First things first, those who still believe Apple can walk on water are setting themselves up for a big one. I haven't received so much flak about a (to date) correct call in my life. Well, Apple has missed its numbers twice in less than a year, and both times I believe I was the only one that called these misses - at least publicly.
I've noticed that many who take issue with my analysis of Google and Apple truly don't understand what kind of company Google is. To call it a search engine, ad company, or even Android vendor is to demonstrate an ignorance as to both its business model, accomplishments and aspirations. Google is not a search engine, ad company or even a mobile OS vendor, it is a data company and the foremost data company in the world.
I took the time to explain this in detail on the Max Keiser show last week. I think it's worth a listen. Click here for the full show [5], and see below for the excerpt....
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 [7].
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Now, let's review Apple's Q2 2012 Financial Highlights
iPad unit sales are up 84% over this time last year. Very, very impressive. What is not quite so impressive is that iPad revenues were only up 52% over the same period. Why such a discrepancy? Well, the charts above tell the story. iPads are not as profitable as they once were as buyers continually opt for cheaper and cheaper models as production costs are kept high in order to stay ahead of the increasingly capable competition from Android (Nexus 7 @ $199 per unit) and now even Microsoft (see Is Microsoft Back? If So, Apple Had Best Look Out Below! [10]).
Revenue for the quarter was $35 billion, representing year-over-year growth of 23%. Google registered a 35% increase in revenue for the same period. Just saying....
Gross margin was 42.8 percent compared to 41.7 percent in the year-ago quarter. Wait a minute... Isn't that margin number sliding in the wrong direction? It's because they are selling less iPhones as compared to iPads and the iPads are lower margin products, and the margins are getting even lower as competition ramps up and ASP drop while unit costs rise in relation. Of course, I went through this in detail several times.
For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month's valuation note target price (page 10 of 
Apple Margin & Valuation Note [11]) and the price of Apple today (click here to subscribe [12]). I also urge the same for Google using our latest Google Q1-2012 Valuation Summary [13].
As excerpted:
It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth ******* in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters.
Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.
What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.
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Comments are always welcome. Follow me:
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