The Only, and I Mean the Only, Investment/Research House To Warn Of An Apple Miss Is Vindicated!!!

Reggie Middleton's picture

I have received SO MUCH flack over the last year for pointing out the
obvious FACT that Apple's phenomenal growth will be hit by Android's
extra-phenomenal growth, it has been borderline disheartening. Well, the
time is hear folks, and as is usual, logic. common sense and rational
thinking rule the day once again.

The results should be interesting, if
not immediate, for many Apple investors and consumers are beyond loyal
and ede to borderline fanatic. This portends much more irrational
emotion in decision making and potentially unnecessarily drastic actions
in the end. What do I mean? Well, Apple is purportedly just under 7% of
the NASDAQ. If the Apple religion falls out of fad... Well, look out
below! This may not happen immediately, for the love affair is truly
torrid, and all sorts of excuses will be made. At the end of the day (or
fiscal year, to be more accurate) the reality is bound to hit that
Apple is a C corporation like everyone else and is subject to market
pressures and competition, and truly does not fart fairy dust.

course, logic would dictate that the (literally) hundreds of hate mails I
received should be replaced with hundreds of "Hey, Reg, you were right"
mails, but it won't happen due to the fact that the nature of those
that generated the hate mails forbids them from examining fact and
instead allows them to be guided by a bisection of corporate marketing,
brand loyalty and emotion. It should be quite interesting to see what
the responses to this article will be in the comments section. This is a
long post, but more than worth you time. I urge you to read in its
entirety, or at least up until the part that reminisces:

our analysis of Apple, we are using real world assumptions of future
performance derived from backing in to the low balling this company is
prone to. If you look at its history carefully you can gauge what
management is comfortable with, hence what they may be capable of on the
Using these more realistic numbers, it is much
more likely Apple will deliver a miss in the upcoming quarters in its
battle with the Android! The following is the reason why...

Early last year, I started tracking the rapid ascent of ultra mobile computing in my Mobile Computing Wars
series. At that time, I didn't have a favored winner, but as I
researched more and dug deeper, clear patterns started to emerge. These
patterns simply got clearer and stronger as time progressed, and it
ended in my putting out highly contrarian research on Google in public -
Google’s Q1 2011 Review: Part 2 Of My Comments On The Gross Misvaluation of Google and in substantially more detail in private -the subscriber forensic analysis (63 pg Google Forensic Valuation, to plug in your own assumptions see Google Valuation Model (pro and institutional).

I also issued similarly contrarian research on Apple: File Icon Apple – Competition and Cost Structure).

Of course, the mainstream media and the Sell Side of Wall Street took the opposite sides of these bets, to wit: Goldman’s
$430 Target, Screaming Buy On Apple At Its All Time High Is In Direct
Contravention To Reggie Middleton’s Logic – Who’s Right? Well, Who Has
Been More Right In The Past?
and Reggie
Middleton Takes The Challenge To Goldman Sach’s Apple Proclamation One
Step Farther, Apple’s Closed System Risks Failure!”
. Realize that It Should Now Be Common Knowledge That Goldman’s Investment Advice Sucks.
Of course, that doesn't necessarily mean that there is any credibility
in said proclamations, though. Reference this priceless nugget in light
of the links above...
Goldman Sells Nearly Half $Billion Of Apple Stock Directly Into Their
Client’s Conviction Buy Recommendation: Guess Who Really Agrees With
Reggie Now!
I'd also like to reiterate, I've Told You Before, And I'll Tell You Again - Goldman Sachs Investment Advice Sucks!!!

Well, as luck would have it, the Street was wrong on Google, see
Did A Blog Best Wall Street's Best of the Best In Guaging The True
Value of Google? We Have To Think More Like An Entrepeneur & Less
Like A Wall Street Analyst
July 19th, 2011.

There were wrong on Apple, and to be absolutely honest, they are wrong in general - reference Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?
Not that this tidbit of fact and simple math will stop the sheeple from
shoveling over billions upon billions of dollars to this industry to be
recycled back into the bonus pool, versus supporting truly independent
research such as BoomBustBlog, no matter HOW many times I'm right and
they are proven wrong - and it has been a lot, trust me.

We also
had pundits in private equity who I would have normally assumed should
have know better jump on the Apple wagon, as excerpted from My Thoughts on Roger McNamee's View of Google and Mobile Computing...

Of note, pundit recommended long Apple and short Google for guaranteed profits. Google blew out numbers this quarter (Our Uber Growth Thesis For Google Is Intact and Performing Well)
and Apple missed, all the while Google is strategically positioned to
do much, much more damage. As for the comment about nobody makes money
from Android, well those entities that make money from Android disagree.
I have outlined this in the first quarter, reference Apple Gears Up To Combat The Margin Compression That Apparently Only It, Google & Reggie Middleton Sees Coming Monday, February 14th, 2011.

On this point, I must give props to Herb Greenberg
for allowing me to espouse my contrarian, yet highly accurate mantra
concerning Apple as well as US banks' derivative exposure through the
mainstream, namely CNBC. The derivate issues have recently reported by
Bloomberg and ZeroHedge, reinforcing my many warnings, ex. So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?

course, as timing would have it, I predicted that Apple would miss 4 to
6 quarters after the pronouncement I made on international TV exactly 1
year ago via CNBC on the eve of Apple's earnings (3:40 into the video).
Exactly 4 quarters later.... Hmmm!

Simple math, simple business logic, simply common sense, yet the Apple hordes
attacked relentlessly. Listen, what Google has created to compete with
Apple, RIM, MSFT and Nokia, was not a new technology - but a new way of
doing business. Less than free was their new business model and it
proved to be pretty damn effective.

Margin compression follows a
slip in sales due to competition. You see, in order for Apple to
maintain its unit growth, it wiill have invest more into the product,
cut costs, or both. Any scenario leads to margin compression. Since I
have written so much on this topic, I will not rehash, but simply point
to the prophetic post I made two weeks ago in calling for what I
considered to be the obvious: Sliced Apple Margins For Dinner?

In the meantime, let's parse today's news event: Apple Misses Big on Earnings, Revenue; Shares Tumble

posted a rare miss on both earnings and revenue as far fewer iPhones
were sold during the quarter than expected. Shares tumbled after-hours.

it's Apple's expectations that will be the eventual undoing of this
company as an investment. They are simply unrealistic, as I will get to
in a moment, but first I'd like to point out the extreme favoritism that
is still given to this company by the MSM.

Bloomberg reports: Apple Misses Estimates on Delayed Sales

Apple Inc. (AAPL)
fell in German trading after profit missed analysts’ predictions for
the first time in at least six years, evidence that customers delayed
iPhone purchases before the release of the latest model.

This statement is bullshit. Customers delay purchases right before the release of every new model, yet that
somehow didn't cause a miss for the iPhone 3G, the iPhone 3GS and the
iPhone 4, did it? iPhone's sales dissappointed for one reason, and one
reason only!!!

was $6.62 billion, or $7.05 a share in the fiscal fourth quarter,
compared with $4.31 billion, or $4.64 a share, a year earlier,
Cupertino, California-based Apple said yesterday in a statement. That
missed analysts’ predicted profit of $7.31 a share, the first
disappointment from Apple in at least 26 quarters.

sold 17.07 million iPhones, less than the 20 million projected by
analysts surveyed by Bloomberg, as consumers held out for the iPhone 4S,
released after the close of the period that ended Sept. 24. The
shortfall underscores the growing importance to Apple for the iPhone,
which was introduced in 2007 and accounted for 39 percent of revenue
last quarter.

“The market was expecting very strong iPhone sales going into the product launch,” said Giri Cherukuri,
head trader at Oakbrook Investments LLC, which holds Apple shares. “It
stands to reason that a lot of people were waiting for the new iPhone to
come out.”

Again, Bullshit! Why didn't this phenomena occur
during the last three product launches? Oh yeah, that's right, because
Android wasn't up to speed by then.

shares dropped as much as 7.3 percent to the equivalent of $391.75 in
German trading and were down 6.4 percent as of 9:03 a.m. in Frankfurt. Yesterday, the stock fell 6.3 percent to $395.50 in extended U.S. trading. The stock had closed at $422.24 in New York.

of the smartphone are rebounding this quarter, and the decline in Apple
shares represents a “buying opportunity,” said Cherukuri, whose firm is
based in Lisle, Illinois.

and thereing lies the problem, shares of Apple are always a buying
opporutunity, no matter what the facts or circumstances are, right?

As excerpted from Apple on the Margin:

about Apple is like writing about gold, despite the fact that there is a
strong fundamental argument for or against it, the emotional response
and lack of empirical outlook clouds the fundamentals, ex. Apple  and
the iPhone vs Android or Gold and fiat currencies/inflation. I am not a
Apple hater, and I am probably one of the most advanced iPad users you
know of. Apple has its pluses and minuses, but people (including many
professionals) are failing to look at the facts and instead are joining
their respective "fanboi" clubs. Thus, in continuing with my attempt to
educate my readers on the folly of believing Apple's position to be
unassailable, I am illustrating exactly how vulnerable Apple is to
either a compression of margin on the iPhone or a slow down in sales.
Apple is just penetrating the market and has a fertile field to
conquer, it is just that it will not be able to pursue that field devoid
of competition as it has over the past 3 years. This should dictate an
adjustment to the highly optimistic aura attached to the multiples used
in forecasting economic results.

The graph below illustrates
the importance the iPhone represents to Apple's franchise. Believe it or
not, this graph actually understates the importance of the iPhone to
Apple for while it brings in 45% of the revenues, it is responsible for
about 70% of the profits. Apple has become too reliant on one product,
although that reliance was borne from the fabulous success of said
product. While Apple will probably derive some much needed revenue
diversification from iPad sales, the iPad will face the same hurdles
that the iPhone is coming up against - and that is competition from
Android-based devices and potentially even Windows Mobile 7 8 (albeit
this is an admittedly much more speculative statement).

the argument down even further, you see how the iPod and the iPhone
have literally transformed this company. While I am sure it will
continue to be fantastic company with cool products, I doubt very
seriously that it will be able to grow in the future as it has in during
the last 7 years.

saving grace is that the smart phone and portable computing market will
grow quite quickly, allowing companies with dwindling market share to
still capture increasing revenues. The ugly reality is that those
revenues will have to be burdened with increasing R&D, marketing and
distribution costs since the amount of competition will probably scale
faster than the market itself. That, my friends, is a very good thing
for you and I, the consumer!

All paying subscribers are welcome to
download the mini-model which shows Apple's earnings sensitivity to
margin compression through competition. This is the very crux of
determining the extent of Apple's success or lack thereof, in the near
to medium term. Click here to download (File Icon Apple iPhone Profit Margin Scenario Analysis Model), and click here to subscribe.

... Apple
said that while iPhone sales fell off last quarter, the holiday quarter
will be its best yet. First-quarter per- share earnings will be about
$9.30 on sales of about $37 billion, Apple said in the statement.

surpassed analysts’ projections, suggesting that iPhone sales are
bouncing back with the release of the iPhone 4S, which set a record with
debut-weekend sales of 4 million.

our wildest dreams, we couldn’t have gotten off to as great a start as
we did with the iPhone 4S,” Cook said on the call. The drop in demand
for iPhones in the second half of last quarter was “substantial,” said

This may very well be the case. I don't doubt it, but it also doesn't negate the generally stagnating growth trend - see Google's Android Now Leads In Market Share, Growth Rate and Potential Buyer Preference.
Apple released a new product on two new carriers, which at best matches
(and that's at best, I believe it falls far short) the Android flaghip
device from 6 months ago! This much wider distribution network coupled
with the iPhone popularity is bound to boost sales, but the popularity
of Android (now the number 1 OS, globally and domestically, with the
highest growth rate, to boot) make it unliekly Apple can regain the
growth crown through marketing alone. It is now quickly becoming common
knowledge that high end Android phones such as the Samsumg Galaxy S II
series handily outperform anything from Apple thus far. As a result, the
sales are becoming more fad generated and less technology/usability
driven. We all know what happens to very fad, don't we? Apple will have
to invest heavily into the tech, and that ain't free nor is it a
guarantee for success. Hence the margin compression thesis. Look to my
writings from last summer to determine the common sense reasons why
Apple is at risk despite the lovefest that the media, the sell side of
Wall Street and the equity markets have for it: . After
nearly a year of showing nearly incontrovertible evidence that Apple
has seen its heyday, the mainstream media is catching on. First a quick
overview of my thoughts...

    1. Look & Listen Closely As The Solitary Margin Compression Theory Slowly Bears Fruit: Apple to Drop Flagship iPad Prices?
    2. Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! 
    3. Is The Evidence For An Apple Margin Collapse Now Incontrovertible? 
    4. I
      Absolutely Dare Anyone To Read This And Still Not Consider The
      Probability (Not Possibility) Of Apple Suffering From Margin Compression

Smartphone Rivals

The new touchscreen handset is vying with new smartphones from companies including Samsung Electronics Co. and HTC Corp. (2498), which use Google Inc.’s Android operating system.

As excerpted from "Is The Evidence For An Apple Margin Collapse Now Incontrovertible?" 5/19/11:

is going to be a much tougher fight for Apple than even that of the
smartphone market, and you see how well Android did in that category as
the current market leader in both footprint and growth rate.
Literally98% more competition is coming down the pike this year, and
products are already widely reviewed as at parity or superior in Apple's
chief diversification segment (remember, derives ~70%  of its profits
from the iPhone). With that, even the iPhone is supremely challenged by
Apple's own parts vendors, Reference :

biggest suppliers (the most important parts vendors for the products
that contributes about 75% of Apple's profits) and the companies that
Apples is currently embroiled in global litigation with (no wonder why)
also produce similar products, ex. the LG Optimus 3D and the Samsung
Galaxy S II.

Speaking of the Samsung Galaxy, this newest
refresh is nearly universally thought of to be the best smartphone
available, including the Apple iPhone. I haven't found a single review
yet that has said otherwise. This is an impressive feat considering how
"Apple-centric" the media currently is. Reference this snippet from

a handset with such a broad range of standout features and specs, the
Galaxy S II is remarkably easy to summarize. It's the best Android
smartphone yet, but more importantly, it might well be the best
smartphone, period.
 Of course, a 4.3-inch screen size won't suit everyone, no matter how stupendously thin the device that carries it may be, and we
also can't say for sure that the Galaxy S II would justify a long-term
iOS user foresaking his investment into one ecosystem and making the
leap to another. Nonetheless, if you're asking us what smartphone to buy
today, unconstrained by such externalities, the Galaxy S II would be
the clear choice. Sometimes it's just as simple as that.

Endgadget is not the only reviewer to go head over heals over Android super-powered phones. Check it out, courtesy of

    1. Dan Sung of Pocket-Lint rates
      the phone with 4.5 out of 5 stars and calls it a “cracking experience”
      and like Engadget, “better than any other Android smartphone.

      Very minor complaints included the 1080p DLNA streaming, which was noted
      could be better, plus minor quibbles with the camera lens but overall
      the conclusion is that “no one buying this superphone will have anything to complain about.
    2. Chris Davies over on Slash Gear. Guess what, Davies also says, “this could well be the best Android smartphone on the market today” and noted that iPhone users that were shown the Galaxy S II said they could have their heads turned by it. There were minor criticisms, such as the keyboard, but these were said to “pale in comparison to the Samsung’s strengths.” In conclusion Davies says “we’re running out of reasons not to buy the Galaxy S II.”
    3. Electric Pig by Ben Sillis, who gave the phone a staggering 5 out of 5 star rating and says “Samsung has triumphed again with theSamsung Galaxy S 2.” There are some quibbles about software in this review but not enough to get in the way of it being a “surefire contender for phone of the year,” and again the superb display gets a special mention.

Apple’s fourth-quarter revenue was $28.3 billion, below the $29.6
billion predicted by analysts. Missing expectations caught investors by
surprise since the company has so consistently beaten predictions.
During the previous 19 quarters, Apple had exceeded profit estimates by
an average 28 percent, according to Piper Jaffray Cos.


on me and other investors who got lulled into complacency based on how
much they’ve beaten estimates in the past,” said David Rolfe, chief
investment officer at Apple investor at Wedgewood Partners Inc.

Apple had said in July that it expected sales and profit to fall because of changes to its product lineup.

not the company that missed, it’s the people who follow Apple that are
clueless,” said Trip Chowdhry, an analyst at Global Equities Research in
San Francisco.

Analysts may revisit projections that Apple will continue to grow at a record rate and exceed estimates, said Michael Obuchowski, chief investment officer at First Empire Asset Management.

the company can maintain the growth rate that some of the analysts
envision is not very realistic,” he said. “There will be a reevaluation
of the analysts’ expectations.”

"Clueless"! “Shame on me and other investors who got lulled into complacency"!

Taken right out of the Reggie Middleton playbook! Refereince
Apple Once Again Surprises The Unsurprisingly Inept Analyst Estimates:
When Will Investors Catch On To The Earnings Management Game?:
will repost (for the 6th time) the earnings guidance snippet and
challenge readers to possibility that we may have a very valid point.

the meantime, sheeple-like investors are being hoodwinked by quarter
after quarter of Apple blow out earnings. Don't get me wrong. I feel and
fully acknowledge that Apple is executing on all 8 cylinders of a 6
cylinder engine, but it still has its real world limitations. Apple will
start to bump up against these limitation over the next 4 quarters, and
the signs of this bump are already apparent. Of course, the signs are
being handily masked by the games that Apple management and the sell
side analysts of Wall Street play, with the "Sheeple" retail and the
lazier component of the institutional investors being put out to take
the eventual bullet.

Riddle me this - If
Apple can consistently beat the estimates of your favorite analysts
quarter after quarter, after quarter - for 11 quarters straight,
shouldn't you fire said analysts for incompetency in lieu of celebrating
Apple's ability to surprise?
After all, it is no longer a
surprise after the 11th consecutive occurrence, is it? I would be
surprised if my readers were surprised by an Apple surprise. Seriously!
Apple management consistently lowballs guidance to such an extent that
it can easily manage, no - actually create outperformance. This has has a
very positive effect on their valuation. Of course, I do not blame
Apple management for this, of they are charged with maximizing
shareholder return. The analytical community and the (sheeple) investors
which they serve is another matter though. Subscribers can download the
data that shows the blatant game being played between Apple and the
Sell Side here: File Icon Apple Earnings Guidance Analysis. Those who need to subscribe can do so here.

I drilled down on the date and used a percentage difference view to
illustrate the improvement in P/E stemming from the earnings beats.

our analysis of Apple, we are using real world assumptions of future
performance derived from backing in to the low balling this company is
prone to. If you look at its history carefully you can gauge what
management is comfortable with, hence what they may be capable of on the
margin. Using
these more realistic numbers, it is much more likely Apple will deliver
a miss in the upcoming quarters in its battle with the Android! The
following is the reason why...

the meantime, more inaccurate and uncalled for Apple bias in the media
that will do naught but cause losses for investors that bother to pay it
any attention... Bloomberg reports Google, Samsung Announce Updated Android Phone:

“Ice Cream Sandwich could provide the critical push in the race to catch Apple,” said Mark Newman, an analyst at Sanford C. Bernstein & Co., who is based in Hong Kong. “Apple’s software is still on the cutting edge.”

is outright nonsense! Apple's most recent OS5 release simply brings iOS
up to par with what Androids are currently running since the beginning
of this year. As a matter of fact, as of today, Apple's tech is still
behind since Google just released an OS update (Ice Cream Sandwich) that again puts it leaps and bounds above the Apple OS. 

new iPhone was unveiled earlier this month with Siri technology, which
lets users ask for weather updates, make calendar appointments or send
messages without tapping on the keyboard. The iPhone is the company’s
best-selling product.

The article fails to mention that this feature was available in Android from the beginning of the year, at least. Again Apple is playing catch up, but it has not yet caught up!

latest Android incarnation also offers easier multitasking and a new
People app, which helps check status updates from Google+ and other
social networks.... Android controlled 43.4 percent of the global
smartphone market in the second quarter, while Apple’s iOS had an 18.2
percent share, according to researcher Gartner Inc.

This is up from zero hust three or so years ago, reference:

  1. More of the Android Onslaught: Increasing Handset Revenues and Growth
  2. The Complete, 63 pg Google Forensic Valuation is Available for Download

For tablets, Apple’s iOS dominated with 61.3 percent market share in the second quarter, according to research company Strategy Analytics. Android accounted for 30.1 percent of the tablet market.

Take note that the the tablet market is taking a very similar path to the phone market where
Apple started with ~90% share and dropped very, very quickly with no
explicit recognition of such from the media or the sell side. Reference:

next post should also include research on the next bank that we have
found that has been (again) overlooked by the market, the media and the
sell side. Can we expect the same that we saw in BNP, Bear, Lehman,
etc.? Well, paying subscribers shall find out forthwith.

I can be reached via the following channels, or directly via email:

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will be releasing the date (probably this week), location and time of
the NYC meet and greet within the next 24 hours or so, so we can chat,
drink, debate, argue and fraternize with pretty woman together in a
trendy spot in the Meat Packing District or the Bowery (I apologize in
advance to all of my female readers/subscribers). Those who are
interested in attending should email customer support.
There has been strong interest in the London meeting, enough to warrant
the venue - I simply need to get the travel and venue organized due to a
change of plans.
For those that are new to the blog, these are pics of previous meet and greets...

The Motherland on the Atlantic Ocean, just outside NYC

The Motherland on the Hudson, NYC


79st Boat Basin, NYC


79st Boat Basin, NYC


BuddhaKahn, NYC