facts. Wasn't there a little thing called iPad contributing to lower revs per unit as well?

Why yes, yes there was. (And I wonder if iPad mix has anything to do with margins. And I wonder if Apple's entire product strategy has anything to do with sacrificing margin for long-term company health.)

Hm, let's look at iPhone now. If you look at Apple IR (which I regard as mandatory reading for anyone not trading only on technicals/EW), do the YOY ASP compare again, you'll notice something.

I'm not "spoiling" the answers because they're so clear.

It IS true that there is a mix-shift trend to cheaper phones. Tim doesn't have an answer ready yet because Apple doesn't work that way, you should all know this by now, like it or not. But don't use the wrong data to back up your points.

[mace]

C'mon buy buy buy. Failed $415 for the second time .

[Mav]

For Pete's sake mace, quit your trolling. Don't you not really care about the short term? Didn't AAPL open on a gap up? Doesn't AAPL not really have established momentum so it can actually DO uptrend stuff like pro gaps?

There's nothing technically surprising about today's action IMHO. And believe it or not, it still counts as relative strength.

If you're doing technicals, you see resistance (415), you see micro support. Nothing more than levels.

[Mav]

Mercel from yesterday:

On a 2.5% loan, Apple's cost of capital after Fed and State is approx. 1.5%. Borrowing is smart vs. repatriating profits from abroad and paying the tax here. Not incidentally, I believe Apple has already accrued for this tax on its books, unlike other multinational companies. Of course, this would never fit a CNBC soundbite.

If there were a tax holiday, Apple's adjustment to deferred tax would positively impact Apple's earnings.

Borrowing is incredibly smart compared to the alternative. And when you have $102B offshore, and growing every quarter, it's not hard to get near-top ratings from S&P and Moody's.

I'm still a little irked by Apple using mostly buybacks and a side of dividends to protect against a potentially boring summer of products, but it's an undeniably savvy decision as Apple gets a little more "corporate" in certain ways. (Well, with history's largest buyback, maybe that's an understatement.) Love the capital allocation program, hate the "timing" (of announcement).

Apple very much accrues tax liabilities, which is why the tax rate was 26%. I think you can check out Page 13, deferred tax liabilities line on the 10-Q. Funny, if Apple were more like Google (/cryptic), earnings would be outta sight. What was the Goog's tax rate? EIGHT friggin percent. investor.google.com/earnings/2013/Q1_google_earnings.html

[mace]

If your region doesn't have LTE and have many accessories that work with the previous dock connector, which iPhone would you buy?

[icam]

Apr 25, 2013 6:54:53 GMT -8 @greggthurman said:

Apr 25, 2013 6:41:23 GMT -8 marcellus said:

Incidentally, I think Red could prove prescient with AAPL post-FQ2 2013 earnings (resumption of institutional interest after the noise settles down).

I especially agree with this. Its been my contention for quite a while that the institutions were sitting on their collective hands until they got a bit more clarity from Apple.

Yesterday's conference call was very informative, much more so than in the past.

As a side note, it sounded like, to me, that TC has been getting voice lessons. His drawl was much less pronounced and there seemed to be an edge to his voice that hadn't been there in the past. He sounded more authoritative in his presentation.

I've been hard on Tim and Peter for their performances on the earnings calls. This latest was their best performance so far for the reasons you stated: informative, clarity, and style. A big big CC performance improvement. My confidence in Tim and Peters competence is being rebuilt.

That said, with the information investors are now provided with, my mental blender is telling me AAPL will experience a rotation of owners from growth focussed to value/stable/dividend seekers and the stock price will churn in the current $400 area. It's a complex situation but here's a couple of reasons of why I think this:
- Growth is uncertain because the "trust us, we have new products and new product categories coming in the fall and being released throughout 2014" requires varying amounts of blind faith based on your perspective of Apples management. Growth buyers are in wait and see mode and will be unwilling to bid up the price and may be motivated to sell to pursue other opportunities while AAPL's current zombie state plays out.
- Cash: Finally a plan. Thank god. In my opinion, the best plan would have been to use it to grow Apple either by investing in opportunities to grow Apples overall business internally/organically, or into its production capabilities and/or capacities to reduce it's reliance on outside suppliers and reduce its exposure to suppliers like Samesung looking to steal IP, or by buying other strategic businesses. I'm disappointed that they couldn't find any worthy growth opportunities to invest in (for example, I wish they would have bought Disney). That said, a dividend of $12.25 is a 3% return on a stock price of $410, and income seekers will be attracted to that return over the 1.7% 10 yr treasury and lower yielding dividend stocks. This comparative return is obviously dependent on other market interest rate returns and their fluctuations, and as such, is subject to change. Also, the share repurchase provides confidence that the share price will be supported, therefore reducing the downside risk of a major AAPL price drop.
My intention is to hold the shares that I have had since 2009 and to look to add to my core share holdings on price pullbacks. Patience and quiet confidence are my mindset right now. Onward....

[Mav]

Huh? Who's asking? Rhetorical question?

Because if you're talking Greater China, that's totally on the money. Greater China has about as much reason to get an iPhone 5 as it does an S3/S4 (well, aside from the big screen deal). Greater China getting decent LTE coverage + China Mobile becomes an iPhone partner = when the true battle will start playing out. And even then, it'll be a long time before there's even much of a battle, considering the massive greenfield opportunity.

[Mav]

Not that BIG ACQUISITION meme again.

First, invest in yourself (R&D, CapEx, etc.).

Then, REinvest in yourself (buybacks).

Then, throw a bone to shareholders (dividends). Buy a big company, that's somewhere in importance around dividends IMHO.

You won't know exactly how much Apple is investing in itself for several years. Fact is, RAM, flash memory, chips, hardware integrators tend not to make them themselves. Samsung is a very notable exception. It's always been a vendor-supplied business. And then there's the whole manufacturing/assembly deal. Even if a company actually wanted to do its own manufacturing and assembly, margins be damned, it's...kinda tough for a company doing $160B+ annually. But there IS that Mac line in the US. So it's a start.

[icam]

Apr 25, 2013 7:29:15 GMT -8 rob_london said:

Apr 25, 2013 7:07:34 GMT -8 tuffett said:

Earnings are down because there was a large drop in iPhone ASP. This is because a larger percentage of iPhone buyers are option for the older models. Phones are now good enough for many people that the latest and greatest isn't worth an extra $100-200. We are seeing the results. The same will happen to other phone vendors.

You may well be correct but it is worth noting that the ASP for both Macs and iPods increased in the last quarter to levels last seen in 2011. Could it not be argued that earlier models were good enough for most people.

Horace would disagree.
www.asymco.com/2013/04/25/margin-call-2/
Amongst other things, one conclusion his data is leading him to is that iPhone pricing is holding up pretty well, but its costs are rising because suppliers (ie. Samesung) is charging them more for components before losing Apple as a customer, resulting in a compression of iPhone margins.

[Deleted]

Apr 25, 2013 7:56:28 GMT -8 Mav said:

Mercel from yesterday:

On a 2.5% loan, Apple's cost of capital after Fed and State is approx. 1.5%. Borrowing is smart vs. repatriating profits from abroad and paying the tax here. Not incidentally, I believe Apple has already accrued for this tax on its books, unlike other multinational companies. Of course, this would never fit a CNBC soundbite.

If there were a tax holiday, Apple's adjustment to deferred tax would positively impact Apple's earnings.

Borrowing is incredibly smart compared to the alternative. And when you have $102B offshore, and growing every quarter, it's not hard to get near-top ratings from S&P and Moody's.

I'm still a little irked by Apple using mostly buybacks and a side of dividends to protect against a potentially boring summer of products, but it's an undeniably savvy decision as Apple gets a little more "corporate" in certain ways. (Well, with history's largest buyback, maybe that's an understatement.) Love the capital allocation program, hate the "timing" (of announcement).

Apple very much accrues tax liabilities, which is why the tax rate was 26%. I think you can check out Page 13, deferred tax liabilities line on the 10-Q. Funny, if Apple were more like Google (/cryptic), earnings would be outta sight. What was the Goog's tax rate? EIGHT friggin percent. investor.google.com/earnings/2013/Q1_google_earnings.html

I looked the # up and $16B is reported for deferred tax liabilities. That's $17 per share.

[Deleted]

Apr 25, 2013 8:16:04 GMT -8 icam said:

Apr 25, 2013 7:29:15 GMT -8 rob_london said:

You may well be correct but it is worth noting that the ASP for both Macs and iPods increased in the last quarter to levels last seen in 2011. Could it not be argued that earlier models were good enough for most people.

Horace would disagree.
www.asymco.com/2013/04/25/margin-call-2/
Amongst other things, one conclusion his data is leading him to is that iPhone pricing is holding up pretty well, but its costs are rising because suppliers (ie. Samesung) is charging them more for components before losing Apple as a customer, resulting in a compression of iPhone margins.

Yeah, I'm not buying the iPad mini mix for lower margins either. The lowers margins are very likely the cost of migrating business away from Sammy.

[Deleted]

Apr 25, 2013 7:34:41 GMT -8 nathanstevens said:

Apr 25, 2013 7:07:34 GMT -8 tuffett said:

Earnings are down because there was a large drop in iPhone ASP. This is because a larger percentage of iPhone buyers are option for the older models. Phones are now good enough for many people that the latest and greatest isn't worth an extra $100-200. We are seeing the results. The same will happen to other phone vendors.

Didn't I see somewhere the the galaxy S4 is starting at 249 instead of 199? It will be interesting to see how that works out.

You did. Sammy dropped the price after the tepid reaction to the S4 and nervousness over competition from HTC One.

[icam]

Apr 25, 2013 8:12:44 GMT -8 Mav said:

Not that BIG ACQUISITION meme again.

First, invest in yourself (R&D, CapEx, etc.).

Then, REinvest in yourself (buybacks).

Then, throw a bone to shareholders (dividends). Buy a big company, that's somewhere in importance around dividends IMHO.

You won't know exactly how much Apple is investing in itself for several years. Fact is, RAM, flash memory, chips, hardware integrators tend not to make them themselves. Samsung is a very notable exception. It's always been a vendor-supplied business. And then there's the whole manufacturing/assembly deal. Even if a company actually wanted to do its own manufacturing and assembly, margins be damned, it's...kinda tough for a company doing $160B+ annually. But there IS that Mac line in the US. So it's a start.

Mav - No big meme here. It's just my small irrelevant opinion...like noses...everyones got one. I'm moving on and off to dealing with....What is is. And, that is, growth from the most innovative company on the planet is probable to resume in the fall of 2013 and cash is being used to pay a $12.25 dividend (3% current yield) and to buy back stock in the largest stock repurchase in history. I'm ok with it. Things could be a lot worse.

[Deleted]

Apr 25, 2013 7:49:13 GMT -8 mace said:

C'mon buy buy buy. Failed $415 for the second time .

Ahh, but if this is a classic Gap 'n Go, we will see a push in the last hour of the day. That's when I would expect $615.00.

[icam]

Apr 25, 2013 8:47:52 GMT -8 @greggthurman said:

Apr 25, 2013 7:49:13 GMT -8 mace said:

C'mon buy buy buy. Failed $415 for the second time .

Ahh, but if this is a classic Gap 'n Go, we will see a push in the last hour of the day. That's when I would expect $615.00.

Greg - note of caution. "classic Gap 'n Go" calls for a "major gap". T3 defined that as at least 3% to 5%. Todays $6 move was only 1.5%. Doesn't mean it can't happen...but....I'm skeptical.