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Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All Time High

Reggie Middleton's picture




 

 

The update to our Apple analysis is now available to subscribers Apple Margin & Valuation Note. This is a more comprehensive, more "scientific" update and approach to our piece from last year Apple - Competition and Cost Structure. Next week, pro subscribers will see a downloadable version of the model behind this that will deliver more Apple stuff than you can ever digest in one sitting. In review, it is interesting to note certain viewpoints in the previous Apple research note, particularly considering Apple's stratospheric rise in price, ex:

"At current price of $347 Apple trades at 2011 calanderised PE of 12x on our estimates and 14x on consensus estimates. Yes, we are more optimistic than consensus, but more realistic concerning future prospects as well."

We were considerably more bullish on Apple's fundamentals than the consensus, but alas we were off the mark, and Apple's share price has went stratospheric - stratospheric to the point that it deserves its own conversation (more on that later). But (yes, there always is a but), the hypothesis behind the afore-linked note still holds. As a matter of fact, not only is it as strong now as it ever was, it is actually playing out now as I type this. I will delve into this, but before I go on I must acknowledge that the mere topic of Apple seems to bring out the immature and impolite in the blogoshpere. So much so, many are literally afraid to mention anything that is no "Pro Apple". That's right, literally "AFRAID", as was pointed out in this recent WSJ article "Apple: Deutsche Dares to Doubt".

The subscriber document is evident on its face with a variety of valuation scenarios, an indepth that the original research document didn't have - an error in execution. So, for those that don't subscribe, let me toss out food for thought, and even more telling, proof that clearly proves the premise behind articles such as: 

What many fail to understand is that what Google as released with its reincarnation of Android is not a new mobile OS, or a flexible handheld technology, but an innovative business model that harnesses to open source software to profitability turn the suppliers and vendors of fat margined leaders against it - literally ingenious and very, very difficult to counter without compressing your own margins. Those interested in reading more can referenceLooking at the Results of Google's "Negative Cost" Business Model Employed Through Android. So, let's get started by reviewing portions of my hypothesis from last year...

Did Android overtake iOS in marketshare and growth – Yes,  Even With Apple’s Successful Launch On Verizon, Google Continues To Increase It’s Lead In The Smarthphone Space

Did Apple miss in 4 to 8 quarters – Yes, as a matter of fact, they missed exactly 4 quarters later. The Only, and I Mean the Only, Investment/Research House To Warn Of An Apple Miss Is Vindicated!!! 

I've had many commenters say things such as "You've been crowing about Apple crashing for two years!" The fact of the matter is simply "no", I have never said such a thing. What I did say was that Apple will deliver an unpopular and unforeseen miss and margin compression due to competition. I said this in Oct. of ’10 live on CNBC, and I also said on BoomBustBlog that miss will occur 4 to 6 quarters. It is telling that they couldn't get anyone else to say what should be obvious (reference the fear and loathing surrounding the Deustch Bank analyst note, Deutsche Dares to Doubt). Well, they did miss and they are starting to feel the effects of margin compression from competition. this effect on margins is well hidden due to management's excellent execution (Kudos to you guys, btw) combined with the fact that the mobile market is growing so wide, fast and deep that it easily conceals margin compression behind massive unit sales. Although I did start to issue warnings in 2010 about Apple margins, but I made it very, very clear that this will occur over many quarters. I also made it clear I was not short at the time of the declaration. Short term traders were able to profit from my initial short notes with tight stops that I suggested...

apple_stock_and_front_month_options

.. but alas, the time to short was premature for a strategy guy (as opposed to a trader), and obviously so. That does not obviate the validity of the compression theory though.

 

From Hudson Square research:

This morning we spot surveyed 20 people at locations in Connecticut New York and found shorter lines than for the iPhone 4s or the iPad 2. We counted roughly 550 people on line at 5 locations combined, vs. the 2,300 people we counted in our iPad 2 survey last year.

  • § All but three of the people we spoke with already owned an iPad. During our iPad 2 survey last year we found 69% of our 80 respondents did not already have the iPad1.
  • § Half of the current iPad owners we spoke with this morning had the iPad1 and the other half the iPad2.

 

I’m a fundamental and forensic strategist, not a short term trader. In addition, I run a subscription site, hence I do not – and will not – give valuation bands or price targets to the public for free – plain and simple. As a strategist, I make medium term projections, and they have been – on balance – rather accurate. This article started out with For some absurd reason, the mere topic of Apple brings up the most immature in the blogosphere. For instance, I started saying Greece would default considerably before I warned of Apple margin compression –both stances indicated that this would be a medium term occurrence. Well, exactly two years (8 quarters) later Greece defaulted, see Greece Is Trying To Convince Portugal To Make F.I.R.E. Hot!!! For some reason, that is a lot easier to swallow than waiting even less time for Apple margins to shudder, even though the miss that I called for came at the first month of the window that I anticipated and market share and margins are exhibiting behavior congruent to what I anticipated. Of course I know what the issue is, the share price has spiked. Alas so did Greek bonds at a point, and so did the shares of RIM, who faced the same margin compression scenario that Apple faces, see RIM Gets RAMMED! Again... Remember That Contrarian Call 1st Quarter of 2010. Apple's management is head and shoulders over that of RIMM's (who should have been replace two years ago, alas it's too late now), but compression is still compression. 

Now, I hear many saying, "... but Apple's margins are at all time highs!!!" Really? Did iPad margins shrink due to competition – Yes. 

Okay - This is the part that the immature are bound to ignore, so I can save some of you some time and you can stop reading now. Those who are actually curious about how I come up with margin compression while others state record margins...

As it stands now, Apple is rapidly (much more so than can be gleaned from sell side analyst reports and the media) losing market share in both tablets and smartphones!

As Apple loses market share, its costs to manufacture are actually increasing due to massive competition…

Apple's losing tablet market share faster than it lost smartphone market share

Android has moved to over 44% market share in tablets from less than 3% in less than a year and a half. That's amazing and much faster growth than it exhibited in smartphones – a category in which Android literally dominated in worldwide and US smartphone growth (as well as installed base re: US) in just a few short years. Apple dropped from just over 96% to just under 55% in the same time frame. Again, as with the smartphones, the Android tablet tech is superior to that of iOS products and as iOS normalizes the difference, margins will suffer. Margins will drop (is dropping) faster for tablets because prices are coming down as fast as tech is increasing.

image061

Prices are dropping…

image031

Costs are increasing…

image042

ipad_costs

So what does all of this add up to? Margins dropping!!! Just as I said last summer... Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! 

image051 

Hey, I would hope that I raised the specter of margin compression just now in all but the staunchest of fanboys, but why isn't it showing up in the reported numbers? Because Apple had what appears to be an unrepeatable blowout quarter that allowed them to shovel large quantities of deprecated iPhones to consumers at full price. In said quarter iPhones where just over half of the company revenue. With stiff competition from Android, they will have to show and prove in terms of R&D and/or discounted pricing and that's going to cost some margin reducing, real money. The upside? The iPhone 5 should be an amazing device. You see what a little competition provides?

Still, the iPad is 20% of revenues and if it grows, margins drop even more...

image015

Have I been wrong on Apple? – Not yet, at least not any more wrong than I have been on Greece, or RIMM. Granted the share price has soared, but remained within 10% to 13% of the recommended valuation bands for about 5 months, with benefits to nimble traders (of which I am not). The stock price has performed well, but I never said the stock price wouldn’t do well. I don’t discuss stock prices outside of paid subscriptions. If or when I’m wrong, I’ll be the first to admit it. In 4 quarters if there’s no further sign of my thesis bearing out I’ll admit it, but guess what’s happening already….

Will I be wrong on Apple? Of course its possible, but things are looking like they are following the thesis rather well. 

This is the story. Apple is a phenomenal story that makes a lot of money…. But… They make supranormal profits through supranormal margins in a highly competitive space wherein they have extremely competent competition since Google arrived on the scene. Until Google, everybody else was fumbling so Apple printed money Bernanke style!. Most importantly, though… They compete directly with their own suppliers! Does anybody who is not the staunchest fanboy truly believe their profit position is sustainable competing against the very same companies they have to rely on? They can still be wildly successful, and just have a normalizing of sales growth combined with a slip in margin and there goes the rosy share price projections. Is there a chance of this happening? Once more then, shall we

Well, they are currently losing marketshare (which the media never reports)

They are forced to drop the prices of their key products (which the media seldom reports).

They are losing margin (which the media never reports)

Despite this, the company is growing profits and revenues like bananas. Why? Because the market in general is growing like bananas. There’s a lot of risks to this growth though:

  1. Patent litigation (the company was forced to remover the iPhone from German shelves just a month or two ago, and got it overturned)
  2. Natural competition (should be self explanatory)
  3. Margin normalization (ditto)
  4. Direct competition with suppliers
  5. Heavy macro headwinds (high unemployment, Euro crisis, China hard landing) for its two primary products, both of which are essentially luxury products

Despite this. Apple as a retailer, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500), as per Zerohedge: It's Official - Apple Is Now Bigger Than The Entire US Retail Sector

A company whose value is dependent on the continued success of two key products, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500). Little to add here.

Is Apple truly worth more than the entire retail industry in the 500 stocks of the S&P 500. Just sit back and let that settle right next to the margin compression theory. And in closing, also borrowed from ZH: Apple Responsible For 90% Of Intraday NASDAPPLE Gain

If the biz class 101 rules ring true, this could very ugly very fast... The Company had a slam bang quarter last, but much of that is essentially unrepeatable in the near term, reference Anecdotal Observations On Apple's Recent Quarter.

 

 

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Fri, 03/16/2012 - 22:02 | 2264175 blue
blue's picture

short the bitch at 620,it's worth more the exxon c'mon

Fri, 03/16/2012 - 21:04 | 2264052 AndrewCostello
AndrewCostello's picture

Back in the day, Apple was a great company making great products.  Now it is just another corporation selling plastic junk that you have to replace every three months.

 

Fuck em.

 

http://www.amazon.com/Simple-Wealth-Mr-Andrew-Costello/dp/1463523017/ref

Fri, 03/16/2012 - 21:27 | 2264103 sIewie the pi-rat
sIewie the pi-rat's picture

yeah but it keeps the slaves on both  (now that they have the nets)   sides of the pacific happpppy

Fri, 03/16/2012 - 19:16 | 2263809 apu123
apu123's picture

It might be time to short Apple soon.  Even if everything is great with the company it has had a large run up and will pull back.

Fri, 03/16/2012 - 19:13 | 2263801 Bunga Bunga
Bunga Bunga's picture

When the iMuppet comes out, Apple will cross $2,000.

Fri, 03/16/2012 - 19:07 | 2263771 Below Zero
Below Zero's picture

Reggie needs to make an apple doll and stick some pins in it. It's probably more effective then predicting a collapse every week.

 

Fri, 03/16/2012 - 18:53 | 2263757 BeetleBailey
BeetleBailey's picture

Sweet Jesus Reggie! When do you have time to do some actual investing? The Magna Carta was shorter. "Atlas Shrugged" looks like a dime novel compared to what's above.

You must hate Twitter....

Fri, 03/16/2012 - 20:11 | 2263917 Zero Govt
Zero Govt's picture

i've asked Reggie to trim his articles ..not the volume, but the amount of garbage in them

I think he soon realised if he took all the garbage out of his Apple-hater articles there'd be nothing left

Fri, 03/16/2012 - 21:28 | 2264108 sIewie the pi-rat
sIewie the pi-rat's picture

reggie rules but the  filler needs to go

Fri, 03/16/2012 - 18:40 | 2263718 Paul Thomason
Paul Thomason's picture

Good article ' Apple Enters Danger Phase' - so goes Apple, so goes the market!

Sat, 03/17/2012 - 14:38 | 2265161 Zero Govt
Zero Govt's picture

er, unless it takes off

..which it will leaving Reggie once again as roadkill

Fri, 03/16/2012 - 18:40 | 2263716 Paul Thomason
Paul Thomason's picture

Good article ' Apple Enters Danger Phase' - so goes Apple, so goes the market!

Fri, 03/16/2012 - 17:54 | 2263569 Stubert
Stubert's picture

expound, incontrovertible, espoused, rumination, resultant, happenstance, imbibe, multivariate, just to name a few

I hold no shares in apple or google.  I could careless of any of these big tech outfits.  I use hardware or software as I see fit for my work or during my downtime. 

What I do see is a common use of 'big' words in your contributing blogs, that really do not amount to much except for comedic value.  You rant and rave about the "I told you so" I enjoy seeing you modestly pat yourself on the back, and go back to using big words. How much of your prized research is used looking simple words in a thesaurus and supplementing them for bigger words?  Usage of too many big words is just another way to sound and feel more superior, to mask their deficiencies.  When simple words can describe thing more accurately and in a manner that is easier to understand.  Your contributions are always cryptic.  We do not need another Alan Greenspan speak.

So yah, I like reading your comments, when I need to take a break from reading too much otherstuff in ZH.  It allows me to see the 'serious sounding blog you write, while seeing self posted pictures of yourself doing idiotic poses.'

You appear to be doing well.  As I am just a min wage blue collar guy. 

But honestly, the thicker you lay it, the harder it is to swallow.  Your style of blog contribution is just a different play on those 'motley fool teaser' type investment advertisments.

You must be doing well, as you command high $$ for your 'paid content'  Oddly I thought paid content was paid content, but there seems to be multi tiers of paid content.  I wonder if I paid 2000.00 for content, and within that content, you advertise that in order to read the 'super secret stuff' you must be a pro-paid subscriber.  I might be barking up the wrong tree.  lol

If you are so sure of apples demise, would you care to show us records of you shorting apple on its way up?  If you do that, you are 'THE MAN' because you practice what you preach.  Show us the proof.  I certainly would take your comments more seriously. Otherwise, your contributions have ulterior motives.

Subprime, Banking Defaults, yes we hear you that you've been right all along.  But so were others that made the same call.  Even a broken clock gets the time right twice a day.  I guess if you harp on Apple long enough, you'll eventually get it.

Keep on blogging Reggie! 

 

 

Sat, 03/17/2012 - 04:57 | 2264556 Seer
Seer's picture

When you show up to the circus don't be surprised to see clowns.

Fri, 03/16/2012 - 17:28 | 2263466 notadouche
notadouche's picture

Reggie has been touting the fall of Apple since about $190.  Sooner or later the man is going to be right.

Fri, 03/16/2012 - 17:31 | 2263474 Zero Govt
Zero Govt's picture

Reggie has been touting the fall of Apple since $190. 

Reggie has been touting the fall of Apple since 1874

There, fixed it 

Fri, 03/16/2012 - 18:10 | 2263613 AldousHuxley
AldousHuxley's picture

Reggie is rational, but he doesn't realize that average consumer is irrational.

 

They can't afford $300 for books for their kids in school but will buy iPhones (for what productive purpose?) as soon as they have the cash.

Even hard laboring illegal Mexicans do the same shit. Can't speak English, but will pull out iPhone with data contract.

 

Also depreciating electronic gadgets thanks to Fed guarantees that the consumer will come back in 3 years for newer shinier things.

 

 

 

 

 

Sat, 03/17/2012 - 14:37 | 2264562 Zero Govt
Zero Govt's picture

Aldous  -  there is nothing rational or irrational about consumer choice... they pick the 'winner' (best beast on the market) or just go with their budget. You're either cheap as chips like Goonbubbles crass array of devices or you pick King of the iJungle.. it's a natural instinctive choice, not a rational exercise (which is a near-worthless form of mis-thinking)

...just like you 'choose' your food or 'choose' to go for a piss.. it is not rational, it is instinctive (the worm controls you not your rational brain)

Fri, 03/16/2012 - 22:53 | 2264278 williambanzai7
williambanzai7's picture

I know you are smart enought to recognize how self centered we are to think Americans are the only ones buying Apple products.

Let me assure you that the throngs of Hong Kongers at the Central Apple store are not forfeiting school books with their purchases, nor is it the case through out Asia.

Fri, 03/16/2012 - 19:53 | 2263883 notadouche
notadouche's picture

Apple can remain "inflated" longer than you can stay liquid from a short sense that is.  Of course at some point it will falter.  Every company does.  It's just annoying that he has been championing this downfall for about 350 pts.  Once it dropped about 30 dollars a share a couple of quarters ago and he came out with this big back patting article yet in fact, over the long term thus far he has been completely wrong about Apple's stock movement.  Now it went over 600 and nary a mea culpa but one day it will fall along with the the rest of the market and he will come out and claim his genius.  I don't know about the rest of his work, he may be very talented but when it comes to Apple stock he's the broken clock.  You know the one that doesn't work but is actually right twice a day.  

Fri, 03/16/2012 - 17:19 | 2263430 williambanzai7
williambanzai7's picture

This just in. Nice, trying to make a story out of their own fuck up.THIS AMERICAN FABRICATION

Fri, 03/16/2012 - 18:24 | 2263653 bobola
bobola's picture

Did Mike Daisey short AAPL before he sold the story to This American Life...?? 

Fri, 03/16/2012 - 16:54 | 2263347 californiagirl
californiagirl's picture

Another use for the iPad

http://www.wimp.com/dadipad/
Fri, 03/16/2012 - 17:08 | 2263385 Zero Govt
Zero Govt's picture

amazing what an iPad will do

expect Goofballs version only good for wiping the floor with 

Fri, 03/16/2012 - 20:00 | 2263340 Zero Govt
Zero Govt's picture

What's your point Reggie?

Have you got a point!

I note you're on a 'come down' from your lofty heights of talking stratospheric garbage about Apples products and scraping the technology barrel to find anyone with a better Ap than an iPhone. Have you given up on that score? ..if so, wise man.

So in the latest, more modest, return to maths and figures attempt to scrape the floor for any microns of dirt to sling Apples way you conclude with:

"If the biz class 101 rules ring true, this could get very ugly very fast"

Is that a point (prediction) I see there?

So you're analysing Apple to predict share performance is that the game you're playing? Is that the only agenda here?

Do you therefore wanna bet on the share price?...because i don't see the point of your non-stop muck raking campaign and once and for all i'd like to shut you up and prove a point you're talking crap (or you prove i'm talking "trash" as you claim)

Your 'Biz 101' rational, logical, crammed with facts and figures financial brain up against my speculative high risk instinctive peanut. How about it?

Apple $1,000 per share or above sometime in the month of December 2014 

(if Apples SP is below $1,000 i pay you $1,000, if above $1,000 you pay me $1,000)

Your logical "could get ugly fast" versus my natural "Apple will soar past your predictions as usual" instinct... you up for it??

Sat, 03/17/2012 - 05:05 | 2264563 Seer
Seer's picture

Let's see if I have the Big Picture right:

We're placing bets about the success of an enslaving company*, whether people will pay $1,000 for a share of it?

* Using slave labor to create products to create slaves to the "masters."

2/3 of the world's population lives on $3/day or less.  Clearly ALL of this is SHIT.

I like you, Zero Govt, but should you really be getting down in the mud with this?

Far be it from me to judge, but I see little difference between those peddling anti-investment advice and those peddling "investment" advice.  All produce exactly NOTHING.  At some point in the not-to-distant future such activity won't be possible, people will actually have to WORK for a living; and we'll all look back and realize what BS we were telling ourselves.

Sat, 03/17/2012 - 14:33 | 2265156 Zero Govt
Zero Govt's picture

the "shit" you refer to i understand is the muck raking over the "slaves"

hasn't the 'jounalist' peddling/fabricating this garbage just been outed and exposed as a fraud?

Regards slave labour if someone interviews for positions (i understand there's hundreds wanting interviews for every job there) and accepts the position doesn't strike me as being enslaved in the slightest

The muck rakers need to go back to the drawing board ..they're not wearing any clothes and their arseholes are showing

Fri, 03/16/2012 - 15:58 | 2263127 redpill
redpill's picture

The fact there are so many drooling over AAPL on Zerohedge of all places is an excellent indicator that it's overbought.  Apple makes good products, no doubt.  But in the end they are mainly discretionary purchases for most consumers, and are vulnerable to lower cost competition.  Additionally:

1) Apple cannot maintain market share in either phones or tablets.

2) They have a lot of cash but how will they spend it?  If they start paying their suppliers to improve working conditions enough that employees don't commit suicide, start paying out a dividend, and waste a bunch of resources on AppleTV, it could be gone faster than people think.

3)  There are numerous potential black swans that could take the shine off their products.  Apple has been fortunate to dodge the virus/worm bullet so far, but that is only a matter of time.  And never in the history of computing has their been a bigger target for unauthorized access than iCloud.  It's not a matter of if, but when it gets hacked or compromised.

4) In the past, Apple's iron fisted approach to content control has come back to bite them.  It still has the potential to do so.  Excluding features like Flash from their browser, limitations on device configuration, strict app guidelines, etc., can ultimately be a substantial drawback to an increasingly web-oriented mobile device environment.

5) The story of RIMM is a lesson here that dominance in one market segment is never guaranteed, especially in the world of technology.  And some of the hubris in relation to Apple's position in the market is very much reminscient of some attitudes during the tech bubble.

6) The pace of innovation in subsequent product releases is definitely beginning to plateau.  Very incremental improvements between iPhone 4 and 4S, and iPad 1, 2 and 3.  Siri was rushed, released as a beta product (practically heresy for Apple!), and already is seen as more of a parlor trick than a useful voice interface.

7) With Steve Jobs gone, there definitely is going to be a long term change in the company.  It may not be a bad thing, but then again it might.  Apple has a long history, and has at times hit home runs, obviously, but also has had some big strike outs as well.  How they move forward without their founding visionary is a valid question and does mean some uncertainty for the long term innovation culture of the company overall.

None of these things preclude Apple stock from going higher in the near term as it has become the favorite hedge fund hotel, and as long as it's seen as a safe holding pool for large blocks of capital, the price will benefit with a strong floor.  But expectations that the parabolic stock moves are a sole result of company performance and future guidance are simply naive.  It's madness to try to short it at this point, because once the momentum trade gets going there's no telling when it will stop, but eventually a few brave souls will call the top properly and make an impressive return, and just the same plenty of shorts will get killed in the mean time.

Sat, 03/17/2012 - 05:14 | 2264568 Seer
Seer's picture

Very good.  But, all that need be realized was stated in your first paragraph; specifically:

"But in the end they are mainly discretionary purchases for most consumers"

And given that going-concerns only stay such with expansion/growth, and that the world's growth is contracting and average wages are dropping, discretionary spending is ONLY going to shrink.

I didn't bother to read the verbosity of Reggie's procrastinations (things are FAR more simple than all these FOR-PROFIT prognosticators want us to believe), but at least he's got the direction right (but again, given simple physics it's a no-brainer to see the direction).

iCrap is today's Easter Island statues...

Fri, 03/16/2012 - 18:58 | 2263768 ffed
ffed's picture

Steve Jobs was apple.  It is enevitible that the end is in sight, it will end in complete ruin.

Fri, 03/16/2012 - 16:48 | 2263333 I think I need ...
I think I need to buy a gun's picture

reggie you do to much work for the analysis. I can look at the chart see that it went parabolic above trend and is due for a pullback to 500 or maybe 450.

 

Go to Yahoo finance look at chart 1 year takes about 30 seconds

Fri, 03/16/2012 - 15:51 | 2263096 sIewie the pi-rat
sIewie the pi-rat's picture

when it hits the shelves at walmart before apple stores - the gig is up

Fri, 03/16/2012 - 15:47 | 2263070 chrispycrunch
chrispycrunch's picture

Sorry Reggie: Anyone talking down Apple is just guessing. A tulip during a bubble is far more glorious than a tulip any other day. Until that ends, and until cash flow declines, Apple cannot fail. In fact, it will probably get bigger. It will probably account more more gains on the Nasdaq and lead the market.

 

At some point down the road, the law of large companies and of large numbers will set in. We just don't know when. Let that happen first. Wait for a trend, then buy puts.

Fri, 03/16/2012 - 15:42 | 2263054 Chris88
Chris88's picture

You know, I get a kick out of all the people posting here bashing this guy for making a wrong prediction about the direction of a stock price.  Oh my, of course you were always right about every single financial instrument you went long or short.  Let's face it, too, many people who bought AAPL and made money didn't do i by rigorous analysis and research, they bought it for the hell of it or because they enjoyed Apple's products - they got lucky, as Taleb would say, "fooled by randomness".  I never owned AAPL, I never shorted AAPL, and I have no skin in this particular game so to speak.  But hearing people run around here like they knew exactly what was going to happen with AAPL is just utterly hilarious.  Mr. Middleton just wrote a little piece here, made some good points in my opinion, and all the people whose only sex partner is their iFleshlight get their panties in a bunch over it; grow up.  Look at economics, look at how businesses respond to situations. New product or area is opened up, very high profit margins and growth potential.  The pioneer(s) aka AAPL make tons of money with this new product or area.  Their competition realizes this and emulate it, entering the particular field and then margins decline.  You really think MSFT, GOOG, and RIMM are just gonna lay down and die (well RIMM may but thats another story - good contrarian play though)?  I hate to tell you too, but the US consumption at 70% of GDP is unsustainable and when that shifts dramatically (which it will have to if we are to even exist down the road as a functioning society) people aren't gonna be running out to buy every new version of every Apple product considering thats all done on credit by an already overly indebted consumer courtesy of Uncle Ben.  AAPL is a fad, it's like Pokemon on steroids.  Don't think it's a fad?  Go walk into an Apple store and speak to customers in there, or talk to people who purchase all the new products they come out with. 

Sat, 03/17/2012 - 05:31 | 2264574 Seer
Seer's picture

"but the US consumption at 70% of GDP is unsustainable and when that shifts dramatically (which it will have to if we are to even exist down the road as a functioning society) people aren't gonna be running out to buy every new version of every Apple product considering thats all done on credit by an already overly indebted consumer"

Ding, ding...  You said the magic word, you win!

The word being: "unsustainable."

 

APPL = China

China will soon short-circuit.  And there goes any real prospect for eeking out more growth for AAPL.  The threat is physics/mother nature, not virtual mumbo-jumbo, techno-analysis crap.

Fri, 03/16/2012 - 17:13 | 2263411 fonzannoon
fonzannoon's picture

Sears

Fri, 03/16/2012 - 17:14 | 2263412 fonzannoon
fonzannoon's picture

FIRE

Fri, 03/16/2012 - 15:40 | 2263045 Yellowhoard
Yellowhoard's picture

When IPads and IPhones become the platform of choice for the electronic wallets that we'll all have in a couple of years, Apple's earnings will truly be mind blowing.

Sat, 03/17/2012 - 05:54 | 2264584 Seer
Seer's picture

"that we'll all have"

Who the fuck is "we?"

The "consumer economy" is unwinding.  Electrons are becoming more expensive.

Fri, 03/16/2012 - 15:34 | 2263021 hannah
hannah's picture

reggie - you look like an idiot when you try and determine apples stock price based on fundamentals (or t/a).....apple is up because the fed/primary banks are using it to push the indexes up.....period.

Fri, 03/16/2012 - 15:23 | 2262980 Toolshed
Toolshed's picture

What a bunch of sheeple fanboys. Apple will suffer the same fate with their phones and tablets as they did with their computers. In the 1980's Apple RULED the home computer market. What is their market share today? Yep, they make nice products, and they work well, but they are overpriced, proprietary, AND they are restrictive in their products usage. You don't BUY Apple products - you RENT them. They are not yours to do with as you please. You are only allowed to use them in ways that Apple has deemed permissable. Apple will continue to make nice products and continue to be profitable for quite some time I am sure. However, we have all seen this play out before......at least those of us that can remember the birth of the home computing industry. Apple's market share wil get smaller and smaller and eventually it will be just like computer stores are today - 95% of floor space dedicated to "the other guys" and 5%, if that, to Apple. It is inevitable, barring a complete change in Apple's stategy.

Fri, 03/16/2012 - 16:28 | 2263267 alien-IQ
alien-IQ's picture

What do you mean by 'restrictive in their products usage"?

I've heard others make that argument but never understood it. I've not had any such issues in my needs with Mac. What is it that I'm restricted from?

Fri, 03/16/2012 - 15:40 | 2263041 williambanzai7
williambanzai7's picture

I used to think this way. Then It dawned on me I was spending too much time fucking around with guts and software and not enough time doing what I really wanted to do.

For the vast majority of users, computer devices are not ham radios.

Sat, 03/17/2012 - 06:02 | 2264590 Seer
Seer's picture

In a former life I was a systems administrator, I saw both sides of the coin.  On one side people fucking with shit and wasting time.   And on the other I saw boxed shit that was really difficult to administer due to proprietary crap.

I like open-source stuff.  But that assumes the wrong premise.  The REAL premise is whether all the techno shit can continue in an era of the Great Unwind.  Our economic system, which Apple and the like are tied to at the hip, has no capacity to work in anything other than a perpetual growth environment, and this environment, aside from the FACT that it's impossible to perpetuate, is collapsing.

This is Easter Island and we're arguing over how to waste precious resources building meaningless (to our survival) statues.

Fri, 03/16/2012 - 15:17 | 2262944 SDS Trader
SDS Trader's picture

Perhaps to put his detractors to rest Mr. Middleton ought to publish, just once, his proprietary stuff that only his paid members get access to. What else will Apple stock do but fall if it delivers "an unpopular and unforeseen miss," other than drop in price? Why is Apple's stock price stratospheric?  Because they have not split 10-for-1?

I've read him crowing about how his subscribers get special data that he won't publish for free.  Perhaps these guest columns are just designed to tease in potential clients.  But making statements about secret-sauce price bands and such really only makes Mr. Middleton look silly.  Much like the child on the playground who attempts to get popular by claiming to know a special secret about something really important to the other kids, but won't confide in anyone else except a friend at another school.

One of the only useful things I learned in Economics courses in college was when a professor said, "All forecasts are by definition wrong; the real question is to what extent they are wrong."  Mr. Middleton is right.  Someday, Apple will miss in a manner that The Street is not happy with and, odds are, the stock price will fall precipitously.  Someday, the Euro currency will collapse.  Someday, someone will discover how to make cheap energy that does not pollute.

Another thing people may want to consider is the absolute mediocrity of Android offerings.  One quad-core tablet, the Asus Transformer Prime.  Other than that, all dual cores.  Samsung's long rumored 2560x1600 Retina-class tablet is still vaporware, even though it was for sure going to be launched last week at some C-list event in Texas.  Price is another consideration.  Android tablets are really not any less costly than an iPad, and in some cases are more expensive.  At best they offer 1280x720p HD on their displays, not 1080p as Apple now does. 

What does Android have going for it?  One, it is more open and cheaper to expand the memory via card slots, USB, and HDMI.  Two, it supports Flash, which Apple has made a point of disavowing.  Three, Android tablets tend to eschew proprietary ports.  That's about it. Arguably, Apple has far better control of its Apps market than Android.  That may make you happy if you love consistency, but it might irritate you if you enjoy the equivalent of shopping at an open-air market instead of an upscale mall with vetted retailers.  Many of my Android apps are very inconsistent performers on my Sensation 4G.

I guess since he said 4-6 quarters back in October of 2010 he still has a few months to be right.  But look at all the profit you missed out on with a simple buy-and-hold strategy augmented by a trailing stop...

Until someone comes out with a better unit than the Transformer Prime, Apple has the best quad-core experience going.  Being many thousands of units short on lauch of the new iPad seems to bear this out.  I agree with the above poster - most Android tablets fall into the geek realm.  Honeycomb and Ice Cream Sandwich are inconsistent experiences at best.  The iPod Touch is due for a refresh, and one can be about certain that the iPhone 5 will wow many people. I doubt you wiill ever see a Big Bang Theory episode devoted to an Android phone.

Sorry Mr. Middleton, this is just not impressive stock forecasting.  I'm not even sure what it is, given the way the article bobs and weaves about with pro and con pronouncements on Apple.

Fri, 03/16/2012 - 15:07 | 2262889 SoundMoney45
SoundMoney45's picture

Reggie, I am sure you understand banking, however, I am not so sure you understand high tech.  The experience curve is quite important, as is market segmentation.  Rolling analysis of a market up into one segment is a trick typically used to compare dissimiliar products.  As margins on high tech products always come down during the product life cycle, I am not sure what the purpose of highlighting normal margin reduction is. That said, there is a lot of future growth in the AAPL stock price today. Also, the accounting rules on revenue recognition need to be kept in mind when analyzing AAPL GAP profits.

 

Sat, 03/17/2012 - 06:14 | 2264597 Seer
Seer's picture

"there is a lot of future growth in the AAPL stock price today."

Based on WHAT?

http://topics.time.com/unemployment/pictures/

We're converging on govt handing money directly to the likes of Apple to keep them going.  And at some point along That path there becomes a point that companies are then working FOR the govt, they are then told how many products and how much they are to make.  The shareholder profit, stock profit is then?

Really, that Apples products are increasingly being manufactured in China.  The fucking irony...

 

Fri, 03/16/2012 - 15:12 | 2262915 tgatliff
tgatliff's picture

Also, dont forget about that $100 Billion cash on hand... Hell, even the Central Bank of Israel owns a piece of Apple.. :)

Fri, 03/16/2012 - 15:07 | 2262886 chancee
chancee's picture

I can support the fact the ipads aren't selling as well.  I only had to wait in line at the Manhattan Beach, California Apple store for twenty minutes.  There were maybe seventy people in line total at 8:15 AM.  Last year the wait was hours with hundreds of people.  And, they still have every single model left at noon.  Not one has sold out and there hasn't been a line since 9 AM.

 

Call and see for yourself.  I know this because I just went and exchanged mine I bought this morning due to the screen having a green hue at the edges.  If you have an ipad 2.  DO NOT UPGRADE!  If I hadn't already sold my ipad 1 to someone on ebay last week I would be taking the new one back.  In my opinion, the screen is only 'different', not better.  Yes, it's way more detailed, but it's total BS about the richer colors.  What's happened is the overall screen is duller in color, except for the reds which now appear to really pop out against the duller colors.  And my ipad 1 had perfect whites... but the new ipad has more of a transluscent white with fading at the edges like early LCD's.  It is faster though.  But not nearly enough to justify a $900 upgrade (with new cover).  I'm an idiot.

Sat, 03/17/2012 - 03:47 | 2264363 baby_BLYTHE
baby_BLYTHE's picture

For the launch of the iPad 2 Apple wasn't taking preorders like they did for the new iPad. 

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