BnVested

Android Beats Apple: Part 1, Android, the underdog? Upsets iPhone in Q2 Deathmatch

2010-08-06T06:53:00.002-04:00

Ben

The news reports over the last few days that Android handsets outsold iPhone in Q2 are misleading hyperbolic and dare I say possibly irrelevant.

Except for this... No one gets to win.

No one gets to win. I know, it make for terrible headlines but Apple and Google have already won seats at the table. The players yet to be introduced are HP, and Microsoft, and the legacy players that could resurrect themselves Blackberry and Nokia. The goal is different for each of them but what they seek most from the vast mobile market is not so much dominance as relevance.

It is in this context that Q2 sales reports are a big win for Google Android.

Google decided long ago that they needed to have a presence in the mobile space Must read Google Blog entry from Sept 2008 about the future of Mobile

The only reason Google bought developed and released Android for free was to insure a future with Google ads in it. It was entirely possible that the mobile phone market might have developed without an effective way for Google to sell ads. (perish the thought) My original view was that Google had modest ambitions and wanted to control the mobile space enough to insure that they would have a seat at the table. That was before iAds (and the dark times...) I was way under shooting the mark of how fractured the market would become and as a result how important it would be that Android be very successful in its own right. What the recent news articles confirm is that the incredible sales growth, speed of development and diversity of options of the Android Platform virtually guarantee Google will be selling ads to millions that are served to billions of users using mobile platforms in the future.

As Nokia Will tell you (111million device sales at an average price of 61 EUR and a net profit of about 90 cents a unit... ouch!). Unit sales do not translate into profits. Google has a working model in search but the metaphor for how we relate to our date could change drastically over the next few years (hello FlipBook). and their goal will be to make sure that the investments they have made in Maps, Nav, Docs, Mail, and operating systems will insure they have plenty of fertile advertising ground. (they will)

Author is Long Apple and wishes he was smart enough to buy Google when it came out at $90.

Apple Cash and Marketable Securities to be valued at more than 50 Billion by September Quarter

2010-08-05T08:51:00.000-04:00

Ben

Look I confess to being an Apple fanboy. I buy their products and I own the stock. That does not meant that all is well in my nearly one way relationship with the company....

46 Billion Dollars.

Warning Full on RANT. Chart Link Asymco

I will state my proxy for future voting that Apple is not acting in the best interest of shareholders in regards to retained earnings policy.

46 Billion dollars.

A company, any company, on principal should keep enough cash on hand to support its operations capital investment need in order to fulfill its corporate mission. That mission is ultimately to provide return to shareholders. Outsized retained earnings provide a disinsentive to management to performf

Cash provides no return (or hideously little and in either case far less than presumably the firm is designed to earn in its core business) gives management incentives to invest in things outside the core competencies of the company, Makes the firm a takeover target (not likely here) and has a miniscule effect on the value of the firm (a dollar is worth a dollar A dollar of a firms earnings are worth many times that).

Notice in the chart Cash and short term marketable securities have been flat to declining since Q4 2008 virtually all of Apples surplus capital has been invested in long term marketable securities. This is evidence that Apple knows they have nearly no use for this cash since even though they are marketable they would take a significant loss if interest rates were to rise.

Apple have rendered illiquid 21 billion in cash by investing in long dated securities. In the 9 months of this fiscal year Apple has generated 11.9 Billion in cash. Of that 92% 11 Billion was invested in long term (maturing in more than a year) securities (Corporates, Treasuries, Munis?). As a conservative trustee of shareholder assets Apple will hold these securities to maturity. Effectively Apple is saying they have no use for 21 billion dollars in the next ~2+ years...(it could be 10 we do not know the maturity dates of the securities they are acquiring)

Apple should return to shareholders cash it does not have a reasonable expectation of needing for operations Or capital investment into other businesses.

When you price a stock you subtract the cash from the market cap before you do your multiple of earnings calculation. We don't usually take the time because the "Net Cash" after liabilities a company has is often too small to matter. In round numbers Apples cash horde is 20% of the current market cap. meaning that Apple is effectively trading a an approximate P/E of 13.5.

46 Billion Dollars

OK so you say Apple needs money for investing in Product iX the next magical and revolutionary device to be announced. Since 2006 Apple has more than doubled its cash position while investing in development of a dozen new computers, 4 iPhones, iPad, half a dozen iPods and a semi mythical data center in North Carolina.

You know what is bigger than 46 Billion? ... 51 Billion. That is what they are likely to report in Q4

Apple should pay a dividend or repurchase shares

A reasonable divident pay rate is 50% meaning that ~50% of Net Income is paid out in dividends. Based on my back of the envelope calculations fiscal 2010 earnings will be ~$15 per share indicating a $7.50 per share dividend (~3% Yield). If Apple did this on a go forward basis they would still have 50 Billion in cash before the end of 2010 and continuing to accrue cash at well over 500 Million a month.

According to S&P the longer term average cash position (which unfortunately omits debt) held by the Fortune 500 is 6.6% (Currently 10%) of their market cap. Apples cash position is roughly triple that. And to repeat... Apple has no debt, ZERO.
So lets say Apple used the current market as a gauge for prudent cash management and planned on having 25 billion (10% of market cap) on hand. This would make 21 billion dollars or 22.65 per share available to distribute to shareholders.

Non-financial companies in the S&P 500 index reported $837 billion in cash at end of March Apple by itself represents 5.5% of all cash held by the fortune 500.

With the use of leverage There is not a single US corporation that Apple could not buy, so here is the question for Apple shareholders. What company valued at greater than 20 Billion dollars could Apple buy with their cash horde that investors would see as positive news to investors? HINT... Apple has never purchased a large company and is very unlikely to buy any of the media companies or Google for regulatory reasons. ......Anyone? ..... Anyone? ....Bueller?.

Analysts... Et Tu?

None not one of the analysts covering Apple asked about their cash position in the last call. I suspect for a couple of reasons. 1 they do not own the stock. 2, they are interested in the stock price and where is its going and the cash position as I mentioned earlier is de-minimus. and 3. They curry favor with Apple.

You want to follow their advise?

The truth is that the only reason Apple has for keeping any cash outside of what it a needs for Cap X, and operations is that they can.... It protects management from future mistakes. Why would Apple give up the cash if investors are not effectively asking for it.. Abetter question from my perspective is Why should investors want to subsidize managements insurance?

Ok so 46 Billion is a big number and hard to get your brain around here is a list of things that are46 billion dollars.

There are only three individuals in the world worth more... (Gates, Slim, Buffet)
Total dollar value of Electronics exports from State of California in 2008 $48b

Foreign currency reserves Argentina 2008 $46.6b
N.J. Pension Deficit $46 b
Smart Grid Spending Forecast by 2015: $46 b
Massachusetts State Pension Fund $41.3 b
Just for fun...
Major League Baseball gross revenue 2009 $6.6b

Other links
Fortune on the Sustainability of US Corporate Cash Positions
Asymco Cash analysis

Author is long Apple and would like current yield from his investment in Apple

Amazon Runs out of Kindles people forced to read backs of cereal boxes

2010-07-28T13:55:00.000-04:00

I and many others made the mistake of thinking that the iPad would kill the Kindle. I mean if you want to read a book you can have either and then oh yea the iPad will bag your groceries and wash the car too, who would buy the Kindle?* Apparently a lot of folks. Amazon is sold out of it's current run of kindles. Macworld story

Looking back I think Amazon may have thought so too. (remember the whole removing publishers thing). We are reminded by reality that one product does not a market make and that there need to be alternatives. The introduction of the iPad into the marketplace may have actually increased sales of kindle. The logic saying that prior to the iPad the kindle was perceived as a fringy device and the introduction of the iPad further legitimized the market for e-readers of which the kindle is both capable and significantly cheaper than the iPad.

Cool

* Either that or amazon only ordered like 10

Subscription Friction: Time Inc bumping up against Apple Restrictions.

2010-07-28T11:04:00.000-04:00

Peter Kafka writes about the magazine industry (Time) struggling to figure out what to do about iPad.

Charge for an app and you get paid but get no customer data (Apple keeps it) and Apple has rejected their sign in app where the model would be similar to the WSJ where you pay Rupert and get a sign-on that gives you access to the paper/Magazine. Magazines want to be able to sell subscriptions and get data about their buyers so that they can market themselves to advertisers. Paying a 30% vig to Apple and not getting any subscription data sows not sound like a winning combination. There are plenty of examples of apps that receive revenue and data about their customers but are still applications in the app store. Just not magazines.

Think about this: Noe Apples point of view. What is the question Apple is trying to answer/control? lets assume for a moment that Apple is OK with magazines external sales then comes the question... What is a magazine? What is effectively different about buying a subscription to Time and buying a subscription to Angry Birds? Every addition step into the structure of the marketplace they are building has huge implications for iPad,Apple and the entire competitive landscape being build around portable connections.

Brave New World

iPad apps/ magazines / media are not going to look like their real world counterparts for very long. We are going to invent (royal we) new ways to consume information that could be radically different from the way we do today

Links to smarter people than I: Magic Touchpad, iPod Touch

2010-07-27T18:29:00.000-04:00

Two interesting bits thought of by people not named Ben...

First Andy Ihnhatko (Beloved Technology pundit) loves the multi touch "Magic Touchpad" (I hate these names)

Andy is right it is fargin cool. The first whiff of the Multi-Touch Mac OS, Apple TV?

Second because the iPod touch is such a second sister to the iPhone it had completely escaped my laser like focus (but not Grubers) that in the three years since the iPod touch came out there are still no competitors to this device.

Taking Stock of Apple Stock:Revenue Projections

2010-07-27T00:02:00.001-04:00

Ben Vested

Apple announced blow out earnings just a week ago but it is never too soon to think about what future quarters will bring.

Here is a revenue/stock price analysis of AAPL for the next year by quarter BEFORE adding in announcement of new products.

The only really meaningful assumptions made are as follows.

1, No major downturn to the current world wide economy
2, No major supply constraints for iPhone and iPad
3, Near past trends in other products are good predictors of the near term future performance

Apple is currently selling for 19x trailing 12 earnings and has pre-anounced revenue of $18 Billion for Q4 (FY10 ending Sept 30)

2009 coming into 2010 was confusing there was iphone ipod and Mac. 2008-9 economy sucked, The Stock Market sucked. The iMacs were due for renewal, iPod had reached saturation and The deferred accounting for iPhone made understanding earnings going forward. As a result Apples earnings were difficult to predict and a good hunk of that growth had to have built in earnings for Product X.

This year is much clearer. The economy sucks but is at least stable and Apple has shown itself to be reasonably recession proof. Legacy products (Mac and iPod) represent about half of Apples business and are stable mature businesses with some growth. The other half of Apples business are two new products very early in their sales growth. (these two halves add up to about 90% of the business) iPad and iPod. While the iPhone is the coolest gizmo ever the iPad makes it clear that iOS and mobile computing in general will change our computing paradigm.

One open question about Apple revenue is not demand but supply, Can Apple supply the scads of iPads and iPhones the market wants? White iPhone aside I think Apple can meet most iPhone demand but iPad demand caught Apple a little flatfooted. I think supply of iPad will be somewhat constrained for "a while".

Current demand for iPad is far in excess of the 1 million a month Apple spoke of (earnings call) as their pre-release manufacturing bogey. I suspect that as a prudent company Apple built in some headroom in capacity when they made their order so while it may be difficult to triple supply as they may have to replicate an entire line/factory/expertise (or any of a million other things) I suspect that it may be possible that they were (or will in short order) able to significantly increase, even double capacity in the near term. (Total speculation)

These Tables represent EPS and the indicative price per share over the next year given a set of income projections that while bullish are reasonable. (I will go more into the model at a later date). The P/E scale is based on the highest and lowest P/E's Apple has traded at over the last 5 years. What is NOT in the model is whatever product i"X" Apple has planned for market over the next year. So while my analysis is bullish for the products I modeled, it is conservative in that the model does not include any revenue from as yet unannounced products. It is impossible to know what the revenue impact of for example a new Apple TV offering or a completely redone (please please please) Mobile Me service.

			Earnings Per Share Stock Pricing Matrix
YOY Revenue Growth	Quarter	Trailing 12 Earnings per share	15	20	25	35
61%	Q3 2010	13.28	199	266	332	465
68%	Q4 2010	15.00	225	300	375	525
83%	Q1 2011	16.88	253	338	422	591
43%	Q2 2011	17.85	268	357	446	625
48%	Q3 2011	19.56	293	391	489	685


			Dollars per Share Earnings Multiple Matrix
YOY Revenue Growth	Quarter	Trailing 12 Earnings per share	200	300	350	400
61%	Q3 2010	13.28	15	23	26	30
68%	Q4 2010	15.00	13	20	23	27
83%	Q1 2011	16.88	12	18	21	24
43%	Q2 2011	17.85	11	17	20	22
48%	Q3 2011	19.56	10	15	18	20

Take it for what it is worth. But on a historic growth basis Apple does appear to have significant room to grow. Assuming Apples share price remains at 20x earnings, in that case Apples share price would increase 47% over the next year. There are a couple of price barriers to Apple stock and they are related. The first is issue with growth of the share price as we look at it going forward. While I think the earnings growth for the next year or two is locked in. It is not clear what will happen next The other issue is market cap. Apple has a market cap second only to EXXON. Fricken EXXON.

Lastly, this is not an analysis or rebuke to Apples cash position since it is stellar the cash has little effect on the stock price (Although it is hugely diltutive to ROA). and it is a good thing that they are cash flow positive 1.3billion dollars a month.

That said should pay a dividend. by the end of fiscal 2010 Apple will have ~$50 Billion in cash and marketable securities. There is no rational reason for the company to have this much cash. None.

Really Lastly. The Author is long APPLE. You need to do your own math and most certainly don't follow the advise of semi anonomous internet talking heads to buy your stocks. As a buddy of mine tells me a lot. Don't invest in ANYTHING you do not understand. for most of us that does not leave much.

LG indicates iPad supply will be constrained into Q2 next year

2010-07-23T14:29:00.001-04:00

Reuters reports this morning that LG cannot keep up with Apple demand for iPad displays.

The fact that they are constrained in the short run is old news that they will not catch up until 2011 is a big deal.

During their earnings Call Apple was asked several times in different ways about the nature of the current pipeline contstraints of both iPad and iPhone 4s. And while they would not say when they will get demand/supply in balance I for one left the call with the impression that there were no particular issues that would prevent a reasonably short term ramp to a much bigger number.

Tim Cook...
Both of these products, the iPad and specifically the iPhone 4, we had backlog at the end of last quarter that we were not able to fill. And currently, we are still selling both of those products as fast as we can make them. So we still are quoting longer lead times than we like and we’re looking around the clock to try to get supply and demand at balance.

Early in the questions Tim Cook mentioned that they targeted a million iPads a month for the launch but have been blown away by demand. Why did no one ask the question... How blown away? 1 million 2 million? So we know they are making more but not likely MANY more than 1mm a month right now and LG is saying they are nog going to be able to meet Apples current demands until Q2 2011. Isn't that when V2 will be out with the magical retina display and front facing face time camera?

Again Tim Cook
because if it turns out that the iPad cannibalizes PCs then I think it's fantastic for us, because there is a lot PCs to cannibalize. It's still a big market.

I took this comment initially as a little snarky but when you take it at face value it is indicative that Tim Cook believes it is at least possible that the iPad becomes a truly transformative device that ultimately (in a much later version) replaces the PC

off topic a little, ok a lot. Why did not a single analyst ask about Apples Cash position? I know we are going to get a crap answer but at least ask. More on this later.

Antennagate the Because we Can't Let it Go Edition

2010-07-22T00:59:00.000-04:00

First it aint over... Antennagate is guaranteed to be in the news at least thru September when they either announce more free cases OR as Steve said in the briefing Who knows maybe we will have figured out something better by then.

I thought it made sense to apply a little critical though (ok very little) to Antennagate the press conference.

What is interesting about the drop call rate is that according to Anand Lal Shimpi from Anandtech (on TWIT Sunday iTunes link) the iPhone 4 really does have a measurably more sensitive antenna and will hold onto a call in weaker areas better than previous iPhones but then he went onto explain that that in their testing the iPhone4 did have more dropped calls in stronger signal areas where the iPhone 3GS did not. Are you fascinated yet I mean this is scintillating stuff! OK so what you say is the point.

Add the fact that Steve Made clear in his presentation that they actually do not know why the drop rates are higher than the 3GS.

What if the antenna is in fact performing exactly as designed and the drops have nothing to do with the antenna? ( I know but you can put your finger on the thing and the bars drop forget about the frickin bars for a minute)

As one possibility not because I think this is the solution but just as an example... What if the issue is something different about the way the software controls the radio in medium signal areas (ostensibly to improve battery life) that is buggy or needs tweaking?

Other stuff

It also seemed very clear to me that Consumer reports sucker punched Apple. They effectively outlined the problem, and posed what they thought was solution. Apple came out and provided the solution Consumer reports telegraphed would make them happy and BLAM not good enough.

Why just AT&T returns? I mean why not Apples? look no black hats here just a weird omission.

I have seen it other places but the whole 1 out of a hundred thing was intentionally designed to minimize the size of the issue. based on all the numbers I have seen none of which may be right the droped call difference is somewhere between 10 and 50% worse than the iPhone 3gs. Try this.... Only one more out of a hundred flights crash ( you get the point)

Look this is a real issue but it is not the reason not to buy the phone. Apple looks standoffish they (Steve) says stupid things but over time when confronted with issues with their products Apple has the right thing

Look for my semi annual where is my dividend rant coming soon to this blog...

Flipboard: an Electric Motor in a Steam Powered World

2010-07-21T22:05:00.000-04:00

Ben Vested

I do not write about APPs. I am just not drawn to reviews. So this is not a review per-se That said... What is cool about Flipbook is what it represents. Innovation. I downloaded Flipboard and spent like 10 minutes just flipping the page back and forth. It is just so frickin cool. It is not a finished product but that is beside the point.

When the first electric motors came into use they were used to replace water/steam power in mills. Mills were designed and optimized over time to make effective use of centralized power. So when electric motors came along the only way people saw to use them was as a substitute for the water power. It was years and years before factories and equipment began to be designed around the unique qualities of the new type of motor.

The iPad is an electric motor in a water and steam powered world and Flipboard is the most obvious example I have seen yet of what the future will bring. We have no idea what this platform will look like in 10 years time. All the existing magazines on the iPad.... Steam baby.

Look I am not saying Flipboard will survive or replace Wired/Time/People Magazines but something is going to. The vast majority of stuff that has been produced so far has been regressive,trying to recreate the experience you get with a paper magazine.

At its most basic Flipboard is an RSS/twitter/facebook reader that aggregates your social feeds in a very unique and pleasing way. The Tweets in your stream are presented with the entire content of the link for you to page thru. The feeling is very much like the serendipity of reading the sunday paper.

And it is "Made with Love in Palo Alto, California"

The Wow factor is strong with this one . Itunes Link, Macworld Review link

The writer has no affiliation with Flipboard or Palo Alto although both seem pretty cool. I am long Apple.

My Q3 guess

2010-07-20T14:33:00.002-04:00

A point estimate is crap but fun anyway 3.30 per share on 15 billion in income. The real wildcard is what the gross margin will be.

Based on the fact that current iMacs are getting long in the tooth (read higher margin) and iPhone continues to grow as a percent of total business that gross margins will stay over 40%

A real number is somewhere between 2.90 and 4.40 a share.

There will hopefully be lots of good information on the call about pipeline constraints since current demand for iPhone and iPad appears to be outstripping supply.

Listen in at. www.apple.com/investor
5:00 pm Eastern.

Apple Earnings Preview

2010-07-20T01:09:00.002-04:00

Ben Vested

First I was going to do a bunch of tables and charts and then I was going to do some really cool finance voo-do all over it but then I found out Andy Zaky already did a fine job on that. Here. I did do a couple of charts you will find below.

This will be more information than you require (hat tip Hodgman) but here it is anyway. I follow Apple as a company because (within normal healthy adult limits) I love tech, Apples products, the way they go about their business and the fact that they are a large successful easy to follow company. I invest in them because in addition to all of those things, their business and the engine that drives their earnings can be understood. Look, GE is a great company but based on their published financial statements three PHD's with a Ouiji Board and a bag full of darts could not figure out what is going to happen next with the company.

Apple is simple by comparison. iPod, iPad, iPhone, Mac, and other stuff. Apple is unique in the hardware space in that they make coin... Apple is making money in two industries populated by companies fighting to do their best impression of Eastern Airlines (commodity out of business). Nokia by far the largest maker of mobile phones by unit sales is losing money. Dell the largest US maker of PC's has a 3% profit margin. Their relative performance in the stock market over the last 6 years tells the story.

Apple is a hardware company, and they win because they innovate. They refuse to compete on price and over time have produced time and again products that customers are willing to pay a premium for. Apples ability to grow in the future will be tied to this simple equation.

You can argue at the margins but something between 45-55% of the companies earnings this year will be derived from product classes that did not exist before June of 2007. iPhone came out in June 2007 and will have something over 20 billion in revenue this year. iPad just came out this year and already is lighting up the revenue meter it should represent ~8% of 2010 revenue.

Here are two charts that show both revenue growth AND the contribution to growth by product.
This is revenue growth in dollars broken out by product.

Note 2010 projections are from Andy's analysis, they are as likely to be right as any (a little optimistic) I used Apples presentation for products because It shows how the growth in Macintosh has been driven almost exclusively by laptops over the last 5 years, the last 12 months being an exception. I have written about this before but Apple OWNS the over 1,000 computer market. During a time when Dell and Asus are fighting over fifty bucks for a netbook Apple has been able to get the average price per unit for desktops to go up.

Iphone is obviously experiencing explosive growth as is iPad. What has been surprising about the iPhone is that three years after launch the iPhone has maintained a PPU of over 600 bucks. Estimated margins on iPhone are 60% so as the product mix moves towards iPhone Apples overall margin continues to expand.

This chart is the same data presented as a percentage. It is here that you can see the relative importance of new products as a percentage of earnings. The three big growing categories iPhone, iPad and Other music and related services (read this as APP store). This category is going to grow like Kudzu in July over the next few years.

Longer posts coming on the following

Apples Cash position. Apple is piling up cash at a rate that will force it to change its current accumulate cash forever strategy or not. Currently they have about 47 bucks a share in cash and short term securities. It is a stupid amount of cash that management cannot with rational argument hold onto given that they have zero debt and are continuing to accumulate cash at a rate of OVER 1 billion a month. More on this later.

What happens next. Apple will not make any new product announcements today but as sure as Microsoft will announce products that they will never make, the NEW is coming and it will be Magical and Revolutionary from a profitability standpoint .

Risks. Apple is now huge. a lot of the poor PR in the last year has had to do with this size. Size is also an issue in that they are running up against the law of large numbers in terms of their ability to grow. Exxon Mobil is the only US company with a larger Market Cap and in order to maintain its current growth rate would have to create 20 billion in revenue next year that it did not have this year. I am not saying it won't happen just pointing out that it is a big number. Life after Steve not a happy thought. There are others... Margins.

More after the announcements tomorrow.

The author of this post is long Apple but makes no recommendation for purchasing equity positions in the company. Your grown people make your own decisions. The author has no holdings of Eastern Air, Dell, Nokia or Greek sovereign debt.

Peeve of the day iTunes Advertising

2010-07-17T18:09:00.001-04:00

One of the benefits of Mac ownership has been NOT having to wade thru crapware on my computer all the time. Now comes this

Almost everytime I sync my phone I have to click thru this MobileMe Ad? At first I thought it was just when I synced my new iPhone 4 for the first time. but it has been there almost every day.

CRAP!

Make it end Apple

Regardless of the relative merit of MobileMe (not good for me but I am hopeful long term) I find this type of advertising putoffish and invasive.

Now, lets try a thought experiment. Assume that customers that sync their phones are better Apple customers than non-syncers. (we know who you are). The presumption being that syncers use their phone more, buy more apps, and are happier overall with their user experience and as a result more likely to buy another phone or even better MORE apple products.

Do you think having to click thru an add every time I want to sync my phone makes me want to sync more or less? It adds friction. like a paywall or even a registration wall does. (see Rupert Murdoch Times 60% traffic drop off for Free restration wall went up)

There are two lessons here.

First, If their is value in the product people will find their way to it. Make the product better.

Second, and it is a correlary to the first. Advertising it more make increase sales but it will not increase satisfaction and repeat customers (see rule number one)

Lastly, I know there are opt outs for email marketing and even for iAds so if there is an opt out for iTunes I have not found it yet. If I find it. OR if the add goes away so will my Peeve.

Bad day to be a case manufacturer

2010-07-16T19:34:00.000-04:00

I think the most important news to come out of today's press conference was missed by most if not all of the scads of reporting firepower assembled to record the event.

Apple is in the case business because of the failure of existing manufacturers to keep their collective mouths shut about upcoming products.

Can you imagine being the CEO of an accessory maker and having to hear that today? Ouch. It reminds me of the take the cookies away from all the kids until whoever scratched dads car door comes forward. ( it wasn't me really ).

Steve Jobs...

Sometimes websites buy stolen property and they get out there... and case makers have a history of showing off their new cases for our new products. The case vendors haven't had a history of helping to keep our work under wraps

Maybe they already knew they were screwed, maybe Phil or Steve told them just how screwed.

But now they have been screwed.

Antennagate: The pre presser briefing

2010-07-16T00:28:00.001-04:00

Ben Vested

Only a few people know what apple will announce at tomorrows press conference. Every news outlet in the country will be covering the pressed as the biggest story of the day...

Did anyone notice BP stopped the oil today on day 90 (maybe)

This silly season frenzy is fun ( maybe not so much for the few at the center of this), a welcome diversion from the real news that is so serious and depressing. There are also a huge number of stakeholders in the outcome. The two to three million of us that already have the phone-4 the 80 million of us that have older iPhones. The stockholders, press/blogosphere.

Friday afternoon coverage will be wall to wall.

The facts have been well covered so I will not repeat them here. For my part I think that there is a perceptible reception issue with the new phone. That said, I have used mine daily since launch day I find it delightful to use with significantly better coverage and sound quality than the previous phone.

The real issue is that it is an issue. At every opportunity since the stunning 1.6 million unit launch weekend. Apple has stepped on it's collective wiener. (Hold Different?)
Apple is going to have 60 billion dollars in revenue this year they are second only to Exxon in US market cap. They are no longer the little guy they are no longer "The Rest Of Us".

I do not know what he announcement will be. I do expect it will be definitive and final. It is fun watching everyone try to guess. Who knew RF engineering could be cool?

Here are a couple of great links to articles summarizing the events of the last three weeks.
Anantech
A little geeky but very clear follow up on the actual issue and performance. Link

Arrington
He famously does not use an iPhone. Interesting take Link

Under Construction

2010-07-15T07:34:00.001-04:00

Under Construction.

BnVseted is being reconstituted, rebuilt, and reworked. My Appologies for the font and layout obsessed in the world my CSS is non existant and my taste... well you can see. (best for the time being to follow RSS)

Layout suggestions are welcome as are suggestions for hosting.

Apple and Psystar Restore my Faith in Humanity

2008-12-03T23:25:00.003-05:00

Hello Apple!

Welcome to my twisted world. Where things make sense when you "Follow the money"

Hewdell Packovo you say?!!! Hewdell Packovo is behind Psystar?!!!! who would have thunk it possible that two twenty somethings could start a real (albeit illegal, imoral, cruel, ok maybe mot cruel) company, stick their middle fingers up in the air, hire a big expensive law firm to defend (dare I say OFFend) them selves against a 100 billion dollar company.

Someone finally figured out that there may be players in the current market place that might benefit from Apple losing control of their IP as it pertains to Hardware made to run OSX. Hmmmmmm.

If I cannot pose that I called the housing crash (and I cannot, I did really but you know the saying... If it wasn't blogged it did not really happen.. its a saying, really) Than I CAN say I called Hewdell Packovo the nefarious funder of all things Psystar.

Here are some of the Psystar links from the last SIX months.

There are more just click on the keyword Psystar

First post in a while, I am pondering my navel trying to figure out the best way to take over the world. When I figure it out, I will let you know. Unless taking over the world means I cannot tell you first. In which case, Sorry.

On Analysts and Earnings Apple Reports today

2008-10-21T09:18:00.002-04:00

This afternoon Apple will report another record quarter with both unit sales and revenues the best in the companies history.

If you knew before the announcement how many computers, phones, music players, Apple sold AND how much revenue they took in, you still could not reliably come up with a per share earnings number within 10% of what will actually be announced.

Analysts come up with a number because we (the investing public) goad them into it. It is a spectator sport. Some analysts will come closer to the actual number than others. Assuming they do not have inside information it is simply chance. Most of the analysts know this simple fact yet they submit to the kabuki because, well, they want to make a living.

Here, I can prove it.
If you knew Apples Gross Revenue all you would have to do to come up with an earnings number is accurately predict gross margin and tax rate. (that's all?) so on earnings of say 8 billion a 4% difference in gross margin would indicate a range of ~ 23 cents a share. Compound that with a 4% difference in tax rate (12 cents) and you could be off by 35 cents a share. And you knew the earnings!

Is that enough of a disclaimer?
Because I have to...
1.22 on 8.3 billion in Revenue

Writer is long Apple. Don't believe a thing he says, he is not particularly stable as evidenced by his willingness to predict (guess) earnings KNOWING he cannot possibly be correct.

So listen to what the Analysts say about the business

Apple Laptops Squeeze fun out of Business for Hewdell Packovo

2008-10-17T05:51:00.007-04:00

Apple is going up-market. Oh you say they were already there? Not like this. And what it means for Apples Desktop will be interesting to see too. The new MacBooks and MacBook Pro's are beautiful. Anyone that uses a laptop of any OS would want to use one.

Apple is telling the rest of the PC Business don't even try we will crush you if you try and chase us in the high end.

It was inevitable that as the price declined on the "commodity" end of the computing business that there be more differentiation. That one company (Apple) has come to dominate the high end, while playing the underdog in the marketplace is amazing.

Remember the iBrick Apple building its own Factory Rumor? ... Ya well the fact that Apple is not selling a cheap laptop is as a result of that decision.

Since Apple does not own factories (No-well less Fixed costs to distribute) they are not concerned about the utilization rates of those factories. No Fixed costs or in place assets that must be used. Apple could be the largest "virtual manufacturer" in the world. (Made up but I will update if anyone knows for sure). As a result, Apple can maintain high margins while Hewdell Packovo, all try to figure out how to compete.

HewDell Packovo

The last figures I saw Apple 66% of the computer business selling for more than $1,ooo. That means that not only is Apple making high margins they are squeezing all the profits out of their competition at the same time. At best 34% of the high priced Lappie business is left for Acer, Sony, HP, Dell, Lenovo, Panny....)

The Take Home (short term)

Apple has decided to forgo some level of market share growth in order to maintain high margins on their Laptop computers

The Take Home (Longer Term)

The PC business may continue to grow in unit terms but Apple is telegraphing by this decision that they think in Dollar terms the business is maturing. The evidence suggests that further differentiation is the way to maximize the profit available for Apple. This necessarily will limit growth of income from PCs

What this means for company growth (iphones product X) in the future is a discussion for another day (Asus as Volkswagen)

PC MAG Dan Costa

Mac NZ Mark Webster

iBrick predictions 50-50

Apple "Tax"

Apple v Dell

Kvetching iPhone

2008-10-16T01:18:00.006-04:00

iPhone is the Coolest Gizmo Ever. Of this there is little doubt. Even Joe the Plumber agrees!

That said I have a list of things that have begun to get on my nerves with my iPhone.

iPod

Prior to V. 2.2 a video podcast could be played as a video OR alternately as a Podcast. This functionality is gone and it means that even if all I want to do is listen to the audio I am forced to leave the screen on wasting the battery. There must be a way to let me listen to the Audio.

Podcasts now roll to the next file at the end of a recording. Why? I could see why you would want this in an audiobook but not a podcast. Just End. or better yet give me a choice in settings.

Maybe I am alone on this but the "Not New" flag is unreliable on syncs. Meaning after listening to a recording to the end. I sync my iPhone and it both does not reset as being read on iTunes and then is re-loaded as new content on my phone.

Alarm Clock

So do you think that clicking into the clock, then the alarm clock, then hitting edit, then selecting which of the multiple alarms you might have you actually want to edit, then setting a time, and then finally saving. (Oh by the way you have to get up in 5 minutes!)

Mail

Mail Box that can deal with more than one account. Because the iPhone cannot deal with more than one account there are 4 clicks to jump between inboxes.

Calendar.

Why limit me to iCal? (or Outlook?) aren't there some open calendar schemes that could be supported? Say Thunderbird?

Synced calendars don't show up. Makes it unusable for me. There are multiple calendars updated by multiple people that I need information from. This should, to coin a phrase, Just Work. In my mind it is the baseline sales pitch for the whole Mobile Me-Apple-environment thing. So I use Google calendars.

An aside... Do you think that Apple can compete long term with Android if the Google Calendar WEB Application is better than what is written in native code on the device?

Contacts

Give me the ability to forward a contact in an email (or text). Preferably in multiple formats but as a VCard for sure. how embarrassing to pull out a pen and paper to write down information that I have to re-type into an email. The people that see this are not thinking Gee Where can I get THAT phone.

Lastly is the most obvious. Copy & Paste!

Some Recent iPhone/Touch writeups

Verizon iPhones

Rimm Spends to keep up

Android and the iPhone

Iphone/Touch Kick Nintendo's Everloving ass

iPhone Sales projections (With Real Math and stuff)

Writer is long Apple, and is sad he listened to the little voice in his head that said "Sub-Prime" it's the wave of the future! Don't let this guy be the little voice in your head.

Apple Refuses to give away Computers: This investor Cheers!!

2008-10-15T06:37:00.007-04:00

$899 computer....

Apple said their margins were going to get squeezed over the next year and the whole world thought. Oooohh Apple's giving away free stuff! (However unlikely I thought it was a possibility too)

Real back of the envelope stuff here but here it is. Apples PPU (Price per unit) on computers of all kinds fell only 80 bucks from the year ago quarter.

If Apple dropped the price of the lowest price laptop by $200 bucks and since the product mix favors sales of the lower price laptops a $200 price drop would have an outsized effect on the average. combine that with the falling price on the Air and average PPU could drop by $200 would mean that just to maintain revenue equal to last quarter they would have to sell 20% more computers just to maintain their 3.6 Billion in Revenue.

So here is the take home. If the business is growing. and revenue is growing. Don't give up margin.

Apples cost to make a less expensive (at retail) computer is only pennies cheaper than making a more expensive one. Apples strategy has and apparently will be (until it is not) to try and add further value to convince us that we do not want a $600 laptop. (In fact Apples average PPU will be crushed this quarter anyway because of the Back to School promo but will be similar YOY)

I will write some more later on the effect this has on Earnings Growth prospects for next year.

Here are some related links

Reasons for Narrower Margins

Earnings release next week

Apple Crushes Dell

Why Apple should pay a dividend

Is Apple stock cheap?

Writer is Long Apple and is depressed that the Red Sox cannot beat the team from Tampa. If your depressed you may be a Red Sox Fan too. Don't love the Red Sox it only brings pain. Love Apple but not because of Writer OR the Red Sox

Verizon iPhones on the Horizon?

2008-10-15T00:05:00.000-04:00

AT&T Exclusivity

Apple's decision to be exclusive to AT&T is not based on the revenue from AT&T alone. We know this because of the bleedingly obvious fact that they would have significantly more revenue selling to a larger market with lower subsidy fees than to a smaller market with higher subsidy fees. Apple is currently made the iPhone available to significantly less than half of the US handset market.

So was this a strategic decision by Apple to NOT manufacture a CDMA phone (Verizon) to control development costs?

Given the hiccups over the last year with Apple product launches you could see why they might have wanted to focus on a single product. That said if the 3g is safely being sold in 70ish countries and being manufactured at volume is it possible that a CDMA Verizon iPhone be coming soon?

It is not entirely clear what AT&T is paying to Apple for each iPhone added to its network. The rumors put it between two and three hundred dollars per unit, about double what is reportedly the current standard subsidy for non iPhone smartphones. The Exclusivity agreement reportedly extends for 5 years (2011).

What raised the issue for me is the outstanding G1 Pre-sale of 1.5 million units. Significant evidence of demand for an "iPhone like product" available on a network other than AT&T. There is no way to know for sure but I strongly suspect that 1 million of those G1s are potential iPhone sales that were unwilling to accept AT&T as their lord and savior. T-Mobile is only 10% of the market but credible competition is coming so why lose out on profit AND give the competition a leg up in by providing an iPhone free zone within which to sell?

As stunning as iPhone sales have been in the US they have been limited for a number of reasons. Tethering to AT&T reduces the possible US market by more than half and limited outlets (Sales by only Apple and AT&T about 2200 stores all in) further constrain availability. Now iPhones are widely available at 850 Best-Buy locations and 4200 Wal-Marts around the country. Look RIMM will sell phones HTC will sell some phones but everyone knows who the competition is. The Coolest Gizmo Ever (CGE)

One wonders...How much would ATT have to pay to limit sales of a product to less than half the available marketplace and by doing so give a leg up to the competition?

So what is the point? There is no denying gravity. There is immense support for the existence of a Verizon CDMA iPhone at some point in the not too distant future. Will it happen? Not a clue.

Writer is long Apple and is a customer of AT&T. He does not hate his carrier. You may hate your carrier but don't be a hater. Don't hate on Me or Apple or AT&T because of anything this lunkhead says either.

Apple Taxing Users Offering "More" than customers need...Microsoft Sez So

2008-10-14T02:00:00.003-04:00

Ina Fried in an interview on cnet, speaks with Brad Brooks of Microsoft. Who explains in repeated and excruciating detail how it is that Apple "Taxes" its users. It is an interesting point of view that goes something like this.

You want a laptop. So you and your PC Wanting self you might walk in to PC store. Say you spend $799 and left happy. OR in Brads alternative universe you poor consumer you, instead you walked into the shiny Apple store and they (clearly unfairly) charged you $1099. For a clearly superior product. Now Brads contention is that Since you spent $300 bucks more for the computer that you were "Taxed" unfairly by Apple.... Now setting aside for a moment that the computer and operating system are VASTLY different Assume Brads logic is good. (strain)

Now. Here we are in Brads World. How much would the "Tax" be in Opportunity time spent clicking on security dialogs, hangs, crashes, lost productivity due to other system being underpowered do not exist on OSX? What is the value of your time Brad? Hmmm? What if the "comparably equipped" PC actually cost more than the Mac as it often does? is that a Tax Cut?

It is a crap argument Brad, I like it though, Its like arguing that the difference in price between "American Process Cheese Food" and a lovely organic imported goat cheese is also a "TAX"

Here is Brad on OSX Vs. Windows viruses...

You know, it's hard to get a direct comparison, Ina. I want to be very specific in any kind of the data or the information that I give you there is that you're running one system versus another. The best way to really look at it is based on the Internet services, and what's really going on out there in terms of things like phishing or other types of scams that can actually happen through your browser or Internet experience. That really is much more of a direct comparison.

Good thing there is not a "TAX" on the cost of rebuilding your system after a virus then. I guess that fee would be called a "shoulda bought a Mac" fee?

Paying a Premium price for a premium product is not a Tax, it is called getting what you pay for.

Krugman Awarded Nobel in Economics

2008-10-13T07:19:00.004-04:00

Nobel prize in economics awarded to Paul Krugman today.

If you want a clear narrative to what is going on in the world financial system right now. Read his pieces over the last month or so. Congratulations.

List of Krugman articles

WSJ story about the award

Apple Earnings Preview October 21st.

2008-10-10T02:00:00.002-04:00

Last year, in the Fourth Quarter, Apple earned 904 million dollars on 6.2 billion in income with a Gross Margin of 33.6%. They are predicting 905 million in income on 7.8 billion in income with Gross Margins of less than 32%. (and 30% for 2009) It is arguable how much Apples Margins may be coming in some but there is no question that Apple will be reporting some unbelievable numbers for this quarter. Apple guided to 1.00 per share in the 4th quarter this year ( July-Sept 2008 )

Apple hit the cover off the ball this quarter. iPhone sales are off the charts and even with the Kabuki accounting that delays recognition of income for the iPhone earnings. This will be the first quarter iPhone sales contribute significantly to total earnings. Macintosh sales continue to outpace the rest of the industry and laptop sales are now greater than desktops. iPod sales growth had all but stopped last christmas but the introduction of the iPod Touch with all of the additional functionality that brings sales have continued to climb.

The Bear Case for Apple over the next 12 months:

The Dow is down 37% YTD and Apple is down over 50%. Apple does not exist in a vacuum they sell expensive products to a broad market base. If there is a recession (duh) Apple's Sales will be effected it is anyones guess as to how much. iPhone (from the market perspective) is still an unknown quantity and sales and gross margins are still very much in question. The Narrower margin guidance from Apple has the street thinking Apple will tank prices and begin to compete with price. (eew) Macintosh computers are growing but only in a segment of the market that is now saturated with Apple products. In order to continue growing Apple will be forced to sell less expensive (sub $1,000) computers that will cannibalize sales of more expensive computers and as a result narrow margins.

The Bull Case for Apple over the next 12 months

iPhone Sales are far beyond currently priced in expectations, The Coolest Gizmo Ever will have 15-17 million in sales for 2008 and projections of 30 million (because they want to sell 50 million) for 2009 Perhaps as much as $4.00 per share in net income from iPhone ALONE!. Mac mind share continues to grow and even if the economy dings the growth. It will continue to be faster than the industry. iPod touch/iPhone app sales will continue to grow. Traditional iPod sales will become a less important part of the business over the next year as the Touch takes over.

Apple will report close to 30 Billion in Current assets (approx $33 per share) is currently selling for ~$90 per share 17x trailing earnings and 15x forward earnings.

Links to Related financial analysis

iPhone Analysis

Forces narrowing Apple Margins

Touch Vs. Nintendo DS

Apple and the Economy

Writer is long Apple and will be watching the Red Sox tonight. Root for Tampa Bay or Dell, or IBM it is not up to me. Capiche?!

iPhone/Safari Search Revenue

2008-10-10T00:30:00.000-04:00

Mozilla receives

Apparently v.2.2 of the iPhone Firmware includes a google search-bar on the top and right of the address bar just like in a "real" browser.

Revenue is the answer to the question you were going to ask. Apple cut a deal with Google to put the search bar

there and will receive income for how much it is used.

Mozilla received the lions share of its income, $57 Million from Google for the Google branded search bar on it's browser last year. Apple earns money on the iPhone/Safari browser too.

The back of the envelope... Mozilla search share implies that 1% of search is worth ~$10 million from Google. A month ago iPhone represented .3% of the Browser market or ~$3 million dollars worth of search. It does not sound like much but wait a year. When there are 50 million of these things on the ground the revenue will be $10s of millions of dollars.

Look, tens of millions of dollars is a lot of money even to a company that earned more than 4 billion dollars in the last year.

Just as an aside when I say iPhone I mean iPhone AND iPod Touch. Don't be so offended shees.