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Record iPhone Sales Lift Apple

1/31/2017 09:00 PM EST
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Doug_S
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Re: The problem of growth
Doug_S   2/2/2017 10:29:20 AM
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When was Apple's stock in the ionosphere? You do realize that they did a 7:1 split since the days it was over 700, so the price of 128 today would be 900 if they hadn't done the split, right? The P/E hasn't been much higher than the current 15 at any point since 2008, and given their growth has been undervalued NOT overvalued that entire time. Their growth has leveled off, so today it is neither overvalued nor undervalued (assuming one believes their sales/profits will remain roughly stable at current levels for at least the next few years)


Apple has about $75 billion of long term debt currently - they announced several years ago they would sell bonds to fund increased dividends and share buybacks that they couldn't do with so much cash stranded overseas (currently about $250 billion) Given the very low interest rates they were able to get, it made/makes perfect sense. If they're able to bring that money back at lower US tax rates, they'll do so and no longer have a need to sell any more bonds.

DMcCunney
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Re: The problem of growth
DMcCunney   2/1/2017 7:06:43 PM
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@Doug_S: Apple's stock price isn't and hasn't been in the ionosphere. It hasn't been priced as a growth stock since before the recession - the P/E is 15.

It isn't in the ionosphere now.  It was previously.

If you discount their massive cash pile (i.e. assume they paid off all debt, brought the money to the US at a presumably lower rate and gave it all back to the shareholders, that P/E of 15 is really closer to 11.

I don't believe Apple had significant debt.  Its historic practice had been to retain earnings, not pay dividends, and plow profits back into the company.  It's been quite some time since they had to assume debt to fund investment in new efforts.  Apple is one of a very few companies that could fund the investment required for high tech initiatives "out of pocket", rather than assuming debt or selling more stock to get the money.

One of the issues facing Tim Cook when he took over as CEO was what to do with the $80 billion war chest Apple had accumulated.  The usual practice is "Make an acquisition", but there wasn't really anything out there Apple could acquire that would siginificantly add to shareholder value.  He did about the only thing he could do, which was return some of that accumulated capital to investors, in the form of first time ever dividends.  I don't believe they've given it all back, and still have a handy pool to dip into at need.

Apple's stock is in no danger of falling a long way from current levels.  They still have strong revenues and profits.  But the current levels are rather down from their peak, and without a major new product to provide significant growth, I don't see their stock price rising dramatically. If you are the sort of investor that is looking forreturns in the form of a higher value for your shares than they previously had, this will not please you.

>Dennis

Doug_S
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Re: The problem of growth
Doug_S   2/1/2017 6:17:53 PM
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Apple's stock price isn't and hasn't been in the ionosphere. It hasn't been priced as a growth stock since before the recession - the P/E is 15. Compare to Google at 28, Microsoft(!) at 29, and Amazon at a ridiculous 190.


If you discount their massive cash pile (i.e. assume they paid off all debt, brought the money to the US at a presumably lower rate and gave it all back to the shareholders, that P/E of 15 is really closer to 11. It is already priced like a utility stock with no growth expectations, so it can only fall a long way if investors believe Apple's profits will fall a long way. Even though smartphone sales have flattened, Apple's customers are pretty loyal, though there's always the chance that smartphone owners in general decide to hold onto them longer than the ~2 years that has been common, which would hit not only Apple but also Samsung.

DMcCunney
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The problem of growth
DMcCunney   2/1/2017 2:51:51 PM
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Apple had a good (if longer than normal) last quarter, and posted revenue and profit gains.

But it's all about the price of the stock.  Apple posted regular double digit increases in revenues and profits for years, and got a stock price in the ionosphere in consequence.  They got that growth through a succession of products that redefined the market.  Apple didn't originate any of the markets they are in - personal computers, media players, smartphones and tablets existed before Apple began to make them - but Apple's designs became the standard for "This is how it's done" in those markets, and Apple got high market share and enormous revenues and profits in consequence, as well as a core market of customers who would pay more for Apple kit because Apple's name was on it.

The trouble is, markets get saturated.  Upgrades and replacements still produce strong sales, but new sales are hard to come by, and growth tapers off.

The financial markets reward growth.  As the smartphone market got saturated at the high end Apple had staked out, my guess was that unless Apple had another category defining product up their sleeves, their stock price would get hammered, and that's largely what happened.

The next product Apple had up it's sleeve was the Apple Watch, but I questioned whether it could drive the sort of growth the financial markets wanted.  Tim Cook may be enthusiastic about it, and have reason to be, but I'd have to dig into the stock price and the revenue contributions it made to guess whether the financial markets shared Cook's enthusiasm. (I suspect not.)

From here, it looks like Apple is bn transition from "growth" company to "mature" company.  Mature companies through off great gobs of cash, but don't have stock prices in the ionosphere.  Investors in it for capital gains because the value of their Apple stock continually rises won't be pleased about that.

>Dennis

 

realjjj
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Re: ...
realjjj   2/1/2017 1:56:51 PM
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Analysts yes but the press paints it as good or great without too much thought.

Adjusted for channel inventory and the extra week, sell-through would be 71.6M units vs 71.5 in 2015 and 74.7 in 2014.

The growth in emerging is due to the wider launch so heavily misleading. Apple simply launched the new iphone much sooner than in previous years and, with more days of sales, they got "records". This will hurt in the next quarters, if you account for inventory - in the previous cycle Apple flooded the channel and then had to drain it ,resulting in large fluctuations.

The SE is not selling well in developing, it costs a lot and has a tiny screen. It's a good choice for folks in developed markets that just need a phone for voice calls but it's a terrible choice for someone that wants to browse the net, chat in IM, watch videos or play games.

The next models, if major upgrades, would do well but the new tendency is for Apple to push ASPs up. You can see that with all the other product lines and they don't always find the right balance between ASPs and units.

Margins,not sure what Apple has said but DRAM and NAND prices should be a headwind.

rick merritt
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Re: ...
rick merritt   2/1/2017 1:01:09 PM
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iPad references fixed, thanks

Doug_S
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Re: ...
Doug_S   2/1/2017 9:31:20 AM
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It isn't like either Apple or the analysts were unaware it was a 14 week quarter when making their projections, so beating estimates is still beating estimates. But I think we should probably consider 2014, 2015 and 2016 Q1s about equal in iPhone sales.


The growth they saw in emerging markets is interesting, and probably accounts for the lower gross margin since they are selling more iPhone SEs into those markets. If that trend continues they might have a couple more unit volume and revenue records in them, especially if this fall's iPhone is a bigger upgrade than the last couple.

Tangey99
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Re: ...
Tangey99   2/1/2017 7:37:46 AM
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Article refers to "ipod" sales twice. It should of course be ipad sales. It's like the author wasn't tuned into what Apple sells these days.

realjjj
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...
realjjj   2/1/2017 12:45:26 AM
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Apple's good quarter is not quite that. They had a 14 weeks quarter and a much wider iphone launch, geo wise. That will hurt in the next quarters as sales run out of steam sooner.

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