Apple

Yes, we know Apple is a cash juggernaut, and could easily lever up its cash and equivalents balance, retain a 10% Tier 1 Capital Ratio and be one of the largest (and perfectly solvent) banks in America (just think of what $760 billion in fractional reserve power would do). But what about the benefit to Uncle Sam? Well, we decided to pull the cash taxes paid Apple disclosed on its cash flow statement for the purest definition of actual taxes paid each quarter, avoiding all that GAAP vs Tax accounting mumbo jumbo, and compare it to the cash the company has had at any given quarter end period. Prepare to be surprised...

Presented without comment

Here is the summary of the beat:

• Revenues: $28.6 billion on Exp. of $25.02 billion
• EPS: $7.79 on Exp. of $5.87
• Q3 Gross Margin of 41.7% on exp. of 39.2%
• Sold 9.25 million iPads on expectations of 7.8 million
• Sold 3.95 million Macs on expectations of 4.2 million
• Sold 20.34 million iPhones
• Sold 7.54 million iPods
• International sales account for 62% of total revenue

Here is what the street expects:

• Revenue:$25,020.4
• Operating Income: $7268.8
• EBITDA: $7869.9
• EPS GAAP: $5.87
• EPS: $5.87

The actual results are due out any minute.

With Apple due to report earnings after the close, everyone is focusing on the stock whose market cap at this rate of growth will surpass $1 trillion within a few short years. While we wish Apple all the best in that questionable pursuit, especially if it wishes to avoid a Volkswagen-Porsche type short squeeze, it is interesting to note that the WSJ has reported that "some directors" are pondering the succession of the iconic Steve Jobs, who until 2 years ago was perceived as instrumental and the vision behind what has become the "coolest" brand in technology. The surprising finding is that this may be happening behind his back. From the WSJ: "Since Steve Jobs went on medical leave this winter, some members of Apple Inc.'s board have discussed CEO succession with executive recruiters and at least one head of a high-profile technology company, according to people familiar with the matter. The conversations weren't explicitly aimed at recruiting a new chief executive and were more of an informal exploration of the company's options, said these people. The directors don't appear to have been acting on behalf of the full board, some of these people said. Apple has seven directors, including Mr. Jobs." Jobs response was not very agreeable: "It is also unclear whether Mr. Jobs was aware. "I think it's hogwash." However, while we assume that no voicemails were hacked in the procurement of hits article, we do tend to believe the WSJ, especially with Jobs' frail health in the last few months. Will it impact the stock as it did once upon a time: probably not. Or at least not until such time as the absence of Jobs does change the precarious ecosystem balance of geeky, techy and cool. Finding a replacement will not be easy.

Nine months after I debuted the Margin Compression Thesis on CNBC (along with the JPM issues), the MSM is finally pulling out of their lovefest with Apple and at least trying to become a tad bit more objective. In the meantime, Goldman still has Apple on its CONVICTion buy list as it sells nearly half a billion dollars of stock into its loyal customers buy orders. Where, oh where, can you get halfway decent, unbiased research these days?

I have told subscribers that I would have to revisit the Apple valuation numbers after finding out more about their cloud services offerings. After all, embracing the cloud could potentially enable Apple to win the Mobile Computing Wars. As I have stated in my many rants regarding the Mobile Computing Wars, Apple is (strategically) placed behind Google.

Goldman sold somewhere around $428,672,680 worth of Apple stock into Apple loving, Apple can do no wrong, Apple has superior user experience, Apple will never face margin compression, Apple has shiny new products on tap, Google Android phones are cheap, I don’t care if the competition is taking over the world, Apple juice sucking, Goldman Conviction Buy List client purchases. Diehard Apple fans, the Goldman bonus pool (Manhattan Motorcars & the Hamptons local Azimmut dealer) simply luvs y'all!

It's amazing what one can discern from a leisurely walk through the local big box electronics retailer. I reiterate - the wholesale assumption that Apple can defy the basic rules of business, economics 101 (supply and demand) and common sense, combined with a near-nonsensical lovefest for this admittedly very impressive and innovative company will result in some very bad days for the NASDAQ (wherein Apple is one of the, if not the, heaviest weighting) in the future.

My many warnings on the impending dethroning of Apple by Google has produced more flak and negative response since any proclamation since my warning about Goldman Sachs in the spring of 2008. Of course, fast foward to the spring of 2011 an you will find Reggie was right on point. I am just as confident, or more, about Apple vs Google, and for the same reasons as I was confident about Goldman Sachs.

Something interesting appeared in today's Release of David Kostin's Hedge Fund Trend Monitor. Actually make that shocking: as of the end of Q1, Apple is no longer the most hedge fund-held stock in the world. After 195 hedge funds held AAPL at the end of 2010, the most of any stock, with Citigroup and JPM in 2nd and 3rd position, over the next 3 months 22 fund or over 10% of the HF holder base have dumped their entire stake. And with a YTD return of just 4% who can blame them... for jumping out of the frying pan and into the "value investor" fire: as of Q1 the most widely held Hedge Fund stock is now Microsoft with 181 holders, up from 161 in the previous quarter. Which unfortunately means that 181 hedge funds have generated a -11% return on this holding. And with few if any funds left who have yet to enter, the only way for MSFT from here on out is down. Not surprisingly, both Citi and Bank of America saw their fans depart, with 12 fund closing out their C positions, and 9 doing the same for BAC.

Several BoomBustBloggers inquired as to my opinion of what apparently was an overpriced acquisition of Skype by Microsoft. At first blush, it appears as if the management of Microsoft has lost their mind. A second look reveals a more interesting perspective. To make a long story short, Microsoft is trying to replicate Google’s cloud services.

So much for the financial stock renaissance. David "Balls to the Wall" Tepper appears to have played out his QE card, and at least in the quarter ended March 31, decided to dump a substantial portion of his financial holdings, cutting his stake in Bank of America, Citi and Wells Fargo by 31.3%, 34.8% and 58.6% respectively. Tepper also appears to have lost his faith in GM, trimming his holdings from over a million shares to just 38,700 shares. On the additions side, Tepper did add 200,000 shares of Apple, his biggest new position, followed by a new $76 million Valero Energy position and a new $67 million MetLife holding. Based on this report we fail to see Tepper as showing up on CNBC for another Tepper rally iteration any time soon.

Could a masterfully marketed toy run with the big boys at premium prices if the truth were to leak out? Ask iPad buyers this time next year after the next 400 tablets are released on various platforms for much less money sporting that much more functionality.