#(that's a paraphrase - not a specific example....but does it sound so far fetched)

[frankenhorror]

Queerness and neurodivergency and other ways of being different from the "average" person - inborn ways - are so....applicable. To horror movies.

You see a character succumb to what they've been fighting against - something within themselves, who and what they are - and they just...they let go. They stop fighting. They become whatever they've always been.

Based on narrative, such a letting go is either negative or positive...in some cases, it's both.

This is repeated through countless horror movies. Countless horror media.... It's the personal context that comes from the life of whoever is watching, that is what makes this stuff click. If you do not have a "different" life, you may be able to see the connections but you will not understand to the fullest - because you do not live with that extremely personal battle within yourself.

[writing-with-olive]

How to write essays fast

I've been writing a lot of papers, so that's what's on my mind.

So this mostly applies to your standard 5-paragraph paper, though it's fairly straightforward to adapt it to longer (or sometimes shorter) assignments.

One of the main things to note is that essays are VERY formulaic, so knowing the formula and being able to write down your ideas in a way that fit into the formula is probably the number one way to get stuff done fast. Because of that, most of what I’m covering is breaking down the formulas so they’re more accessable.

Also this got very long. If there’s anything you want me to expand on just let me know in the comments or send me an ask/DM and I’ll make another post that goes more in-depth about it.

Structure (I hate this step, so I’ve figured out how to do it very fast becuase it’s still important)

The first thing to consider is prewriting and structure. To start, there are two major paper structures I usually consider. The first goes

Introduction

Main point #1

Main point #2

Main point #3

Conclusion

This is good if you have a lot to say on the topic, or if it's something closer to a summary essay where there's not really an opposing side. In something where there are distinct sides, (or if you have less to say to support your own side), you may want something that looks like

Introduction

Main point #1

Main point #2

Why the other side is wrong

Conclusion

The "why the other side is wrong" side is involves thinking through the MOST credible arguments the other side might make, and methodically breaking them down to show how they don't work. The stronger the argument you choose, the more effective this is.

Since I personally hate prewriting with a passion, I usually do this step very fast and end up with an outline that looks like

Intro [insert thesis statement]

P1: [three word summary]

P2: [three word summary]

P3: [three word summary]

Conclusion

(thesis statement, introduction, body paragraphs, and conclusion tips are all below the cut)

Usually, this is enough so when I look at my outline, I can see what I'm trying to focus on for each paragraph - and do so without straying from my main point.

For the prewriting, the main things to do are identify with basic structure of the two will serve your purposes better, and write a thesis statement that solidly supports your argument.

Thesis Statement

There are so many guides about creating thesis statements that are powerful, but I'm just going to quickly go over how to be fast about it.

The first thing to know is that a thesis statement is usually a complex sentence: it's your entire essay distilled down to a single line. The general formula I follow goes something like this:

"In their [media type] [name of specific piece], [creator's full name] explored/demonstrated/other verb [theme you're going to be arguing about] demonstrated/using/as evidenced/as shown by [example 1], [example 2], and [optional example 3]."

For example, a thesis statement that follows this format might go

“In his short film Job at Place, David Davidson explored the manifestations of human stupidity through the absurdity of the main character’s home, school, and office.”

Or, if you're writing a historical piece, it might look something like this:

"In [place/time period], [thing you're arguing was happening]: they had to/the conditions were such that/other thing to set up a list [example 1], [example 2], and [example 3]."

For example, a thesis statement that follows this format might go

“During the Tusken Invasion of 32nd century Tatooine, it was the lives of the children that were most affected, from their social development and connections with others to more personal struggles they didn’t yet have the tools to overcome.”

The examples you give are going to correlate to your paragraphs - example 1 is for body paragraph 1, and so on. 

Introduction

I like to think of the introduction as a funnel that gets more and more specific.

First, write a broad statement that touches on whatever theme you’re referencing. 

Job at Place is about human stupidity, so something like “while great minds have flourished throughout the ages, so have the not-so-great.”

Tatooine is about war, and about child development, so something like “children’s development has always been impacted by the state of the world around them.” or “war has many effects, many of which impact those not directly involved with the conflict.”

The idea is that it’s a broad statement that can almost be looked at like a universal truth.

Next, you’re going to go deeper - two sentences that narrow down the time and place you’re talking about specifically, and how that time and place fit into your universal statement. 

The fourth sentence gets even more specific - introducing how the thesis sentence fits into your first three sentences.

Then the last line is your thesis statements. 

Body Paragraphs

Your three main body paragraphs all follow the same formula. (I’ll get to the “why the other side is wrong” paragraph in a minute)

The first sentence you’re going to want is a topic sentence. For this, you’re going to want to look at the example you gave in your thesis statement that corresponds to this paragraph, and see how it relates to your central claim. 

If we’re going with the Job at Place example from above, for the second paragraph, you might open with a line like:

“A striking characteristic of Davidson’s short film was the abnormality of the main character’s school, used to showcase exactly what happens when poor decisions get taken too far.”

Everything within the paragraph will then back up the claim you’re making in the topic sentence (which in turn is backing up your thesis). 

For each paragraph, you’re probably going to want about three pieces of evidence, either in the form of direct quotes (plucking words directly from the source) or paraphrased quotes (summarizing what happened in your own words). The quote should be used to directly support your argument.

After each piece of evidence, you’re going to want about... twoish lines of analysis (this number can change as you need it to, but two lines is something solid to fall back to). 

While analysis can take all kinds of forms, one pattern you can use if you’re stuck is

evidence sentence 

what it means

how that meaning ties back into your main point

Following this pattern, a piece of analysis of Job at Place might look like:

“One of the first images of the private school is that it’s a tall spire with creaking stairs and loose floorboards. Despite this, the principal has eight personal cars parked outside on full display. While the first glimpse of the school might indicate that there is little money to care for the structural integrity, the notion is directly negated by the principal’s actions. By using these two images, Davidson demonstrates what can happen to the youth when those in power let greed carry them away.”

After you write your analysis, include some kind of transition phrase, and go onto the next piece of evidence.

The last line of your paragraph is going to transition into the next paragraph while also summing up the main point of what you talked about in the current one. (This line can also get moved down and tacked onto the beginning of the next paragraph, before the topic sentence, but I have found it tends to look less cohesive that way).

You might choose something like:

“While the school was a disaster in its own right, it wasn’t the only example of human folly.”

If you’re writing a “this is why the other side is wrong” you’re going to want to think about the MOST compelling arguments the other side could make. Take the top one (or two), and figure out ways to crack them apart using evidence from your source material.

In this case, your topic sentence might start off with something like

“While opponents might say [insert compelling counterargument], their reasoning breaks down when one takes into account the evidence.”

At this point, you’re going to follow the same formula as above. The main thing to keep in mind is that for the duration of this paragraph, your point is that the other side’s claim of X is wrong.

Conclusion!

If you know what you’re doing, this is actually the easiest part.

(wait, what??????)

The thing is, you NEVER want to introduce new ideas into your conclusion. Instead, you’re summarizing your main points.

The formula I follow per sentence is:

Thesis statement but reworded (you can change the sentence structure too)

Topic sentence for paragraph 2 or 3, but reworded (I’ll explain why you shouldn’t do the sentence for P1 in just a sec)

Topic sentence for paragraph 1 or 3 but reworded

Topic sentence for paragraph 1 or 2 but reworded

Wow sentence or question (i’ll get to this too)

The idea for the middle three sentences is you don’t want them to read as repetitive, so you’re going to mix up the order so it doesn’t match the order of the rest of the essay. This will help to keep it fresh.

The wow sentence is basically the last impression you get to make. I find it’s usually a good idea to go just a tad dramatic (it sounds dumb, but it has never failed me). If I can’t think of anything, a declarative statement on whatever major theme was being discussed throughout the essay usually does the trick.

Examples:

All of this shows that in the absence of friendships and platonic love, humanity will falter.

Fiction may seem far fetched now, but if the world falls into those same mistakes, it’s only a matter of time until it becomes a reality.

Art has existed for as long as humans have populated the earth; it’s not going away any time soon.

A lesson everyone must understand is the most powerful weapon isn’t anything physical or tangeable: it’s the ideas that exist in the minds of those who care.

(I told you they were going to be dramatic) A way I look at it is if you can’t imagine dropping the mic on the last line, it needs to be stronger (yes I found that plagiarized with not even a whisper of credit on Pinterest, but it works).

If you wrote a SOLID essay, consider ending with a question aimed at the reader (this will push your essay in the direction of either the positive or negative extreme: a strong essay will become stronger, a weak essay will become weaker). Questions can be a call to action or rhetorical as a means to drive home your final point. Becuase they’re more nuanced to the content of the essay, I don’t really have great examples to give you though (sorry).

Hopefully this is useful to at least some of you - good luck!

++++

Tagging:@candlemouse

If you want to be added to or removed from any of my taglists (found pinned to the top of my blog) just let me know :)

[smartwebhostingblog]

Apple Silly Season Is Upon Us

New Post has been published on https://rwamztech.com/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

[awesomecolorfulcollectorwombat]

Apple Silly Season Is Upon Us

New Post has been published on https://rwamztech.com/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

[lazilysillyprince]

Apple Silly Season Is Upon Us

New Post has been published on https://rwamztech.com/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

[hostingnewsfeed]

Apple Silly Season Is Upon Us

New Post has been published on https://rwamztech.com/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

[smartwebhostingblog]

Apple Silly Season Is Upon Us

New Post has been published on http://croopdiseno.com/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

[awesomecolorfulcollectorwombat]

Apple Silly Season Is Upon Us

New Post has been published on http://croopdiseno.com/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

[lazilysillyprince]

Apple Silly Season Is Upon Us

New Post has been published on http://croopdiseno.com/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

[hostingnewsfeed]

Apple Silly Season Is Upon Us

New Post has been published on http://croopdiseno.com/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

[awesomecolorfulcollectorwombat]

Apple Silly Season Is Upon Us

New Post has been published on http://iwebhostingreviews.com/vexx/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Related Posts:

No Related Posts

[smartwebhostingblog]

Apple Silly Season Is Upon Us

New Post has been published on http://greatresponder.com/2019/01/03/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Related Posts:

No Related Posts

[awesomecolorfulcollectorwombat]

Apple Silly Season Is Upon Us

New Post has been published on http://greatresponder.com/2019/01/03/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Related Posts:

No Related Posts

[lazilysillyprince]

Apple Silly Season Is Upon Us

New Post has been published on http://greatresponder.com/2019/01/03/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Related Posts:

No Related Posts

[hostingnewsfeed]

Apple Silly Season Is Upon Us

New Post has been published on http://greatresponder.com/2019/01/03/apple-silly-season-is-upon-us/

Apple Silly Season Is Upon Us

Silly Season Is Upon Us

That feeling when graffiti makes more sense than floor traders. By cogdogblog – Good Advice, CC0, Bring a towel, too. (2535543334).jpg

Apple (AAPL) is always subject to Silly Season in their Q1 (Christmas quarter). Q4 has 1-3 weeks of new iPhone sales, but the motherlode is Q1, so speculation is rampant. Apple is the most secretive company in the world, which allows the speculation to shape-shift into fact.

Apple is also the most written-about company in the world, and the best way to get clicks in the tech press is claim-chowder headlines about Apple’s days being numbered. One day, they will be right. But this past decade, how many times have they been wrong? Answer: many. Here’s a fun example from April of this year, long after everyone should have known better:

The iPhone X, Apple’s new flagship phone and heir apparent to the universal design of a smartphone, only accounted for 16% of the company’s smartphone sales so far in 2018, according to estimates from analyst Consumer Intelligence Research Partners. The share of all new iPhones sold in the first quarter of 2018 has slid to 60%, down from 78% in 2015, the report stated. The new models include the iPhone X and the iPhone 8 and 8 Plus—meaning the old versions of iPhone are selling almost as well as their updated counterparts.

Apple’s introduction of the iPhone X, and its elevated $1,000 price, indicated Apple had confidence that people would be willing spend more than ever on a new phone to get cutting-edge technology—but a 11-point slide year over year in sales might indicate that confidence is misplaced…

We’ll know soon enough what the quarter looked like for Apple, as the company reports its earnings May 1.

How’d that work out?

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Oh, right. I wonder if Dave ever wrote a headline, “Boy, Was I Wrong About the iPhone X!”

This year, Silly Season is even bigger. If this past week wasn’t The Bear and The Bull engaged in thermonuclear war, I don’t know what was. The Animal Spirits are out. The headlines are flying fast and furious. Analysts are downgrading Apple left and right, focused on iPhone units instead of profit for some reason. Anytime someone reminds me that the iPhone has a small market share, I try and remind them they also take about 80% of ALL smartphone profits every quarter.

Anyway, not to pick on Peter Cohan specifically, but there’s been a lot of this:

Apple has been producing new iPhone versions and raising its prices on them. But its high price is not holding for the latest version, the iPhone X, so as Bloomberg reported, Apple is offering customers a 40 percent discount.

How so? On December 2, Apple added a new banner to the top of its website advertising the iPhone XR for $449, $300 less than its official sticker price. The deal, noted with an asterisk and described at the bottom of the page, requires customers to trade in an iPhone 7 Plus, a high-end handset from two years ago.

O how mighty Apple has fallen!

To put it in perspective, the plunge in the iPhone gross margin has been precipitous. As I mentioned, In 2012, the iPhone had a 71 percent gross margin. Before the 40 percent discount, the iPhone X had a much lower gross margin of 48 percent — its price was $749 and the cost of the parts was $390, according to IHS Markit.

By discounting the price to $449, the iPhone gross margin drops to 13 percent.

Bonus points for “O how mighty Apple has fallen!”

He is correct that Steve Jobs loved high gross margins so much that his wife was probably jealous of their relationship. But, unfortunately, arithmetic and common sense are Cohan’s nemeses here.

So What’s Wrong Here?

The first thing is plain common sense. Cohan and others weirdly assume that Apple is going to just chuck these trade-ins into the trash and call it a day. Does that sound like Apple to you? Does that sound like something any company would do? Of course, Apple refurbishes them, and sells them in its online store.

Secondly, as I will show below, Apple is most most likely increasing profits here, not decreasing them.

The Apple Trade-In Program

You wouldn’t know it from these articles, but Apple has had a trade-in program for years now. Two things have changed:

They raised the trade-in value for December. More so on the older phones.

They promoted the heck out of it for Christmas.

Here are the changes in trade-in value:

Device

Old Credit

New Credit

Change

iPhone 6

$75

$150

100%

iPhone 6 Plus

$100

$200

100%

iPhone 6s

$100

$200

100%

iPhone 6s Plus

$150

$250

67%

iPhone 7

$175

$250

43%

iPhone 7 Plus

$250

$300

20%

iPhone 8

$275

$300

9%

So I believe two things are going on here. Apple sees that the upgrade cycle is lengthening, and badly wants to get those people with very old phones into a new one. The extra credit only applies if you are buying a 2018-year phone (Apple also sells new previous year phones as a budget option). As we have learned many times in the past, this does not necessarily mean iPhone units are down, though I suspect they are anyway.

To me, the only units that matter are US dollars, to paraphrase Johnny Rotten.

Source: AZQutoes

The second thing I think is going on has to do with the iPhone 7 Plus, which I believe to be Apple’s focus here. This is pure speculation, so take it with a grain of salt, but in analyzing how they’ve set up the promotion, it just looks like to me that, while they’re taking all comers, they are particularly interested in that model. Apple is deliberate about every single detail of everything, and it can’t be an accident. Why?

First, let’s look at the economics of this transaction.

The Only Units

US dollars! Aren’t they the best? Completely fungible global reserve currency, and the easiest way to keep score. How odd it is that analysts insist on using phone units to keep score when dollars are just sitting right there.

Someone buys an iPhone XR for $449 plus an iPhone 7 Plus in “good” condition. There’s a lot of wiggle room between those two quotation marks, but Apple’s definition of “good” is “anything where the refurb cost is low enough that we can still make an acceptable profit.”

I looked on eBay to get a sense of where the market for used iPhone 7 Pluses stood as of today. I cataloged the last 100 completed transactions that fulfilled the following qualifications:

32GB

Described as good or better. Minor scratches and dings OK.

All components in good working order

No third-party screen replacement or any other third-party major component replacement.

Unlocked in all ways

No accessories required, just the phone

Also, there were a couple that were suspect, like the one that sold for $1100 to someone 10 miles away from the seller (LOL, money-laundering), so I omitted those.

I think this comes pretty close to what Apple is looking for. The last 100 phones sold in this category averaged in price $347.54.1 Apple could just turn around these phones that they are purchasing for $300, and make a 13.7% profit on them the same day. And remember, that’s the least expensive of the iPhone 7 Pluses. The 128GB and 256GB versions fetch about $60 and $120 more on eBay, respectively. Apple pays $300 regardless.

But they don’t sell them on eBay, of course. They send it back to Hon Hai, where they are rubbed and scrubbed and sold in the Apple refurb store, for $479, $569 and $649, depending on storage. Remember, that $649 version still cost Apple only $300. Let’s be super-conservative and say the average sale price is $500 because of heavy mix towards the 32GB phone. That means Apple’s profit here is $200 minus the cost of refurb.

Here’s the tricky part, because Apple is the most secretive company in the world, it’s impossible to know what that refurb cost is. Since they could just get $348 on the open market without the refurb, I would imagine the profit is much higher than that $48. I would guess much closer to $148 to $48, but that’s pure speculation. Let’s just call it $100. So instead of getting $749 for this iPhone XR, Apple got $849 ($449+$500-$100).

Apple does not give anything away. Ever. They like to put on a soft, PC face, but they are also the greediest company out there, because Steve Jobs understood that the scorecard was all in dollar signs, not phone units.

I think this is another brilliant lever-pull by Tim Cook, that no one else even saw, won’t understand until the May conference call, and maybe never. Or, I’m just completely wrong. Isn’t following Apple fun and exhausting?

I Think They’re Headed to Asia

Again, we’re into purely speculative territory here, but this is based on a few things:

Bigger phones tend to be popular in Asia. According to Device Atlas, in South Korea, home of Samsung (OTC:SSNLF), the most popular phone in 2018 is the iPhone 7 Plus with 11% share. The top Android phone is the Galaxy Note 8, also a large phone. It’s not true in every Asian country, but sales of larger phones tend to be better there, where it is often a person’s only device.

Right now, the dollar is strong and a good way for Apple to boost profits is selling abroad. The $749 iPhoneXR costs 990,000 Korean Won, or $887 in today’s exchange on xe.com. A brand new iPhone 7 Plus is $569 in the US, and $681 in Korea. Also, this income and profit gets funneled through their Irish “subsidiary” and they pay no US taxes on it.

Notice I didn’t tell you the price of a refurb iPhone 7 Plus in the Korean Apple Store? That’s because there are no iPhones there, or anywhere else in Asia that I looked. Like I said, Apple is very deliberate about things, and they may have a Very Good Reason why there are none. Or, they could be lacking in supply, and that’s what this is all about: getting supply of used inventory to sell in Asia.

But Wouldn’t This Cut Into New iPhone Sales?

Yes. Probably. I don’t care. More to the point, neither does Apple. The margins on the refurbs are high, it increases their user base in the fastest growing part of the world, and juicing foreign sales, where the profits are much higher, will make up for some of the reduced units on the top-line phones. Analysts may care where the dollars come from, but Apple does not.2 They are the only units that matter.

Implications for Apple Stock

As I write this, Apple sits at 156.23. It’s TTM PE is 13.15. Their cash-net-debt is about $22/share (probably more now, since the share count is likely lower than it was in September). So minus the cash, the market is currently valuing Apple at $134 with a PE of 11.30. That is, other than the cash, the entire rest of Apple is worth $636 billion. Other assets besides cash are $166 billion. So the non-asset value of the entire company is $470 billion. Come on, now.

But there is an old saying that the market can remain irrational longer than you can remain solvent. The Bull and The Bear are out, fighting for supremacy, with one fear trade on top of another. Say whatever you want about trade, the Fed, liquidity, whatever. We are into pure Animal Spirits and none of it matters until one of them wins.

So under these conditions, I can’t say that Apple stock won’t go even lower; you may even be able to get it as low as $100 if The Bear wins. But I also think that the price for Apple now is absurdly low, and a year from now will be a lot higher. I took another taste at $150, even though I am a big Fat Bear right now. If it goes to $100, I will probably buy more. That’s how I do Apple, I only buy, never sell. It’s working so far, until it doesn’t.

Conclusions: Who Knows?

Pictured L-R: Eddie Cue, Ho Chi Minh, Nikita Khrushchev, Phil Schiller, Leonid Brezhnev, Tim Cook and Jeff Williams. Scott Forestall was airbrushed out of that empty spot in the middle between Khrushchev and Schiller. Source: US Navy Public Archives

During the Cold War, solid data about the Soviet Union was very hard to come by. Frustrated political scientists came up with the field of “Sovietology,” which was more art than science. They would pour over articles and photos in Pravda looking for any clue into new policy or inner-circle machinations from article verbiage, and photo composition and airbrushing. You will probably be unsurprised to learn that, lacking data, their predictions were not very good.

Covering Apple is kind of similar and equally as frustrating. They are almost as secretive as the Soviets between SEC filings, and so we have to engage in a little educated guessing, and hope our record is better than the Sovietologists. Anyone from outside of Apple who tells you they know what is happening at Apple is a liar. Heck, most of the people inside Apple don’t know what’s going on beyond their own small world there.

As always, the speculation about this quarter will end with their 10-Q, and maybe we will get a couple of days’ break before the speculation on Q2 begins. Until then, speculate away!

Sadly…

My policy with heavily-followed companies like Apple is to not read or respond to comments, as they seem to attract a large amount of FUD and trolling. Feel free to send me a private message if you have a question or comment directed at me. If you are polite and respectful, you will almost certainly get a response that is also polite and respectful.

Endnotes

1 I included shipping for two reasons. 1. This is the full cost of what the buyer was willing to pay. 2. Low price + high shipping cost is the oldest trick in the book.

2 When the iPhone was first released, some analysts complained that it would cut into iPod sales and was therefore a bad idea. Seriously.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Forever, and ever

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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