#an intelligence analyst does sound super interesting though...

[lovebugcody]

i don't know if it's desperation for a job or what but i am seriously considering applying for a job with the navy.

[jasonrae117]

Bad Idea, Good Intentions

Hello, Thank you everyone for reading! I'm currently working from my phone and can't put the whole story under a cut, but I'm working on it! I'll definitely get one there before the next part because it may or may not (definitely will) contain potential nsfw shenanigans. Enjoy!

Part 3

"Nice to meet you Rachel Roth. Tell me something interesting about yourself." Tim leanes in just a bit closer.

"I work with music for a living." She smirked at him, moving so her knee brushed against his.

Tim looked into her eyes, there was something familiar there. This whole time he felt like he knew her or recognized her from somewhere but he couldn't place it. He graduated with a degree in criminal law and took classes in profiling and here he was not making any connection as to why he would know her. He blamed the alcohol and he was frustrated with himself. Career in music, was that a hint? She obviously knew what she was doing this whole time, playing with him. It was sexy as fuck but still messed with the brainiac. 

He took his time in analyzing her features, making it obvious what he was doing. She just tilted her head in response. Large indigo eyes.. he'd never seen ones like them before today. Dark wavy hair that looked like silk flowing down, he never paid so much attention to a woman's hair before unless they were a criminal. Her outfit was all black and nothing jumped out in familiarity...but her shoes, or rather boots. He looked back up, her pale and smooth looking skin, her alluring curves. He hadn't recognized those eyes before today because he saw them for the first time less than an hour ago, except at a distance from her place onstage. He didn't know the color, only that she had winked at him and they stood out against her pale face. 

"Holy shit! You're Raven!" His eyes widened and his eyebrow shot up. How could he not see it before? Fuck he sounded like an idiot. 

She smiled and she looked so gorgeous in that moment. Her laugh fluttered around the bar as her hand fell to his knee. "Wow, Tim. I'm surprised it took you so long. I certainly gave you lots of attention during the show." 

"Hey, in my defense you were at least fifty feet from me, wearing...uh more revealing clothes, and your hair was completely different. Besides I've had a few drinks since and my brain's not working as efficiently." He reached down and laid his hand on top of hers, leaning into her space. Rachel didn't react or move away as if comfortable with his closeness. 

"Excuses excuses." She waved her hand in a dismissively playful manner. "Would you like to leave Tim?" Her voice now was sultry and almost a whisper of seduction. 

Tim froze, he'd never been in a situation like this. These were the kinds of things that happened in movies, not to him. She was asking him to go home with her...unless he misread the whole situation and she was asking him to leave! Oh God, did he make her uncomfortable? No, she came to him, flirted with him! He was overthinking, overanalyzing. Great, now he was taking too long to answer, shit, he had to say something!

"You want to leave with me?" His face was red in embarrassment. Head tilted and eyebrows set as high as they could go, he had lost all steampower of his attempt to be smooth and now he was just an idiot like every other guy, like his dumbass friends. "I'm sorry. Of course you want to leave with me….….fuck me!" He slapped his forehead and then his eyes widened as he then realized how awful the timing of his curse was. "Wait! No I didn't mean that either. You don't want to fuck me. I mean...not that I don't want you to, because I do….uh... this isn't coming out right." His hands were held out and he was starting to sweat. 

Rachel just looked amused at his stupidity and casually waited for him to take his foot out of his mouth.

"What I mean to say is, I'm not trying to be cocky or have any expectations. I was trying to sound less stupid and well I pretty much failed at my recovery. I told you I talk too much when I drink." He rubbed the back of his neck. Good thing none of the guys were near, the bartender gave him some weird looks, but at least Tim didn't have to worry about the guy teasing him about it relentlessly for the rest of time. 

Rachel smirked and stood up, brushing her skirt down and tossing her hair over her shoulder. She took a few steps away and turned halfway giving Tim an expectant look. "I take that your answer was a yes. Or was all that rambling a way to tell me to look elsewhere for company?" 

"Yes. Definitely yes!" He stood up immediately and tossed some bills to pay the rest of the tab and followed after her. His eyes dropped to her swaying hips and he'd never felt luckier. They made it out of a back door and they silently walked by each other taking in the cool night air. 

"So, Rachel." He looked down beside him. Though she had on heeled boots, she was still half a foot shorter than him. He could add cute to the many attributes she held. "Would you like me to drive?"

"Ideally. I don't have a car and it wouldn't be smart to leave yours here overnight. I'll give you directions to my place." She glanced up and smiled softly at him. 

"Great!" He placed his hand on the small of her back and guided her to his car. He was glad he drove his own car, it gave him a chance to show it off. He didn't think Rachel would be easily impressed by a nice car, but his wasn't just any run of the mill nice car. Tim proudly drove an all black 1967 Ford Mustang. Tim's biological family was well off, but when Bruce Wayne took him in, he had more opportunities including working for Wayne Enterprises and getting paid very handsomely. 

Rachel stopped a few feet short and let out a low whistle. "Ok, Mr. Drake. I have to be honest, I wasn't expecting this beauty to be yours."

"What were you expecting? A Prius?" He laughed and opened the passenger door for her. 

"What do you do for a living? This car is immaculate." She adjusted her skirt and ran her hand along the dashboard. Tim just chuckled and closed the door, jogging to his side.

"I work as a financial analyst at Wayne Enterprises. But I want to work in law enforcement soon. That's what my new degree is in."

"Wow, handsome and intelligent. How new?"

"Actually just a few days ago." He smiled and the engine roared to life. 

"Congratulations, Tim." She smiled genuinely back at him and his stomach flipped. She made him feel some type of way. She pulled her phone out and handed it to him, directions already plugged in. He pulled out of the parking lot and followed the instructions given by the device. 

Her place wasn't too far from the club, quiet music played in the background, but he wanted to use this time to get to know her more before…. before they stopped talking. 

"How long have you been in the band?"

"About three years, including the awkward stage of figuring out if we were good enough to be a band and what our names would be."

"How'd you come up with the names?"

"I've always known my stage name would be Raven. It was my mother's nickname for me. That's also why we ultimately chose Nevermore as the band name too. Jenni felt like she was a curse or bad luck charm for those around her, except us, so Jinx came easy. Toni went with Argent as a kind of fuck you to the bullies that made fun of her super pale skin color. And Wally took inspiration from Kid Rock and combined it with the fact that he's 'the fastest drummer alive'. Thus became Nevermore." 

"Very cool. Does your family come to your shows? You're really good, I'm sure they're proud." He glanced at her and noticed that her shoulders were hunched and she idly played with the rings on her fingers. "I'm sorry, you don't have to answer that if it's personal."

"No..no, it's fine. I..uh.. don't have any family left. My mother passed away when I was eight. She was the only person I had. My father was never a part of my life and never will be."

"I'm very sorry for your loss. It must have been difficult for you being so young." He reached out and reassuringly held her hand.

"It was, but I had a small community of people that took care of me. And before you get the wrong idea, it wasn't a cult. I grew up in Norway."

"Norway? Wow, what part? If it's not too much to ask, how did you end up here?"

"Full of questions aren't we?" He shrugged in answer and squeezed her hand gently. "It was a small village called Azarath and they had such a unique culture. The oldest woman, Azar, was the first baby born in the village a hundred years ago. They named it after her and she became such an important figure. It was most important to her to continue the traditions of her people. They were all pacifists and meditated every day, everyone was so happy and peaceful and thus there was no crime in Azarath, just community. My mother fled from the U.S., away from my abusive father. She took me with her and picked the flight that would get her the farthest away. She had nothing with her except me and an empty bottle. We were starving and nobody helped us. Then one of the Azarathians saw us and gave us a home, gave us hope. They helped my mother raise me. When I was old enough I wanted to learn everything about their culture and every culture. They called me Raven from the Norse mythology of Odin's ravens, symbolizing wisdom and thought. I sometimes think of it as the death omen rightfully earned when my father sent some bad people to locate me to take me away. Azar gave me her journal and my mother gave me all the money from the village. They had all saved me and I didn't understand what was happening, but I ran to the city and got on a plane back to the United states. I found a shelter and lived there until I was eighteen. I found out that those men killed everyone in Azarath. It was all my fault, because I wasn't there. They would have stopped if they got what they wanted. I fled and they killed an entire culture." Tears now flowed down her face. He had put the car in park when they reached her apartment complex. He didn't move to get out and instead slid over to her and wrapped his arms around her. 

Tim gently stroked her hair and let her cry. "Shh, it wasn't your fault. They saved you from a bad man, a bad life. Their culture lives within you and Azar's journal. We don't know what those men would have done, perhaps the outcome would have been the same because they are terrible people. But they knew that you could have a safe future and carry on their memory. Raven has a new meaning now, beyond wisdom and thought. To me it means brave, strong, graceful."

Rachel's sobs were now soft sniffles and she looked up at him. "I'm sorry. You probably were hoping to get laid and now you're comforting a crazy girl."

 

"Hey, I'm not complaining. You're not crazy. And I told you I had no expectations. Come on, let's get you inside, I'm sure it's more comfortable than my car." He felt her nod and he got out to open her door.

"Thank you Tim. I…" She took a breath and tucked a loose strand of hair behind her ear. "You're very kind. There's not many, if any, like you."

"I appreciate that, I can confidently say there is no one like you Rachel." He smiled at her and she grabbed his arm guiding him to her apartment door. 

[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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