Archive for the ‘iOS’ Category

Apple (AAPL) reports after the bell today.

Everyone expects a miss.  Lots of people have already significantly cut iPhone and rev estimates.  The stock has already fallen about 10% (correction territory) in just the last two weeks… so a lot of negativity is already priced in.

On the other hand, what’s NOT priced in are two biggies:

(1)  Apple is going to talk about what it’s going to do with its MASSIVE repatriated cash horde.

I think this is going to be stunning… since I believe it may be the LARGEST cash repatriation EVER for a corporation.

All kinds of stock-positive things will be discussed… like significantly raising the dividend… or massively increasing buy backs… and so on.

So this will be a positive.

(2)  The market is so totally fixated on iPhone that it sometimes forgets that Apple has other massive businesses, too… like services… like Mac… like iPad… and so on.  And like the rest of tech this quarter, I think those will surprise to the upside as well.

So, my thoughts are these:

The bad news about iPhone is already mostly priced in, which I think minimizes or eliminates the downside.

The good news about repatriated cash usage and all the other Apple businesses are NOT priced in.

So I tend to think they’ll be more of an upside surprise than not.  Which is counter to the way everyone’s going into this earnings call.  As a contrarian, that’s scary but what I like as an investor.

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A report out from Drexel Hamilton this morning about AAPL… his rationale sounds familar!

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Drexel Hamilton analyst Brian White (formerly at Cantor Fitzgerald) initiates coverage on Apple (NASDAQ: AAPL) with a Buy rating and a price target of $200.00 (Street High)

White highlighted:

  • The sharp correction in Apple’s stock this summer represents an attractive entry point as we believe fears surrounding China are overblown, concerns around difficult iPhone comparisons are short-sighted and the appreciation for the implications of this transformational super cycle is surprisingly muted.
  • Trading at just 8.2x our CY:16 EPS projection (ex-cash) and well below the 14.7x for the S&P 500 Index, Apple remains one of the most undervalued technology stocks in the world.
  • In our view, Apple’s successful transition to a larger form factor iPhone with the iPhone 6/6 Plus is the start of a sustainable upgrade cycle that has already catapulted the company to the #1 position in China’s smartphone market for the first time ever during 1Q:15 and we estimate the company will gain share in the global smartphone market in 2015.
  • Despite a slowing economic backdrop, our recent trip to China further supports our view that Apple fever is alive and well across the country. For example, we believe Apple is planning a bigger push into Tier 3-5 cities (80-90% of China’s households) across Mainland China over the next 12-24 months and the country’s 4G network is only 12% penetrated.
  • We expect the next big iPhone market that could open up for Apple is India and we view the country at a similar stage as China was for Apple in 2010. With a population of 1.25 billion, India is similar in size to China’s 1.36 billion and enjoys a wireless subscriber base of 980.8 million users as of the end of June (source: Telecom Regulatory Authority of India).
  • For the first time in five years, Apple entered into a new product category this year with the launch of Apple Watch in April, marking company’s initial push into the wearable technology market. We believe Apple Watch will be a major hit this holiday season.
  • In our view, Apple is innovating like never before with entry into the first new product category in five years with Apple Watch, the launch of new services such as Apple Pay, an expanded effort in the TV market with the all-new Apple TV and investment in big, new industries such as the auto market that we believe could eventually lead to an “Apple Car”.

Readers know I think Apple unleashing 11 million programmers onto TV is going to turn TV as we know it on its head… similar to what Apple did to the cell phone industry.

But I was stunned how surprised — excited — I was to see the new Apple TV Remote.

Why?

Because Apple just figured out how to unlock using the next generation of TV.

The last time they did that was with the gesture interface in the tablet category (iPad).

The time before they did that with the gesture interface in the cell category (iPhone).

And the time before that with the “thumb” interface in the digital “MP3” music player category (iPod).

So, the new Apple TV remote is a big deal.

While there is no doubt that Apple’s iOS development platform — and the legions of loyal Apple programmers creating zillions of phenomenal, mind-blowing, and ultimately incredibly useful apps — is the heart & soul behind Apple’s device success…

… in each case there had to be a simple, elegant interface to be able to use all of that goodness.

Today TV remotes absolutely suck.

Do I really need to prove that?  Just look at what’s sitting next to your TV.  Probably at least three remotes… all necessary at various points… and all with dozens of buttons that are impossible to use during nighttime viewing.

That is, unless you get one of the many universal remotes… which I swear are all harder to use than flying a small airplane.

It’s like using a PC… when all you really want is a Mac.

So from what I can tell from the announcement yesterday, Apple — once again — cracked the code on a huge new market.

They didn’t do it with some weird, “Minority Report” in-the-air, be-careful-if-you-sneeze-because-you’ll-change-channels interface.

They did it the Apple way:  Simple.  Elegant.  Useful.

As Tim Cook said, “The future of TV… is apps”… which is true…

… but what’s going to unlock that future is the new interface Apple just created, the new Apple TV Remote.

No one is really talking about what could potentially be MIND BLOWING at tomorrow’s big Apple announcement.

Sure, lots of talk about the next rev of iPhones.  And bigger iPads.  But Apple TV is relegated to back-of-the-bus stuff.

Why?  Because everyone had been expecting either (1) an actual Apple TV set, or (2) that whole “skinny” bundle cord-cutting thing… so they’re all somewhat disappointed.

But I think — rather, I’m hoping — everyone has it wrong.

And that is that Apple has created a product that will let Apple do to the TV experience that they did to the cell phone experience… and that is completely redefine what we expect from TV.

How will they do this?  By announcing “iOS TV”… essentially unleashing their 11 million or so iOS programmers on TV.

That would change the face of TV as we know it.

It’s been a really long time coming (here and here).  But, in about 24 hours, we could be saying once again, “Do you want to do this with your TV set?  Yep, there’s an app for that!”

People are weirded out because the iPhone “lost” its marketshare leadership position in China.  (Here.)

But are high-end products really supposed to be marketshare leaders?

I think not.

There’s not a business school prof or business textbook in the world that thinks so, either.

What investors should be focusing on is not that Apple “lost” their #1 marketshare ranking…

… but rather how utterly amazing it is that the high-end supplier in the market is anywhere close to the #1 ranking…

… especially during their OFF-CYCLE!

Now that speaks to the phenomenal momentum Apple has in China.

I can’t understand why AAPL recently touched $110 and isn’t instead cruisin’ up to the $140’s by now.

I mean, I intellectually understand why people might be worried about China…

…. but not really…

… the China stock market “crash” happened so fast I can’t believe anyone actually noticed.  Even with the crash, the market is still up about a third year-over-year, so most investors (as opposed to traders) are still holding on to nice gains.  But to further minimize any effect on the Chinese consumer, 90% of Chinese households don’t even own stock.

On the other hand, there are some pretty irresistible AAPL drivers right now, including:

  •  AAPL has a consensus P/E of 12.7 vs. 17.7 for the S&P… however, Apple is increasing EPS a whopping 45% vs. a paltry 7.9% for the S&P… hardly seems fair, eh?
  • AAPL has upgraded only 27% of their existing iPhone installed base… which gives them a lot of room for continued organic growth
  • AAPL still has very large external targets, though… for example, India… and a bunch of unhappy Android users
  • Oh, yeah, AAPL has other billion dollar products, too
  • AAPL may be set to release iOS TV… which could do to the TV biz what the iPhone did to the cell biz… which is, of course, completely turn a huge, massive industry on its ear
  • AAPL has more money in the bank than, well, everyone

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All of which is why — with full disclosure! — I’m back on the AAPL bandwagon.  <smile>

One of the raps on AAPL is that everyone and their mother owns it… as in, there’s no one left to buy it… and if that is the case, how does the stock go up?

One way to evaluate ownership is to see how much hedge funds own.  Presumably, these are the world’s smartest investors.  Definitely, a lot of money is consolidated into a relatively few hands and their purchases tend to move the stock price needle (so to speak).

From the latest data, hedge funds collectively own 5.8% of all publicly traded companies.

But, together, they only own about 2.9% of AAPL… 50% underweight the market.

That makes sense.  Money people rang the cash register after the terrific 2014 run.  After all, they don’t get bonuses unless they book profit.

But even that 2.9% figure is skewed.  Turns out a big chunk of hedge fund ownership is held by Carl Icahn… which means that net Icahn, most hedge funds own even less of Apple…

… which means there are definitely still impactful potential buyers for Apple on the sidelines.

And why would they buy?

Lots of good business reasons… but probably the biggest is the ole’ swinging pendulum… like a moth to a flame, they’re all looking how “cheap” AAPL is… how exciting the upcoming iPhone upgrade cycle will be… maybe the introduction of a real, live iOS TV (i.e., my daughter spending a lot of money on TV apps like she does on iPhone apps)… and they won’t be able to resist… they’ll start piling into AAPL… again.