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Where Are The Pundits And Armchair Analysts When It Becomes Apparent That Apples Is Indeed Susceptible To Google's Android Onsla
Reviewing my bearishness on Apple pending an earnings miss (which was
right on point) and my bullishness on Google due to successful
diversification of business lines deeply into mobile and cloud computing
brings us to the realization that there is much more of the same to
come.
Apple's share have been coming under pressure lately (in
addition to the dip taken after the earnings miss I predicted last
month), primarily due to rumors of potentially disappointing iPhone 4S
sales.
The
rumors spring from reports that Apple has canceled orders from serveral
suppliers due to problems sourcing parts. These rumors have been
countered by reports of long lines at Apple's retail stores and apparent
strong demand. What many seem to miss is that supply issues, demand
shortage or any combination of the two still result in the same thing -
lost sales. Although a crimp of sales stemming from an inability to meet
strong demand may sound like a good thing, it is a very bad thing for
Apple at this juncture. This is the reason why...
Apple has been
lauded for selling up to 4 million iPhone 4Ss in the first week of its
release. This includes the pent up demand stemming from those waiting
for the new release. While this number seems significant, it still does
not match the run rate of Android phone sales, which are still growing
at an amazing clip - up to 650k per day - extrapolating from the
previously reported growth rates. That means that even with pent up
demand being met, iOS flagship phones are still trailing Android
"activations". Add to this the liklihood of sales being pushed into the
future due to supply issues and you have what is tantamount to
significant lost sales. Why?
Apple Earnings Guidance AnalysisBecause
Android hardware and software has now surpassed iOS (yes, even the most
recent iOS5 and 5.1 series upgrades, which have been nriddled with bugs
due to Android's pushing the release schedule for the entire industry
to the hilt). If one were to obectively compare the Samsung Galaxy SII,
the Samsung Galaxy Note, the HTC Rezound, the Google Nexus Prime
(running the next generation Android OS), or the Motorola RAZR II, you
will see these devices trounce the just release iOS products in nearly
every category - from HD screens, to speed, to capability and
flexibility and cloud accoutrements. The Samsung Galaxy SII is 9 months
old and Apple still couldn't (or more accurately wouldn't) produce a
comparable product. I believe this was a very strategic error on Apple's
part, born of management hubris. The iPhone 5 should have been released
and Apple should have given it everything they had. Because they
didn't, the functionality difference is simply growing too wide, a gap
that Apple will probably not be able to close when they do release their
revolutionary upgrade.
In the post called The Perilous Game of Patent Pain That Apple Plays May Very Well Cause It Some Long Term Share
I illustrated the extreme (yet absolutely mandatory - its not as if
they have a choice in the matter) risks that Apple is imbibing in
challenging its most strategic vendors in a global game of litigious cat
and mouse. After all, Apple is essentially a cell phone company as
defined by any reasonable metric - earnings, revenues, units shipped,
etc. Samsung, athough currently the number one smartphone manufacturer
in the world (after just capturing the title from Apple who held it
briefly after taking it from long standing champ Nokia), is still not
(essentially) a smart phone company. The same can be said for the other
major vendor cum competitor, LG Electronics. Losing this market does not
absolutely invalidate the companies' earnings, as it would with Apple.
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).
Breaking
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.
The
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
My apparently highly contrarian call was literally the antithesis of what the street forecast - the EXACT OPPOSITE! Reference The Only, and I Mean the Only, Investment/Research House To Warn Of An Apple Miss Is Vindicated!!!
...
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...e
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.
I'd like to put this pundit's/investor's advice in perspective...
You
would handily had your ass handed to you being short Google and long
Apple since last quarter's earnings announcement as Google spiked and
Apple dropped, which is the first quarter that I recommended to look for
concrete signs of Android fatigue and margin compression and a
continuation of my ongoing Google reco. This process and trade is one to
play out over time. It will not happen overnight and will culminate in
the near term, but Apple is being severely trounced in the mobile
computing wars by Google and the media and sell side are apparently
ignoring this fact.
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?
Of
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?
Archived
2010 posts on the Creatively Destructive Pace of Technology Innovation
and the Paradigm Shift known as the Mobile Computing Wars!
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
- An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
- Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
- This article should drive the point home: An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses
- A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
- After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
- RIM Smart Phone Market Share, RIP?
- Android is gaining preference as the long-term choice of application developers
- A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
- Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
- Apple on the Margin
- RIM Smart Phone Market Share, RIP?
- Motorola, the Company That INVENTED the Cellphone is Trying to Uninvent the iPad With Android
- Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
- There
Goes Those Fancy eBook Aspirations from Apple, Barnes and Noble, and
Amazon: 100,000’s of FREE eBooks from the Public Library - How
Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall
Street Will Enable This Without Sheeple Investor’s Having a Clue - Empirical Evidence of Android Eating Apple!
- More of the Android Onslaught: Increasing Handset Revenues and Growth
- Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
- The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download
- The Complete, 63 pg Google Forensic Valuation is Available for Download
- iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!
- BoomBustBlog Research Hits Another One Out the Park! Google up nearly 10% after hours, true blowout earnings unlike JPM
- As
I Warned in June, DO NOT DISCOUNT Microsoft in This Mobile Computing
War! Their Marketing Campaign is PURE GENIUS! and it Appears as if the
Phone Ain’t Bad Either - Reggie Middleton Wasn’t the ONLY Openly Apple Bear in the Blogoshpere, Was He?
- advertisements -
Droid will eventually be Apple's Achilles
some of the hardware e.g. Samsung is superb and the freedom that a rooted device give you, of course some enjoy a device that rules them.
Reg, did a good deed for us Android fans...I wrote the first OC kernel for the Galaxy Tab 8.9
http://forum.xda-developers.com/showthread.php?t=1344330
4S was a filler product much like 3. But the company does not live and die by the amount of phones they sell. They produce the most reliable operating system that appeals to consumers. The Phone, the iPad etc bring people into the stores and buy computers. I judge a company on how they treat their customers when things go wrong. In that respect Apple are so far in front of the competition that Google etc will always be playing catchup.
I expect the iPhone 5 to be as popular as the 3S if not more so. I expect a hinged double screen on 5 and that would be enough to make people ditch their old Android, 3GS, 4 and everything else.
Reggie,
i'm one of those "armchair analysts" you're referring to. What's your point mate? Sitting in an armchair paddling away on my uber-smooth uber-reliable Apple laptop (there's nothing better on the planet) not good enough for you?
It was good enough (opinion) to trounce you for 7-8 months on the trot regards Apple beating (very easily) Googles share price performance
Where does the snotty attitude come from Reg? You know calling Apple a "C corporation". They have a turnover greater than many countries, no debt (unlike most Western countries and companies) and profits that are piling up a cash mountain faster than a Ben Bernanke printing orgy (one is brilliant productive effort, the other a parasitical fraudster)
This "C corporation" also has the highest status and respect amongst all manner of the technology community including most importantly, consumers... Yes Reggie remember happy consumers in all your research? Strangely 'omitted' aren't they!
Apples brand is excellence. Their product names desired. Ok Gooballs brand isn't as toxic as Microshites (yet) but its brand is worthless and Android has all the pull of warm bear. On so many fronts Goonball has taken up the 3rd rate staus of Microshite with weaknesses in all the exact same areas
And it's not like Goo are making anything. They just do the software (which they don't actually). The hardware suppliers make the phones, the Telco Co's retail, distribute and provide the network. Goobull do what precisely?
Your Hero, my Zero
When you say Apple are falling behind on the techno front how's Goonball doing with voice recognition to compete with Siri? Try talking to your Android buddy. Good luck with that!
This is 'Planet Software' Reg and there's nobody on this planet that can match Apple in that space...least of all the architecturally unsound, un-corordinated all over the cosmos goons like the great-pretender Google (and Microshite before them)
Introducing Siri ......eat spacedust
In that same video, you say to short JP Morgan.
Anyway, I agree Apple will face margin compression. Google has management/focus issues, though. In other words, Google wastes a lot of investor equity.
When you are right in a prediction, and the prediction has details and is public and is well in advance of the event, then tooting-your-horn is not obsession, it is marketing. Very American.
Reggie sure has something to blow through his trumpet. His unerring financial accuracy on Apples 'dropped' 3rd Quarter, predicted 1 year ago, is quite excellent. Credit where credit's due
And let's be fair to Reggies 'research' (industry journos/crones reports) on the techonology front has more holes than a Swiss cheese. Reg' posted a journos Vid on Androids 'cutting edge' features but didn't bother to check the Vid which was a clown show of Androids failing clunky features
We have Goofball software designers admitting (internally) their software isn't structured right. And despite Reggies constant preening of Goonballs hardware advance (not to be accredited to Goo) we know Gobble falls short on the software front (reason they HAD to go open source against Apple as they weren't up to the job)
Schneider is much like Gates & Bulmer on software ...thieving Magpies winging-it desperately out of their depth (and will be proven so)
Cue Apples Siri... you can almost hear Gurgle drowning already
In the nearly two years that I've been reading Reggie's predictions about Apples inevitable demise in stock value, the stock has gained more than 100%. To now claim that a 5% drop in the last month is somehow validation of those claims is...well...let's be kind and call it a "stretch".
Reggie while nobody, myself included, would deny that you are quite skilled at what you do (particularly when it comes to banking analysis), you've got to admit...this obsession with Google over Apple has reached a point of being nothing short of comical.
I realize you might not feel that the word "obsession" is accurate...but from the outside looking in...it sure seems fitting.
One last thing...is the stock chart posted for AAPL really a fair representation of the stocks performance? I men, really, posting a 1 month chart? Why not 3 month? or 1 year? or 3 years? or 5? or 10?
sorry Reggie, but the choice of a 1 month chart looks like an attempt at cherry picking to suit your claims and overlooking the longer term bigger picture.
This is a profitable company with no debt and consistently strong sales. You took the one down month it's had and zeroed in on it as if it were some confirmation of impending doom.
You're better than that.
More Apple favoritism? Apple/Google/RIMM/Tech is about 1/5th of my posting, yet it's an obsession and banking isn't? You may find it comical to know that the guys at Goldman think I have an obsession with Goldman and quite a few Canadians thought I had an obsession with RIM. There were quite a few Europeans who felt I had a European obsession as well. Guess what? There is no obsession, simply analysis that backs my opinion.
I will answer most of the comments here due to a lack of time.
I was uncannily accurate in calling Apple's miss. Last October I said expect it in 4 to 6 quarters, and 4 quarters later... Of course, none of the Applers on this thread talking trash seem to have gotten that part. I won't take credit for the exact timing, for although it was onpoint, hitting it on the exact quarter was more luck than anything else, but the Google competition is obviously mounting and taking its toll.
For those who say Apple has went up $XXX in price since I started announcing my hypothesis... Well, that's quite irrelevant. I told all to expect Apple to manifest Google problems starting in the 3rd quarter of 2011, thus it is highly irrelevant what the stock did until then. Of course, the applers here somehow overlook that pertinent fact as well.
Anyone who says I said sell, buy or anything else to Apple and don't subscribe to my blog is lying, plain and simple. I have a paid subscription service. I give strong opinion and macro/fundamental perspective to the public for free, not buy or sell calls. You may be confusing me with Cramer.
Reggie,
"..Applers on this thread talking trash.."
Introducing Siri
You haven't spoken much about that Reggie... how is Android, where is Android, on another cool Apple move.. another case of your (ever more desperate) cherry picking trying to shine the turd that is Google
Android architecture is falling apart and falling behind and dropping consumers in the brambles just like the Microshite business model ...the Goonball brand is worthless... model that
It must be quite a feeling to be in the stock market and not care about the stock price. I have yet to achieve such a lofty perch. Perhaps someday...but for now, I am part of that simpleton crowd that somehow believes that when talking about a stock...the stock price matters....But that's neither here nor there...let's move on to some details.
Yes, they missed the earnings estimate. The first miss since 2004. Yet, despite this miss...the details hardly suggest doom.
The company sold 17.07 million iPhones during the quarter; That was a 21 percent increase from a year earlier.
Luckily for Apple, they have a few other products...and how did those fare?
IPad sales more than doubled to 11.12 million
Mac sales jumped 26 percent to 4.89 million
IPod sales fell 27 percent to 6.62 million (but how many have been sold to date?)
Gross margin came to 40.3% vs. Wall Street forecast of 39.74%
Apple earnings excluding items rose to $7.05 a share in its fiscal fourth quarter from $4.64 per share a year earlier.
Net income rose to $6.62 billion from $4.31 billion
Revenue jumped 39 percent to $28.3 billion from $20.3 billion in the 2010 third quarter.
All in all...it hardly looks like the picture of a company approaching their sunset years.
But all that should be ignored because their earnings were only $7.05 instead of the $7.39 that was expected and that they only sold 17 million i-phones instead of the 18 million the street expected. (the horror!!!)
whatever...
But one thing that you cannot escape with your extensive post...why is it that every chart you displayed goes back several years except for the chart of the AAPL stock which only goes back 1 month?....Oh yeah...I forgot...because the stock price is "irrelevant"....riiiiiiight.
nice try.
Love your stuff on the banks, Reggie. But c'mon man, this AAPL stuff is starting to remind me of Meredith Whitney trying to save face on her call on muni's.
When you first wrote about this, AAPL was $250 and GOOG was $560. Now AAPL is up 50% and GOOG is about even with the market.
It's okay to admit you were WAY too early and move on. If you are so early that you missed a 50% move over 18 months, then you are just wrong. At least at most funds.
Reggie hasn't won a single week on the Apple v Google share price issue at least since i've been tracking their performances in March
His cherry picking chart above is pretty poor and a sure sign of near absolute desperation
I expect Reggie to capitulate completely sometime between 2012 and 2014 when Apple releases the all-singing Siri Version 2 voice recognition software that'll out-search Google (and much, much more) and take Goofball to the cleaners (as Apple did to Sony, Nokia, Motorola, Microshite and others)
Apple should have recalled all of it's third generation iPhones. Since they didn't, you can't see the 4S for the 3s.
:-P
Nyuk, nyuk !
A very large portion of the population buys status symbols (most noticeably showing up in the kinds of houses and cars they buy...). Apple is a status symbol; Android isn't.
you smartass better read this. Android oprhans.
http://theunderstatement.com/post/11982112928/android-orphans-visualizing-a-sad-history-of-support
I didn't even realize that my phone was on an older version. But I did upgrade my battery to 1750mAh, which was extremely helpful.
Oh Dear! Google Android product planning not going too well. Customer support vacant. Product support beyond patchy. Software development all over the shop
Yes Goffball have taken up the batton of 3rd rate donkey derby also-rans from Microshite chasing the pedigree Apple. They're showing all the tell-tale signs of big dinosaur poo (crap)