Financial, Real Estate, Stock Markets Trends and Current Affairs

Last week I lamented Many Don't Understand The Google/Apple/Microsoft Business Model Dynamics. If it this was was widely understood, it would be common belief that Samsung is most likely to be the one to beat in the smart phone race, and Google's Android is nigh the de facto standard mobile OS. Apple's cult-like popularity has blinded many to facts, figures, trends and logic, but here goes anyway...

As most know by now, Apple won a billion dollar settlement against Samsung week before last (Apple v. Samsung verdict). That billion dollars pales against potential Samsung flagship phone sales though. Apple's problem is that it has shifted from trying to compete in the market to trying to compete in the courts. That is the mark of a company that has reached its peak. Don't believe me? Check out the result of trying to induce legal restraints on raw market forces... Meanwhile, Galaxy sales go supernova - New York Post.

As reported by Business Insider...

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That's right! The forced imposition of legal restrictions on the free market actually boosted Samsung's Galaxy sales significantly. People are now starting to research the "Better Product". So, what does Apple do instead of learning its lesson? As a result, Apple enjoins the Samsung flagship model as well. Apple is now apparently run by lawyers instead of designers, creative talent and engineers. Let's see how well that works out for them. In the meantime, let's see the actual market's reaction...

Samsung Galaxy S3 now outselling iPhone 4S in Southern California - San Fransisco Examiner

A survey of 32 Verizon, Sprint, and AT&T retailers in Los Angeles, Orange County and San Diego show that the Samsung Galaxy S3is easily outselling the iPhone 4S. 28 of the locations that were surveyed are saying that Samsung is the winner. This is based on sales from the past 10 days.

The Samsung Galaxy S3 is on its way to becoming the biggest Android headset yet. Not only has it received excellent reviews, but sales figures are staggering. Samsung is expected to announce another Android headset very soon.

Samsung Outsells Apple iPhone Two-to-One Thanks to Galaxy S3

Samsung Outsells iPhone, Breaks Shipping Records

Samsung Galaxy S3 Knocks iPhone 4S Off Mobile Top Spot ...

Samsung galaxy S3 is now the most pre-ordered gadget in history ...

Hopefully, you get the hint by now, because it's apparent Apple's management doesn't. Less money legal fees, more money on R&D!!!

Most people don't even get the endgame here. This is not going to be a battle between Apple and Samsung. Apple has already lost this by maximizing profits last year in milking the iPhone 4 franchise with the iterative, barely evolutionary iPhone 4S instead of coming out with a revolutionary iPhone 5. Yes, it made them he most profitable company in the world, but it sold their prospects to hold that title in the future to Samsung and Google. The real battle will be between those two companies - Samsung and Google. As Samsung both eliminates the threat of Apple through market while at the same time effectively narrowing the playing field by marginalizing the other Android players (even the good ones) such as HTC, it allows Google to take the gloves off its Motorola Mobility acquisition and truly get busy. You see, there will be no OEMs to anger because Samsung would have put them all out of business or sidelined them. An all out, R&D budget busting battle between Google and Samsung with Samsung innovating on the software side (ex. the S3) while Google innovates on the hardware and business model side (ex. the Nexus series) will be a boon for consumers. If you think the GS3 is a phenomenal device (and it is, try one out if you haven't already), wait until Google opens up the spigots!!! 

Waiting in the background for someone to make the hubristic error that Apple just made will be Microsoft and their synthetic purchase of Nokia, throwing some pretty innovative tech at the marketing waiting for it to stick. The battle royale has yet to come, here's one of the reasons why...

Many people are still totally oblivious to exactly what it is that Google does. Here's a tutorial.

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade. 

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

Google Q1-2012 Valuation Summmary 04/20/2012

Google Q1 2011 results 04/18/2011

Google Q3 2010 reveiw 11/08/2010

Google Final Report 10/08/2010

An Analysis and Valuation of Google's Android and AdMob 09/27/2010 

Google Valuation Model 09/21/2010 

 Google's VOIP and Telephony Services 09/16/2010

Google Cloud Based Services

Google TV Analysis

A couple of bits from our archives...

There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

Unique, Indpendent and Accurate Apple Research

Apple 2Q2012 results analysis04/26/2012

Apple Margin & Valuation Note03/15/2012

Apple Margin Strategem WIP02/13/2012

Apple - Competition and Cost Structure05/16/2011

Apple Earnings Guidance Analysis08/12/2010

Apple iPhone Profit Margin Scenario Analysis Model08/03/2010

Apple business model note

 Apple Margin & Valuation Note

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

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Comments are always welcome.

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In continuing my rant on the Apple v. Samsung verdict, I wish to make clear once again that the vast majority of consumers of Google's and Apple's products are absolutely oblivious to the business model of Google, the business practices of Apple and the shadowy aggressive survival tactics of the behemoth that is Microsoft. If I am correct in this assertion then the potential ramifications of Apple actually defeating Samsung in the patent case decided last week is also lost on most. That is dangerous. Since it has been explained at least as good as I could have done already, let's peruse one of my favorite legal sites, Groklaw, on why understanding Apple's grand objectives in patent litigation matters:

To explain why I think it matters, I need to remind you of other things that have been going on, trying to exclude FOSS from the market. Because that really is what I think this is about.

Remember how Oracle tried to expand copyright law to cover the structure, sequence, and organization of Java APIs? It failed (subject to appeals). But it tried hard. Had it succeeded, it would have upended how any open source software could be built and used, and it would have excluded individual developers like Linus Torvalds in his student days creating Linux in his bedroom, because only those with money to pay royalties would be able to do any coding for the marketplace, if moves like that had succeeded. One of Michael A. Jacobs' law students volunteered to help cover the trial for Groklaw, and she told me that this is what she had learned about the case in class. I take it that means it was its purpose. Do you want a world where only the present incumbents are allowed to create anything meaningful? How does that benefit you or me?

Remember when Microsoft did its patent deal with Nokia and then they both did patent deals with MOSAID, a nonpracticing entity that presumably will be using the patents those two lovebirds provided to sue Android vendors and who knows who else? Patents exclude. That is their purpose. Android is the target. Did you notice how Microsoft crowed in public about the Apple verdict, predicting it would be beneficial to Microsoft?

Remember back when Microsoft helped SCO afford lawyers in the very early days of the SCO saga? What was the goal there? To slap royalties on Linux and get rid of the GPL, so as to block Open Source's free development model, and make it so expensive no one would want to use Linux on servers any more. Remember when SCO even offered to help Linux-using companies move not to SCO's UNIX products but to Microsoft servers?

Now, it's Apple and Microsoft on a jihad against Android and hence Google. That's why you see attacks on Google in an endless stream in the media and even in regulatory bodies, where Microsoft friends who take Microsoft money complain about Google. Android is eating Apple's and Microsoft's lunch in the marketplace, because people love it and OEMs love it, so the proprietary world has apparentely decided o use the legal system give them a win there, since they can't win fair and square in the marketplace. Actually, they could, but they'd rather not.

What are the weapons? IP law. They have copyright, they have patents, and now they have a new weapon of choice -- trade dress and design patents -- thanks to Apple. And that is why this case is so appalling, because Apple has now opened up a new area for litigation and exclusion. That's what the L.A. Times noticed:

Nevertheless, it's worth remembering that Apple made its name building successful, even iconic products based on ideas that other companies pioneered. The iPhone, for example, was a significantly better version of the smartphones Nokia introduced more than a decade earlier. Innovation is by its nature an iterative process, and good patent policy creates an incentive to innovate more. Bad policy just makes it easier for patent holders to extract royalties from anyone venturing within reach of their claims.

The risk is especially great in the area of patents on design, such as the ones that covered the look and feel of Apple's iPhones. There's a fine line between designs that are purely decorative (which, oddly enough, are the ones eligible for patents) and those that serve a function (which aren't). For example, do rounded corners on a phone simply help set it apart, or do they make the device slip more easily in and out of a pocket? ...

If Apple's win slows the wonderfully frenetic pace of product development in mobile devices and leads companies to battle in courts instead of the marketplace, consumers will be the ultimate losers.

There's no if about it. It certainly will have that effect. My point is, it's all about the same thing -- to make it impossible for Android to survive as it is, and now we will see litigation after litigation -- Apple has already filed another lawsuit against Samsung -- and the end result is to make Android cost more because of encrusting it with high royalty obligations, so it cuts into the vendors' profits sufficiently that it will end up making it undesirable to use. That's why, I believe, Apple offered licenses to Samsung on its first visit to discuss matters at such a high price. It would have cut Samsung's profits so radically, it would no longer make much sense to use Android. I think they had to know Samsung couldn't agree to that price. Apple itself is complaining about a much, much lower price for FRAND patents, after all, saying it can't afford to build its products with that price added. Did Microsoft pay that high price?

But, I hear you say, that's anticompetive behavior. Isn't that patent misuse? Misuse of the courts? I think it is. But I'm not a lawyer. And antitrust law is complicated, and thanks to folks who think business should be unregulated, it's a little bit toothless at the moment.

Time will tell how others view it, but I despise the strategy. The purpose of both copyright and patents is to encourage innovation and progress. The purpose of trade dress protection is to make sure consumers are not confused as to origin of goods and products. Design patents are supposed to protect only ornamental features, not functionality. None of it is supposed to be for the purpose of killing off newcomers to the market. Is it even Constitutional to use them that way? You tell me.

Remember too that Apple itself reaps benefits from Open Source software. It switched from its own software to OSX, which is BSD code. Why? Because it was better than what it had done itself. So it surely knows what FOSS can do. Now, it wants to make sure no one else can offer what it offers, even in such basic elements as rectangles with rounded corners and rows of brightly colored icons or ways to touch a tablet that are simply intuitive. Intuitive is just another word for obvious.

The reason Apple has gone scorched earth on the litigation front is because it is sorely losing the battle on the technology front and rapidly losing market share in an industry that's currently growing like a weed. Why should Apple even care if the industry is growing like a weed? Well, for starters, once that growth slows, Apple's growth slowdown will be amplified and levered several times. Think of growth using margin or gearing. If the market growth stagnates to near 0% growth, then Apple's growth could drastically reverse and go negative!!! Apple had better knock the upcoming iPhone 5 out of the ballpark, because if they don't Android will have captured nearly the entire smartphone market within a year. There will be no extra-normal profits stemming from network effects for iOS if there is no network! Just think about that. They are already at 64% global market share and growing faster than all of their competitors combined.

 Back the Gartner data...

,

Here's one of the reasons why...

Many people are still totally oblivious to exactly what it is that Google does. Here's a tutorial.

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade. 

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

Google Q1-2012 Valuation Summmary 04/20/2012

Google Q1 2011 results 04/18/2011

Google Q3 2010 reveiw 11/08/2010

Google Final Report 10/08/2010

An Analysis and Valuation of Google's Android and AdMob 09/27/2010 

Google Valuation Model 09/21/2010 

 Google's VOIP and Telephony Services 09/16/2010

Google Cloud Based Services

Google TV Analysis

A couple of bits from our archives...

There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

Unique, Indpendent and Accurate Apple Research

Apple 2Q2012 results analysis04/26/2012

Apple Margin & Valuation Note03/15/2012

Apple Margin Strategem WIP02/13/2012

Apple - Competition and Cost Structure05/16/2011

Apple Earnings Guidance Analysis08/12/2010

Apple iPhone Profit Margin Scenario Analysis Model08/03/2010

Apple business model note

 Apple Margin & Valuation Note

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

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Comments are always welcome.

Follow me:

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Apple's victory over Samsung appears... extreme. Since I'm not a lawyer, I can only give my layman's opinion which is likely worth about what you paid for it. Nonetheless, it appears as if the the opinion will be under attack by Samsung shortly (reference Legal analysts suggest Apple-Samsung verdict may not be safe). Whether that attack will be successful is unknown.

Potential Grounds For Reversal?

The jury form was apparently inconsistent, and Samsung's lawyers apparently anticipated such, as can be seen by this motion found on Grollaw:

Late in the process yesterday at the Apple v. Samsung trial, when the parties and the judge were reviewing the jury verdict form, Samsung noticed that there were, indeed, inconsistencies in the jury's verdict form, a possibility Samsung anticipated [PDF]. Here's the jury's Amended Verdict Form [PDF], amended to fix the mistakes. Here's the original [PDF]. Here's the note [PDF] the jury sent to the judge when told to fix the inconsistencies. What are they, they asked? "Please let the jury know," they wrote in the only note ever sent in their deliberations, "of the inconsistencies we are supposed to deliberate on."

In two instances, results were crazily contradictory, and the judge had to have the jury go back and fix the goofs. As a result the damages award was reduced to $1,049,343,540, ¹ down from $1,051,855,000. For just one example, the jury had said one device didn't infringe, but then they awarded Apple $2 million for inducement. In another they awarded a couple of hundred thousand for a device they'd ruled didn't infringe at all. This all was revealed by The Verge in its live blog coverage:

The jury appears to have awarded damages for the Galaxy Tab 10.1 LTE infringing — $219,694 worth — but didn't find that it had actually infringed anything....A similar inconsistency exists for the Intercept, for which they'd awarded Apple over $2 million

Intercept: "The jury found no direct infringement but did find inducement" for the '915 and '163 utility patents. If a device didn't infringe, it would be rather hard for a company to induce said non-existant infringement.

Also according to The Verict site (by way of Groklaw)

While the nine jurors in the Apple v. Samsung trial are busy working their way through the verdict form [PDF], trying to keep straight all the instructions they were read yesterday, I want to show you something that speaks to the issue of fairness, or lack thereof, in the trial. Reading two recent orders in the case will give you a clue, I think, as to why Samsung's lawyer, John Quinn of Quinn Emanuel, earlier dramatically said what he did to Judge Koh, after Samsung was not allowed, once again, to present evidence because it was allegedly "too late", "Why even have a trial? What's the point?" He was saying in effect that Samsung wasn't being treated fairly.

Was he right? We get a window into the matter, because we have now both the order [PDF] by the magistrate judge denying Samsung's request for an equal adverse inference order against Apple on the purported grounds that it was too late to file it, and the order [PDF] that overruled it by the presiding judge, the Hon. Lucy Koh. She wrote that it was "contrary to law" to hold it was untimely. And besides, there was a question of fairness:

It is only fair that the same standard of analysis be applied in adjudging the merits of Samsung’s motion as was applied to Apple’s.

Finally, she decided that the sanction language he had earlier chosen against Samsung had been too harsh anyhow. So she has, to her credit, righted that wrong. Although Judge Koh appeared annoyed in the moment, I think when Quinn stood up and publicly said what he did, it may have caused her to think more deeply about whether or not this trial *was* being fairly handled by one and all. In at least this issue, the answer is that it was not. And it's a fairly egregious example. So let's take a look. For sure, if Samsung loses, this issue is going to resurface, I would think, in the inevitable appeal. 

It gets worse, more from Groklaw: 

If the jury instructions [PDF] are as long and complex as they were in this case, a quick verdict can indeed mean it shirked its duty. For example, if the jury rushed so much it assigned $2 million dollars to Apple, and then had to subtract it because there was no infringement, it raises a valid question: what was the basis for any of the damages figures the jury came up with? If they had any actual basis, how could they goof like this? Was there a factual basis for any of the damages figures?

Time will tell, but keep in mind that one of the plays you'll see next will likely be a Rule 50(b) motion by Samsung, and that's the one where you ask the judge for various relief on the basis that no reasonable jury could find what it did find on the evidence presented. Here's Google's still pending Rule 50(b) motion for judgment as a matter of law in the Oracle v. Google case, to give you an idea of what they look like. As you can see, you can ask for victory across the board or just on one part of what the jury decided.

This story is far from over, in other words, and while Apple's CEO, Tim Cook, waxed philosophical about the trial, and saying that it was about values, not money, one important US value is that the jury fulfill its responsibilities, one of which is to read and make sure they understand and follow the jury instructions they are given. I believe Cook would agree that trials are supposed to be fair, with everyone doing their part. If this jury thought they knew the right result without instructions, and if they hurried so much they made glaring mistakes, and they did, and all in Apple's favor, something isn't right in this picture. As the legal blog, Above the Lawexpressed it:

Here’s the thing, ladies and gentlemen of the Apple v. Samsung jury: It would take me more than three days to understand all the terms in the verdict! Much less come to a legally binding decision on all of these separate issues. Did you guys just flip a coin?

If it would take a lawyer three days to make sure he understood the terms in the form, how did the jury not need the time to do the same? There were 700 questions, remember, and one thing is plain, that the jury didn't take the time to avoid inconsistencies, one of which resulted in the jury casually throwing numbers around, like $2 million dollars for a nonfringement.

Come on. This is farce.

It literally appears that the Jury glanced over prior art deliberation at the behest of the jury foreman who held a related patent himself. This is getting stick already, as per CNet, who interviewed a juror:

The decision was very one-sided, but Ilagan said it wasn't clear the jurors were largely in agreement until after the first day of deliberations.

"It didn't dawn on us [that we agreed that Samsung had infringed] on the first day," Ilagan said. "We were debating heavily, especially about the patents on bounce back and pinch-to-zoom. Apple said they owned patents, but we were debating about the prior art [about the same technology that Samsung said existed before the iPhone debuted]. [Velvin Hogan] was jury foreman. He had experience. He owned patents himself. In the beginning the debate was heated, but it was still civil. Hogan holds patents, so he took us through his experience. After that it was easier. After we debated that first patent -- what was prior art --because we had a hard time believing there was no prior art, that there wasn't something out there before Apple.

"In fact we skipped that one," Ilagan continued, "so we could go on faster. It was bogging us down." ...

"Once you determine that Samsung violated the patents," Ilagan said, "it's easy to just go down those different [Samsung] products because it was all the same. Like the trade dress, once you determine Samsung violated the trade dress, the flatscreen with the Bezel...then you go down the products to see if it had a bezel. But we took our time. We didn't rush. We had a debate before we made a decision. Sometimes it was getting heated."

From a layman's perspective, a mistrial or a thrown verdict may be in the making. Also from Groklaw (I encourage my readers to visit this site due to its heavy reliance on documented fact and relevant industry links):

Update 2: Dan Levine of Reuters has some words from the foreman:

"We wanted to make sure the message we sent was not just a slap on the wrist," Hogan said. "We wanted to make sure it was sufficiently high to be painful, but not unreasonable."

Hogan said jurors were able to complete their deliberations in less than three days -- much faster than legal experts had predicted -- because a few had engineering and legal experience, which helped with the complex issues in play. Once they determined Apple's patents were valid, jurors evaluated every single device separately, he said.

Now the jurors are contradicting each other. Lordy, the more they talk, the worse it gets. I'm sure Samsung is glad they are talking, though. Had they read the full jury instructions, all 109 pages [as PDF], they would have read that damages are not supposed to punish, merely to compensate for losses. Here's what they would have found in Final Jury Instruction No. 35, in part:

The amount of those damages must be adequate to compensate the patent holder for the infringement. A damages award should put the patent holder in approximately the financial position it would have been in had the infringement not occurred, but in no event may the damages award be less than a reasonable royalty. You should keep in mind that the damages you award are meant to compensate the patent holder and not to punish an infringer.

The same instruction is repeated in Final Jury Instruction No. 53, in case they missed it the first time. Did they obey those instructions? Nay, did they even read them? The evidence, judging by the foreman's reported words, point the wrong way.

How the actual product market will react?

Samsung still has some life left in the product that may be banned in the US, (to a greater extent the S2 phone, and a lesser extent the 10.1 tablet). As quoted from Bloomberg:

Injunction Chances

“We expect there is a two-thirds chance of an injunction against Samsung products,” Peter Misek, an analyst at Jefferies & Co. Inc., wrote in an Aug. 26 report.

Samsung’s schedules for introducing products won’t be affected by the verdict, James Chung, a Seoul-based spokesman for the company, said by phone on Aug. 25.

The global lineup for the rest of this year includes the next version of the Galaxy Note, which sold more than 10 million units in less than a year. The company began selling a tablet edition of the Note this month, following the May release of the Galaxy S III, the newest version in its bestselling smartphone series.

Samsung, which has gotten around other sales bans by modifying some product features, has sought to differentiate its products since the global patent fight with Apple began last year, and the design and feature of the Galaxy S III may be distinctive enough to avoid a ban, Seo said.

More Revenue To Be Gained From The S3 Phone Than To Be Lost From The S2 Ban

While the loss of revenue from the Galaxy S2 will be regrettable since that device has yet to see its nadir in the market, the more uniformly distributed S3 phone should be a revenue geyser. It is being distributed across all major and many minor carriers and even pre-paid (MVNO) carriers with now physical customizations and modifications. It is (finally) seeing marketing muscle that can challenge Apple in awareness, and it is selling very, very fast.

Apple's Symbiotic, Incestuous Relationship With Its Vendors/Competitors Should Yield Interesting Results Should This Verdict Not Be Overturned

Let's not forget what you see if you rip open an Apple iPhone or iPad... You see a bunch of Samsung manufactured parts. Should Samsung truly feel pressure from a revenue perspective from this loss, it will invariably up the prices of the parts it sells to Apple. This is not only a justifiable business move, it invariably raises the prices of iPhone/iPad products and/or decreaes Apple margins (there goes that margin compression theory again). Due to Apple's outstanding success and extreme sell through rate, it has very, very little choice in where it sources its parts from. Samsung, who is also Apple's biggest competitor, is basically the only game in town - save LG. Guess what Samsung and LG have in common?

Apple is Samsung’s largest customer, even as they compete to sell phones that allow users to surf the Web and play games, and as they fight in courts on four continents over patent infringement claims. Apple accounts for about 9 percent of Samsung’s revenue, making it the company’s largest customer, according to data compiled by Bloomberg.

Be aware that the margins on Apple's tablets have already compressed, and expect the same from the upcoming iPhone 5 (Apple deftly managed to sell deprecated hardware passed its competitive tech life cyce, thereby benefiting from inflated margins off of said product). The reason Apple's corporate margins have been increasing is due to the mix of gross sales tilting heavier to the iPhone and to a much lesser extent the iPad as compared to notebooks/desktops/peripherals. Notice during both the earnings misses in the past year, corporate margins dropped as iPhones made up less of the revenue mix. 

This may grant Apple a reprieve to catch up in the tech race, for its mainstay product is drastically and dramatically behind the curve technology and capability-wise.

• Samsug Galaxy S3 vs iPhone 4s: This is an unfair comparison with the iPhone 5 coming out in a few weeiks, but the iPhone 4S is simply not in the running.
• Samsug Galaxy S3 vs iPad with Retina Display: I was in the NYC flagship store yesterday, and surprisingly enough, streaming 1080p HD YouTube videos, the Samsung phone literally blew away the brand new iPad with Retina Display (marketing speak for hi res screen).  The comparison was not even close enough to warrant a debate. This brings me pause as to whether Apple will be able to compete with S3 upon the launch of the iPhone 5. Not only is it expected to have only a 4 inch screen, but it will invariably adopt the hi res, iPad screen tech. I invite anyone with an S3 or (Galaxy Note) to stream 1080p HD content onto the top of the line iPad and your devive simultanesouly to see where I'm coming from.
• Samsug Galaxy S3 feature and performance will need to nearly be matched by Apple - somthing that it never had to do before. Of course, the Apple marketing momentum will ensure mucho sales, but the hyper-growth component is the question. Will Apple be able to pull it off? The iPhone 5 launch is probably the most important and critical product launch in the history of Apple...
• As for this being a big break for the other players, outside of Motorola (due to Google's acquisition) and HTC, I don't think there's much of a reprieve. Samsung has released a far surperior product and has finally learned how to market it (although it is still not doing as good as job as Apple does). Nokia is still dead in the water until it can show and prove with Windoes (mobile) 8. You all know how I feel about RIM (see Hindsight Is 20/20, And As Luck Has It Our Foresight On Research in ) from way back in 2009.

 Apple Margin & Valuation Note (click here to subscribe).

Watch this video clip to the end - presented without comment. The unpublished facts surrounding Apple's innovations.

Keep in mind the growth expectations of Apple, and the fact that they compete with their product vendors who currently offer vastly superior tech. Apple is attempting to counter that tech advantage in the courts by alleging patent infringement - basically stating that these Android tech companies are stealing their tech and ideas.

Or as ZeroHedge puts it, Is Apple Really Worth More Than The Sum Of Microsoft, Dell, Google, Facebook And HP?

More in this topic here. 

Below is a graphic from 2 weeks ago... 

FB Sep 21 12 18 puts

Here's a snapshot of the situation as of today...

fb sep 12 18 puts

4x to 6x return on your money and all you had to do was follow BoomBustBlog in betting against the sell side salesmen of the Street. Hmmmm.... CNBC runs the following headlines today:

• Facebook Shares Drop Below $20
• Who Can Sell Facebook After Lock-Up?

 I made it clear that this sitaution was virtually guaranteed. I felt so strongly about it that I made much of my opinion available for free this time.

 Here's where I broke it down on Capital Account

I also happened to do the same on the Max Kesier show...

I discussed Facebook on the Peter Schiff radio show, the Facebook excerpt is below...

Additional Facebook analysis, valuationa and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

It's not just the Facebook IPO, either. I warned heavily that snake oil salesman were out to get you with the Groupon offering as well, as I posted earlier this week - Muppets Get MASHED Once Again - Groupon …. Here's what the situation looks like graphically as of today...

grpn oct 12 4 puts

Double your money by shorting the Street's advice! Once Again!

Here is a full year of free blog posts and paid research material warning that ANYBODY following the lead of Goldman, Morgan Stanely and JP Morgan on the Facebook offereing would get their Face(book)s RIPPED!!! Could you imagine me on a reality TV show based on this stuff??? Well, it's coming...

1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly
8. On Top Of The 2x-10x Return Had Off Of BoomBustBlog Facebook Research, Our Models Show How Much More Is Available...
9. Is Time For Facebook Investors To Literally Face the Book (Value)?
10. Facebook Bubble Blowing Justification Exercises Commence Today
11. Facebook Options Are Now Trading, Or At Least The PUTS Are!
12. Reggie Middleton breaks down "Muppetology," Face Ripping IPO's, and the Chinese Wall!
13. Facebooking The Chinese Wall: How A Blog Has Outperformed Wall Street For 5 Yrs
14. Why Shouldn't Practitioners Of Muppetology Get Swallowed In A Facebook IPO Class Action Suit?
15. Shorting Federal Facebook Notes Are Not Allowed Today ?
16. As I Promised Last Year, Facebook Is Being Proven To Be Overhyped and Overpriced!

It would seem that Facebook Finally Faces The Fact Of BoomBustBlog Analsysis. Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. It is strongly recommended that said subscribers download and input their own assumptions into said model in order for confident preparation before the IPO launch! I just nominally input some very generous numbers and the best case scenario chart (see the chart tab after your own individual inputs) is quite revealing, indeed! The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (FB note final 01/11/2011).

My series on the mobile computing wars has been quite prescient do date, as has my forensic analysis of the players (click to access the free opinions and paid reports): Apple - Google - Microsoft and RIM.  I am not just saying that now, the current path was apparent two years ago as well...

1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All Monday, 21 June 2010
2. The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift Friday, 09 July 2010
3. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught Tuesday, 13 July 2010
4. Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet Wednesday, 14 July 2010

As Garter corroborates:

• Android, led by Samsung, is far and away the growth leader in smartphone sales.
• With nearly 99 million units sold, Android devices captured 64% of the smartphone market for the quarter (compared to 43.4% a year ago, and nearly 0% in 2007).
• Samsung’s Galaxy line of devices accounted for more than half of all Android sales, reaching 45.6 million devices sold.
• The new Galaxy S3 sold 10 million units in its first two months of its release. “The Galaxy S3 was the best-selling Android product in the quarter and could have been higher but for product shortages,” Gartner notes.
• Apple’s iOS-based iPhone devices saw growth as well at almost 29 million units, but this was only in line with overall smartphone market expansion, causing market share to remain static. The platform captured 18.8% of the smartphone market (versus 18.2% the year before). Gartner notes that sales of the iPhone fell.

Yes, I know that Apple is attempting to clear inventory for new product, but to do so by price matching the big box commodity pushers such as Target and BestBuy is simply walking down the path to margin compression. You see discounting, price slashing and fire sales are a slippery slope to manuever. Once a consumer is given a sale, they are programmed to expect a sale and it is very, very difficult to "unprogram" them. Back the Gartner data...

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Related reading:

As my readers now, I have been declaring recessions and depressions in Europe for some time now, to wit:

• It's Official & As I Foretold Years Ago, Greece Is Now In A True Depression As Reality Hits Greek Banks
• Greece Sneezes, The Euro Dies of Pneumonia! Yeah, Sounds Bombastic, Yet True!
• As the Sell Side and MSM Sing The Praises of European Insurer "Street Cred" and 
• When (Not If) Germany Slows, The Whole House Of Cards Collapses!!!

Now there is corroboratig anecdotal evidence coming out of the woodwork: Gartner reports Western Europe desktop shipments down in Q2 2012

S#I have warned that Apple will face margin pressure on its core products as the smartphone and tablet competition heats up, ie Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Range Planning. Well, Macworld, Endgadget and several other sources report Apple reportedly price matching iPhone discounts from carriers and other retailers

Apple reportedly price matching iPhone discounts from carriers and other retailers

According to a leaked screengrab hosted up at MacRumors, Apple retail shops now have the authority to price match carrier and rival retail discounts on iPhone. Specifically, the note informs employees that prices from Best Buy, "carriers," Radio Shack and Target can be matched, with $49.01 seeming to be the savings across the board. Curiously, places like Wirefly, Amazon, Negri Electronics and even Walmart aren't mentioned, so we wouldn't recommend trying to work the price down based on ads seen from any of those. 

Price matching big box retailers clearly shows the luxury, premium aura of the iPhone to be at the end of its cycle. That means from this point on, Apple may very well have to compete on tech and capabilities, where it is sorely outclassed by its Android competition. The iPhone 5 launches in about 30 days, and not only will it have to be the Samsung Galaxy S3 and HTC One series, it will have to outrun the revamped Note and whatever new Google is cooking up through its Motorola acquisition (don't beleive Google won't transform Motorola into a new age device manufacturer). Remember, Samsung and LG manufacturer much of the processors, memory chips and screen tech that go into the iPhones. While there are other firms that can produce such, very few can produce 100s of millions of them other than Samsung and LG - two staunch Apple competitors running a common platform -- Android!!! It is nigh impossible to win a competition with your own vendors, so one is best served not to get into such a competition in the first place. 

I explained the tense competition between Apple and Google in a way that many participants fail to recognize on the Max Keiser show - I Illustrate Exactly What Kind Of Battle The Google/Apple Thing Really Is On Max Keiser Show

As explained in Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Range Planning:

Apple gargin was 42.8 percent compared to 41.7 percent in the year-ago quarter. Wait a minute... Isn't that margin number sliding in the wrong direction? It's because they are selling less iPhones as compared to iPads and the iPads are lower margin products, and the margins are getting even lower as competition ramps up and ASP drop while unit costs rise in relation. Of course, I went through this in detail several times.

For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month's valuation note target price (page 10 of  Apple Margin & Valuation Note) and the price of Apple today (click here to subscribe). I also urge the same for Google using our latest Google Q1-2012 Valuation Summary.

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

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This is the result of BoomBustBlog's Tech Research. It follows our wins with Google and Research in Motion.

FB Sep 21 12 18 puts

Professional and institutional BoomBustBlog subscribers can use their own inputs to determine if FB will have further to fall, having access to a simplified unlocked version of the valuation model used for our Facebook analysis, available for immediate download - Facebook Valuation Model 08Feb2012.

As espoused last week - Is Time For Facebook Investors To Literally Face the Book (Value)?

Reggie Middleton on Facebook user growth

There's a whole lot more to cover from the call, but this graphica above combined with the CEO's opening comment pretty much sums it up. Go to 22:24 in the following video for more of the same, just 3 months ago! Sometimes you simply have to break things down in simple terms to get everyone to say, "Golly Gee!"

On Wednesday, 27 June 2012 11:01, I penned Facebook Bubble Blowing Justification Exercises Commence Today, excerpted as follows...