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The Web's Most Comprehensive Apple Analysis & A Roadmap To Apple's Resurgence That Management Is Ignoring!!!

Reggie Middleton's picture




 

This short post has more pertinent Apple analysis than a year's worth of Goldman's research. Don't believe me? Get some of the best Goldman research from the year and compare it, or better yet send it to me and I'll post it so we can all compare! In the meantime...  

In February I opined on Apple's attempt to appease institutional investors in the post "Regarding A Potential Stock Split & Cash Dividend For Apple". I am vehemently against Apple paying dividends or splitting its stock. Apple has witnessed a significant operating obstacle in front of it, and instead of attempting to navigate deftly around that obstacle, it is allowing itself to be distracted by non-operators (large investors, primarily hedge funds, who are eyeing its cash horde). Worry less about fancy cash repatriation schemes via debt issuance, cash dividends and stock splits and worry more on how to stem the tide of market share, technological capability and innovation loss relative to the extremely aggressive and capable Android powered competition. More importantly, focus on how to defeat the progenitor of Android, Google. 

As excerpted from the afore-linked article:

Only short term thinking traders really want Apple to return cash, reference Apple, Big Hedge Fund Stars & The Sell Side/Vaudeville Act To Burn Your Hard Earned Money As A Punchline That's Just Not Funny. Apple needs to put that cash horde to work aggressively, and quite quickly to build up its expertise and assets in the cloud, where it's sorely behind and in danger of never catching up. Apple also needs to significantly beef up its hardware and software in the portable device field. All three of these aspirations will hit margins, and Apple is seriously behind in all three aspects as well. For more on this, reference In Case The Mainstream Media Didn't Get The Memo, I Crush The Apple Reality Distortion Field On CNBC.

Giving cash to shareholders when you should be investing it yourself is an awful idea for the long term prominence of this company, whose days already appear to be quite numbered as a leading tech titan.

Now, to be honest, all tech titan's days are numbered, at least as a tech titan. Apple is currently and sorely outclassed in the tech features and capability race at the same time it has lost its iconic leader and competition has more than quintupled.

I rehash these points because as I fine tune our most recent Apple valuation model, incorporating the most recent quarterly results along with the bond offering details, I see some alarming developments that further my belief that Apple is no longer a growth company in spirit, in practice, and soon in growth rate, but has matured and is taking on the characteristics of a company who market has matured. The major problem with this is that Apple's market has NOT matured, and as a matter of fact, is still in the high growth stage. It is Apple management which has dropped the ball here, foregoing longer term opportunity to appease financial investors' shorter term desires. A very bad idea, and a devaluing event for longer term equity investors of Apple stock.

Apple cash reinvestmentApple cash reinvestment

It is no surprise that Apple's margins are dropping uncontrollably for they can no longer differentiate their product enough to justify a premium. Notice hos the drop in margins track the drop of R&D/marketing, albeit with the requisite time lag.

Apples margin free fall by Reggie Middleton on CNBCApples margin free fall by Reggie Middleton on CNBC

This 15 minute video features all of the ins and outs of how Apple fell, why it fell, and how it can rise again.

Apple's management is in desperate need of a cloud infrastructure build-up and build-out. They also need a significant hardware and OS refresh. Without such, they will become RIMM'd, or shall I say Blackberry'd.

As you can in the app below, Apple's mobile product margins are all trending down, at the same time their market share and ASPs are downward trending as well. This sample is one page out of our ten section Apple valuation model, a model which I will make available to all professional and institutional subscribers next week, one updated with the latest quarterly results and the recent bond offering. You can subscribe here to access this model, as well as Google's and Facebook's next week. 

I've embedded the sample app that was used to create the charts above. It is apparently too complex to post here, but can be access about midway down the page on BoomBustBlog here.

 

Related articles:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

Following up on Deconstructing The Most Accurate Apple Analysis Ever, I am offering subscribers an updated valuation of Apple now that it has fallen to EXACTLY where I warned subscribers in October (the week of its all-time high of about $707 it would fall) to. After playing with the iPhone 5 for about a week, I told subscribers to expect the stock to bounce up against the pessimistic band of our valuation analysis. Apple last traded at $420, this is how I put it 5 months ago...

image124 image124image124image124

This report is still available for download to paying subscribers:

 

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Sun, 05/05/2013 - 23:58 | 3533425 WTFUD
WTFUD's picture

Reggies stuff is way too tech for me, however, unlike confident folks who may wanna strutt their stuff he is not trying to steal your hard earned like JD&LB and as far as i am aware he receives no govt.subsidies so must earn his living through results. So if my analysis is correct that pat on the back is deserved.

Sun, 05/05/2013 - 23:00 | 3533362 UGrev
UGrev's picture

Does Facebooks model look like an Anvil being dropped from the roof a building? 

Sun, 05/05/2013 - 22:42 | 3533339 DarthVaderMentor
DarthVaderMentor's picture

All they have to do is buy BBRY and end QNX or promise to put it into iOS with their patents. Problem solved. Android will take the cheap market and iOS will take the high end luxury product market. There is also the possibility that the Chinese buy BBRY which would then be a blow to Apple. BBRY is failing from a marketing perspective. They have a nice product, but they don't know how to sell it and they don't know how to control UNIX bit twiddlers and romance the application developers. 

The real market is the tablet for enterprises and the phone for the consumer. The vendor that can provide the same seamless and clean interface for both those markets and the desktop wins the chance to fight the carriers for the grand prize.

Sun, 05/05/2013 - 20:50 | 3533116 MeBizarro
MeBizarro's picture

Only gripe here is about using a pretty clear outlier in the operating margins (47.4%) to really drive home your point.  The rest of the piece is fairly coherent but since your point about the compression in the operating margins is a key to your argument I would be more interested to see it over a longer-time period and how it stacks up against direct competitors & overall tech/wireless publicly-traded firms. 

Sun, 05/05/2013 - 19:49 | 3532975 DavidC
DavidC's picture

"This short post has more pertinent Apple analysis than a year's worth of Goldman's research. Don't believe me?"

Reggie, ANY of your posts have more pertinent analysis than ANY of Goldman's research!

DavidC

Mon, 05/06/2013 - 03:32 | 3533538 hooligan2009
hooligan2009's picture

I've got up Reggie about this before..GS will have better spell checkers to correct typos.

I swear to God, the rise in Reggies credibility would result in a doubling of his research revenue if he just used even a Word spellcheck.

c'mon Reggie, you are better than this!

Sun, 05/05/2013 - 17:49 | 3532769 Son of Loki
Son of Loki's picture

I dumped all my AAPL when Jobs...departed. There is no driving force there anymore.....stale stuff....

Sun, 05/05/2013 - 23:43 | 3533411 janchup
janchup's picture

The alternative is to work with and live with a crappy OS.

Sun, 05/05/2013 - 17:20 | 3532727 Yellowhoard
Yellowhoard's picture

I like Reggie's analysis.

He's usually way ahead of the herd.

That said, I'd bet big money that he's figured out a way to order an inflatable doll that looks like himself so he can make sweet love to plastic Reggie.

Sun, 05/05/2013 - 16:52 | 3532692 kevinearick
kevinearick's picture

an eighty-yr-old in a stingray with a short-board strapped to the top. what more do you need to see? it's all about denial.

how much gold would you give for an ipad?

how much gold does apple have?

Sun, 05/05/2013 - 15:54 | 3532593 Fuh Querada
Fuh Querada's picture

Laptop dilemma
-Cheapest Apple 15" macbook pro around €1600
-typical Samsung i7 15" model around €900- but with forced Windows 8 installation, I refuse to use that abortion of an OS.
Result: no purchase, continue to use my ancient W7 laptop until it falls apart
Technology is king!

Sun, 05/05/2013 - 16:34 | 3532663 WmMcK
WmMcK's picture

1) Buy the Samsung (or get something cheaper with no OS)

2) Format the hard drive.

3) Install whatever OS and other software you prefer.

Sun, 05/05/2013 - 16:59 | 3532705 Fuh Querada
Fuh Querada's picture

Many thx for the suggestion - downgrade from w8 to w7 is complex (see link below: hard disk partitioning and device drivers are issues, they suggest a virtual w7 machine) but it might be worth a try.

http://www.pcmag.com/article2/0,2817,2417359,00.asp

I considered Linux but I have too much invested in windows compatible software that won't run on it.

If Apple reduce their prices by 33% I would reconsider.

Sun, 05/05/2013 - 20:56 | 3533131 post turtle saver
post turtle saver's picture

"If Apple reduce their prices by 33% I would reconsider."

... and there you have it. Margin pressure Q.E.D.

Sun, 05/05/2013 - 14:17 | 3532328 Living The Dream
Living The Dream's picture

Reggie would be a lot easier to tolerate if he didn't spend so much time dislocating his shoulder while patting himself on the back...

Sun, 05/05/2013 - 19:52 | 3532982 DavidC
DavidC's picture

Maybe a bit more humility wouldn't go amiss, but Reggie's done a good job of being right (see my comment further down).

DavidC

Sun, 05/05/2013 - 14:10 | 3532312 W T F II
W T F II's picture

Reggie has hit two homers and is now striding to the plate..."Reggie...Reggie....Reggie..." the crowd is standing now..."Reggie....Reggie....Reggie..." He points to center with the tip of his bat. Here is the pitch...he swings....CRACK................

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