Roughly 3 years ago in my "mobile computing wars" series, I foretold of The Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars! In particular, I warned of the benefits to the consumer and pitfalls to the potential losers of the battle between Apple, Microsoft and Google, reference There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All. By the way, by Q1 2010, it was already evident to BoomBustBloggers that Research In Motion was a goner - Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion). While the bulk of my opinion and analysis was directed between the upcoming heated battle between Apple and Google (The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift and An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught) which was accurately called, I also appeared to be the lone gunman in warning that Microsoft is not even close to being out of the race just yet - Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet. This was early 2010. Well, nearly 3 years later, we have MSFT doing what IBM, LOTUS, HP, DELL, and a wide variety of other tech companies simply didn't have the balls to do. What is that, you ask? They risked cannibalizing their cash cow revenues and kicking their lazy, unmotivated (despite declining margins and market share, via ass whoopin's from Google and Apple) OEM's in the nuts, forcing either an exponential growth via a pheonix-like rebirth style wake-up call or a collapse from atrophy. Either way, Microsoft is attempting to position itself to benefit. The previous world tech rulers simply got too comfortable in their make money by doing nothing, cash cow, monopolistic business lines and sat around while more innovative and nimble competitors literally ate their lunch then came bombarding in demanding dinner as well (say Apple).

Well, this is a good time (albeit a risky one) for MSFT. With revenues and margins declining on a structural basis for the first time (in its history) it is actually attempting to reposition itself to lead in the fastest growing segment in technology, not to mention the segment that is currently eating its lunch. That is the ultra mobile computing segment. Windows phone is a work in progress, and while capable from a software perspective, still lacks the downright killer hardware and flexibility of Android high end devices an also lacks the cult-like following and brand loyalty of Apple's devices. It's a shame since MSFT was actually in this space early, nearly first. Actually, it was early in smart phones, right behind Nokia and Psion (both European companies) and was first in actual usable (arguably) tablets - both in the early 1990's. It that monopolistic apathy that allowed Apple to come from behind with relatively dumbed down tech and outgrow Microsoft. The Surface Tablet is MSFT's revenge though. CNet calls it the best productivity app yet...

Like the Galaxy Note 2 clearly makes the iPhone appear to be a toy rather than a useful device, the Surface does the same to the iPad.

 I noticed that many pundits pan the Surface for its lack of available apps. The Surface is a 1st gen product, and it does lack a wealth (or even a moderate amount) of 3rd party apps. What seems to be overlooked is that MSFT has built the Surface around the most in demand, the most profitable, and the least likely to be accurately replicated apps in the industry - the ubiquitous Microsoft Office Suite of apps. To assert that the Surface doesn't have any apps when it ships with the latest and the only touch-centric version of this app suite is to totally miss the point of the product. Let's be serious here- the iPad, and most Android tablets (save the Asus Transformer series) is/are useless for true productivity where content creation (sans drawing on a screen) and productivity are concerned. They come nowhere near PC replacements. Even those products that can come near (such as the Transformer Prime) lack a truly accurate reproduction of the office suite that is used in 90% of the workplaces world wide. As this Bloomberg article states: Microsoft’s Surface Tablet Lacks Apps to Rival IPad

Microsoft Corp. (MSFT) will be constrained in a contest against Apple Inc. (AAPL) in the market for handheld computers by unveiling a tablet that doesn't work with some of the most widely used downloadable applications. The Surface RT, a tablet that runs the latest version of Microsoft’s flagship operating system and goes on sale tomorrow, won’t feature applications for Facebook Inc. (FB)’s social-networking service or Apple’s iTunes music store.

One can combine the profits (and daily users) from Facebook and iTunes, double the sum, and you probably wouldn't get to half the profits of the Office franchise. True Office compatibility is what is holding back those who spend the truly big bucks in both the consumer and the enterprise side from adapting tablets en masse and truly dropping the desktop or notebook form factor PC for good. Comparing Facebook and iTunes to Office is like comparing a go kart to a minivan. Anyway you look at it, factoring superior build quality, pleasing aesthetics, and most importantly, something you can actually use to get work done, Microsoft has released a truly credible threat to the Android/Apple franchise in the tablet space - I still remain unconvinced in the phone space (where Android is killing them), but the jury is still out and the curtains don't' close till the calorically challenge chick sings...book

The Surface is being touted as a full PC (Ballmer: Microsoft Surface 'Literally a Full PC), and it appears as if there's some credibility to that. It will be very interesting to see what Google's response is (they have purchased a popular mobile phone/tablet office suite to bolser their current Google Apps/Drive cloud storage offering. Bundling this into both high end tablets and thier upcoming $99 offerings with ultra thin keyboard covers would be just what the doctor offered for both the enterprise and the student markets. Unfortunately, I feel Apple's hubris may be their shortcoming, for the iPad-mini is a disappointment, and appears to be simply an answer to the Nexus 7 and Amazon tablet, overpriced to avoid the margin compression inevitably coming down the pike (How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue). The same appears to go for the iPhone 5, for I feel they should have packed much more tech into that device. It is so far behind the Samsung Galaxy Note 2 and S3 (roughly two years behind) that the only real sales they will get will come from extreme brand loyalty or from those who have never tried the Samsung and other competing Android products. While this may permit Apple to grow at impressive rates, basically they will start to simply cannibalize their existing user base and many new users will opt for the best and the newest tech. Apple may feel "Blackberried" or "RIMM"ed sooner than expected.

Follow me in the tech section of BoomBustBlog or via social media:

FB Sep 21 12 18 puts

Facebook's price bounced 20%+ between earnings announcement yesterday and the posting of this article.  Curiously enough, the stock bounced to within a mere SEVENTY CENTS of our mutliple's based valuation target the day after earnings. I feel some love is in order here, for that was  damn good call! Subscribers, please reference the FB IPO Analysis & Valuation Note - update with per share valuation released exactly 5 months ago on 05/21/2012 (click here to subscribe). Just to remember where we came from (I'm just using the time period where it was possible to short or buy puts on the stock, to keep things real)....

As for keeping it real:

MOBILE GROWTH: Roughly 14 percent of its ad revenue came from mobile advertising, up from somewhere around zero. This is to be expected, but since we don't have any real baselines or history to compare this to, it truly means nothing other than Facebook has and can make SOME money from mobile. The query du jour is how much, and when, no?

THE NUMBERS: Facebook Inc. posted a loss of $59 million, or 2 cents per share, in the July-September period. Adjusted earnings of 12 cents per share were a penny better than expected. Revenue rose 32 percent to $1.26 billion. That's also higher than the $1.23 billion Wall Street was looking for.

All should still be aware of the primary factor in this "growth company" stock's story....

image002

These facts should not have been a surprise, and blog subscribers were made aware nearly a year ago, as excerpted from our 2nd most recent forensic analysis.

FB IPO Analysis Valuation Note Page 03

As excerpted from Facebook's earnings press release: Payments and other fees revenue for the third quarter was $176 million, a 13% increase over the same quarter in the prior year and a 9% decline sequentially from the second quarter of 2012. So, where did that drop likely come from? Well reference the part about Zynga below, warned roughly 7 months before the fact!

FB IPO Analysis Valuation Note Page 04

As excerpted from BoomBustBlog Challenges Face Ripping Facebook Share Peddlers That Left Muppets Faceless And Nearly 50% Poorer After IPO:

I made it clear that those who lost roughly half of their capital at or near the IPO price simply forfeited those funds from not readign BoomBustBlog, and 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...

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 Analysis. 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. 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, and the latest iteration can be found here FB IPO Analysis & Valuation Note - update with per share valuation 05/21/2012. It is recommended that subscribers (click here to subscribe) also review the original analyses (FB note final 01/11/2011).

Below are my thoughts, but before I get into them I will like to reiterate that many pundits, investors, analysts and traders still have no clue as to the type of company that Google is. Imagine a private equity firm that has consistently put out the leaders (as in the number one company) in several industries, every 3rd year or so for 10 years straight. Now, take that private equity fund and give it it's own operations with some of the smartest engineers and strategists in the world, and have them spend 1.5 Billion (that's Billion with a "B"") in R&D annually to discover new things. Now fund that private equity fund and R&D camp with cashflow from the world's largest automated web advertising firm, whose closest competition is so far away as to barely even be known for its wares by the average person. Now, add to it the worlds fastest growing, largesta and most technically advanced mobile operating system. Then add to it the largest patent portfolio and 4th largest handset maker in the world (remember the mobile industry is where its at now). Then add to it the largest and by far the most prominent digital media destination AND publsihing property in the world. Then add to that the largest consumer and enterprise cloud operations in the world. 

Finally, add to the mix the largest, most oft use and most entrenched search engine which (when combined with the cloud properties) basically makes this company the defacto gatekeeper for digital data for the world.

What would you have with this new world conglomerate? You'd have Google, that's what you'd have. Now, on to my anecdotal quips on Google's dramatic Q3.

• Enterprise wide margins have dropped. I suspect the Motorola acquisition and the influx of mobile revenues, which alter the supply-demand landscape dramatically, thus dropping pricing power for the near to medium term. 
• Core site revenues are growing along trend line
• International growth is healthy, though hampered by FX hedging losses
• Paid clicks increased 33% YOY while costs per click decreased 15% over same period - core margin expansion!
• Traffic acquisition costs are up 8% YOY - paying more for traffic, but less than margin expanding...
• Motorola revenues are material, and their margins are weak which pulls down overall margins. This is a foreseen negative but management obviously feels it is worth it, likely due to the largest patent portfolio in the business, the 2nd largest set top box position in the industry and the 4th (roughly) best handset manufacturer in the industry. I'll side with management on this one.
• "Other costs of revenues" more than doubled YOY, which should be a major cause for concern. As a matter of fact it is such a large increase as to be akin to one-time events. These need to be investigated in detail.
• The key determinant of the value of this quarter's numbers is whether these increased expenses are (in increasing value from very bad to potentially very good):
  1. 1. - Recurring expenses signaling a structural change in the business
  2. 2. ~ Onetime expenses
  3. 3. + Investments in future revenues inaccurately characterized as cost and expense.
• My bets are that those algo traders and armchair pundits masquerading as investors and analysts are overlooking strategic investment and calling it expense. A glimpse into the EDGAR filing’s cash flow quip reveals some clues: “Cash Flow and Capital Expenditures – Net cash provided by operating activities in the third quarter of 2012 totaled $4.0 billion, compared to $3.95 billion in the third quarter of 2011. In the third quarter of 2012, capital expenditures were $872 million, the majority of which was for production equipment and facilities-related purchases. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the third quarter of 2012, free cash flow was $3.13 billion. We expect to continue to make significant capital expenditures.”

You heard it direct from the horse’s mouth! Despite heavy infrastructure and development expenditures, plus the biggest acquisition ever, Google increased free cash flow. Google will make a significant push into original digital media and content. Expect YouTube to compete directly with NBC, FOX, HBO, etc.

Risky? Yes!

Potentially profitable and disruptive? Ask the classified and newspaper industries (or at least what’s left of them) if Google knows what it’s doing!!!!

As excerpted from our nearly 70 page forensic Google report (Subscribers, see Google Final Report 10/08/2010), I attempt to educate on the investment prowess of Google (that is both internal investment and external acquisition). Remember, many of Google's investments have become the largest instances of their type in the indsutry. The largest web video presence: YouTube! The largest mobile OS? Android! The largest mobile ad presence? Admob! the largest online productivity suite? Docs/Drive! I can go on with Gmail, Voice, etc., but if I haven't driven the message home yet then I probably never will. Google management has made it clear that YouTube will compete with major networks and Google Docs will compete and is actually pulling some business from Microsoft Office in the Enterprise. These are mere anecdotal examples. We all know the Android story already...

Google Final Report Sep 29 Page 49

Google Final Report Sep 29 Page 50

Google Final Report Sep 29 Page 51 

Google Final Report Sep 29 Page 52

Google Final Report Sep 29 Page 53

Google Final Report Sep 29 Page 54

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 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...

 A subscriber convinced me to post the 1st quarter's valuation bands (subscribers, see Apple Margin & Valuation Note 03/15/2012) for Apple to squelch the comments of those who are guessing what's behind the firewall. Our base case scenario was right on target, and  during the target and after the earnings release I realized that we underestimated international (especially Asian) sell though and shifted the weight to out optimistic band which also proved fairly accurate. As all can notice, the pessimistic band is not show, and that is where the value lies here. I am now shifting my bias towards (that's towards, not to) the pessimistic band, for I feel Apple has now started to feel the competitive and margin pressures that I warned of, and has done so right at the deadline that I gave in 2010 (this is just as much a factor of luck as it is skill, alas, if it bears fruit it bears fruit). The latest valuation bands can be accessed by paying subscribers below (click here to subscribe):

Apple 4Q2012 update professional & institutional
Apple 4Q2012 update - retail
"iPhone Margin worksheet - blog download

image005

Keep the following in mind as you peruse this post...

apple product chart growth

Apple 2Q2012 results analysis Final - redacted Page 1

Apple 2Q2012 results analysis Final - redacted Page 2

Apple 2Q2012 results analysis Final - redacted Page 3

Apple 2Q2012 results analysis Final Page 4

I discussed this in detail with Lauren Lyster on Capital Account. The margin discussion started at 7:55.

For those who haven't heard my description of Apple's arch competitor, Google's, business model, look here:

See Right On Time, My Prediction Of Apple Margin Compression 8 Quarters From My CNBC Warning Landed Right On The Money! for more on the mechanics of the margin compression theory for Apple.

To begin with, brand new Apple valuation and forensic research is now available to all subscribers. I suggest you jump on it now while it's hot...

 apple product chart growth copy

Well, it looks as if my Apple ruminations and research have come to Fruition - and rather accurately at that. Since Apple has such a cult following, I will set the facts straight right here in a nifty little timeline as Apple tumbles in real time. This is to correct those who are comprehension challenged in saying that I've been crying to short Apple for 400 points. To begin with, I run a subscription site, I generally don't give away actionable advice for free, I charge for it. I have warned about Apple's macro and business conditions - yes, but whether to go long or short on the stock,I only opined in public once. Read below to see how that turned out. My next post will start revealing some of my actual subscription materials in order to make public the accuracy and prescience therein. Is it time for 1000s and 1000s of rose colored #iPhone sporting #iSheep and #fanbois to issue kudos to the BoomBust???

Spring 2010 - I declare the mobile computing wars are on and Google looks to be the front runner (light years ahead of the sell side)...

The Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!

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

In October of 2010, I warned that Apple would face margin compression and make a short candidate. I DIDN'T say it should be short at that time, but I did say within 4 to 8 quarters competitive realities would catch up with it...

October 2011

So, what happened exactly 4 quarters later? Oh yeah, Apple misses on margins, the stock drops -  Reggie Middleton Wasn't the ONLY Openly Apple Bear in the .. This was the only time where I publicly stated I would short Apple. Announce contrarian short candidate - company misses and the stock dropped, right on the 4 to 8 quarter schedule! Sounds pretty good to me. Go to 2:20 in the video for a clear description of the margin compression illustrated below...

In the mean time, here are some updated margin charts to support what was said in the video and the extant Apple research for subscribers to review.

iBubbleiBubble

Yes, Apple is the vast majority of the desktop computer equity market capitalization!

Apple revenues as a smartphone companyApple revenues as a smartphone company

Apple has, in just a few short years, morphed from a computer computer to a smartphone and tablet company, which essentially are just new age computers anyway. It's just that no one sees Motorola, RIMM or Nokia that way!

ipad marginsipad margins

iphone marginsiphone margins

As the key revenue drivers see there margins compress (and I told you so two years ago), entity level margins will drop as well:

Which Is The More Sustainable Business Model - Selling The World's Information or Selling Shiny New Things???

 goog vs aapl

Below is my latest on Apple, showing whether I believe this is the time to short and what I think Apple is really worth. I feel I have been on the forefront of the Apple issue AND have been rather accurate as well.

Click here to subscribe. After subscribing, I wish all newcomers to download the very simply and quick Apple margin model below to put your most optimistic assumptions in to see how they may look in terms of product sales.

•  Apple 4Q2012 update professional & institutional
  (Technology)
•  Apple 4Q2012 update - retail
  (Technology)
•  "iPhone Margin worksheet - blog download
  (Technology)

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...

Now that the weakness in Apple is apparent to all, and not just BoomBustBlog subscribers.... AAPL priced relative to the SPY... looking for this 4 year trend to break for the aapl story to be over as a market out-performer.

AAPL relative weekly rising wedge

My next post on this topic will answer the obvious quetion, "Is it now time to short Apple?" - as I release the content from or updated Apple model. This will be some very, very good stuff and well worth the subscription rate.

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

Here is one of the best examples of financial reporting that I have seen on TV. As a matter of fact, the interviewees on the street gave far more credible input than the highly paid, so-called "experts" on those MSM outlets. 

The justification behind the Fed's employment chicanery was covered in detail here - EXXXACTLY As Claimed On The World's 1st Financial REALity TV Show, Bernanke Bailed Out The Banks Through A Public LIE To His Fellow Countrymen

The Apple evidence is upcoming in an updated forensic valuation report for subscribers within 48 hours. May I  subscribers to remember how accurate the last couple of reports were in regards to Apple and the current share price and product launches (patting myself on the back as I once again go unabashedly against mainstream through :-))

In the mean time, here are some updated margin charts to support what was said in the video and the extant Apple research for subscribers to review.

iBubble

Yes, Apple is the vast majority of the desktop computer equity market capitalization!

Apple revenues as a smartphone company

Apple has, in just a few short years, morphed from a computer computer to a smartphone and tablet company, which essentially are just new age computers anyway. It's just that no one sees Motorola, RIMM or Nokia that way!

ipad margins

iphone margins

As the key revenue drivers see there margins compress (and I told you so two years ago), entity level margins will drop as well:

Which Is The More Sustainable Business Model - Selling The World's Information or Selling Shiny New Things???

iphone 5 weekend sales

As excerpted from Apple Bias In The Media Has Simply Gone Too Far, Potentially Hoodwinking Investors Into Believing Apple Has Not Reached Its Zenith:

TechCrunch reports: iPhone 5 Sells Over 5M In Opening Weekend, Limited Only By Device Supply

Apple broke records again opening weekend, with the iPhone 5 selling more than 5M in its first three days, compared to 4M for the iPhone 4S.

Wait a minute! Apple's share price was spiking due to speculation that the iPhone 5 debut may double or more the sales of the iPhone 4S, remember? Let's take a gander at some of the bullshit that came out of the press.

1. Analyst Estimates On iPhone 5 Launch Weekend SalesRange From 3M-10M TechCrunch‎ - 5 days ago Analysts have begun making their predictions about the iPhone 5's odds of success for launch weekend sales, and in fact there's quite a range ...
2. Blockbuster iPhone 5 launch expected to push Apple stock to $850 Apple Insider‎ - 3 days ago
3. iPhone 5 Crushes Sales Forecast In First Weekend - Forbes – Apple (AAPL) announced today that pre-orders for the new iPhone 5 have now exceeded supplies, forcing some phones to be shipped in ...

I will launch an updated valution report within 48 hours, in the meantime here is the latest published research on Apple, which has been quite prescient thus far...

Click here to subscribe or upgrade.

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

Did you know that Google can slash 10% off of the market value of the entire US Computing Industry? That's right, simply by executing on their Android strategy they can decimate personal computing's investment value. How, you may ask? Well, they already chopped roughly 5% off, when they and their OEM partners pushed out tech that Apple just couldn't compete with, leaving many iPhone buyers wondering why they should upgrade to the iPhone 4.5S, eloquently known as the iPhone 5. This resulted in a shortfall of 20% below the mean analyst estimates and 50% below the high - in terms of expected iPhone 5 sales. Apple slid for several days, hence the entire personal computing sector slid a lot for 3 days. Of course, nobody else in that industry had a problem besides Apple, but what the hell does it matter since - from the market's perspective - Apple IS the personal computing industry!

iBubble

Reference my previous articles on the topic as we prepare a Q3 refresh of our Apple model and opinion - once released, should be a doozy of contrarin fact and analysis! In the mean time...

Which Is The More Sustainable Business M…

Which Is The More Sustainable Business Model - Selling The World's Information or Selling Shiny New Things???

As you can see in the chart above, the margins on the iPhone are soon to be under pressure. I have included a simple model to allow my professional/insitutional subscribers to plug their own numbers in and decide for themselves - see  "iPhone Margin worksheet - blog download (click here to subscribe/upgrade). Between the iPhone and the iPad, we're talking about 82%...

The Truly Unbiased iPhone 5 Review & Sam…

The Truly Unbiased iPhone 5 Review & Samsung Galaxy Comparison

 I picked up an iPhone 5 to put it through its paces and found a few more RDF (reality distortion field)-powered myths to bust along the way. Now, this is a financial blog, not a tech blog, but I do analyze a lot of tech and there's a lot of non-sense out there in the tech blogs that culminate into...

Apple Margin chart

As you can see in the chart above, the margins on the iPhone are soon to be under pressure. I have included a simple model to allow my professional/insitutional subscribers to plug their own numbers in and decide for themselves - see  "iPhone Margin worksheet - blog download (click here to subscribe/upgrade). Between the iPhone and the iPad, we're talking about 82% of Apple's profits! Think about this.

In the first quarter I lamented on the drop in both margin and market share of the iPad, see Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All Time High. I included plenty of pretty pictures to get the point across...

image061

Prices are dropping…

image031

Costs are increasing…

image042

ipad_costs

So what does all of this add up to? Margins dropping!!!

image051

Now we have other publications catching on as well. as can be read on the Business Insider site. In 2011, I made clear that the days of the fat margined tablet are numbered, see Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof!  That was over a year and a half ago. Check out this headline from a few months ago... There's Been A Huge Drop In The Average Selling Price of Tablets... - Business Insider

The average selling price (ASP) of tablets keeps falling. The ASP fell 17 percent from 2010—when it was pretty much just the iPad—to 2011. Through the first six months of this year alone, the ASP has fallen another 17 percent. The drop is driven partly by the introduction of $200 mini tablets like the Kindle Fire, but also a fall in price of the dominant large-screen devices. As we discussed earlier this week, the ASP of iPad's has fallen significantly from a year ago. 

Tablet ASP

BI also chimed in (a year later) on the iPad margin thingy, albeit about a year and a half after BoomBustBlog broke the story...

 The iPad's Average Selling Price Continues to - Business Insider -Aug 14, 2012 – The Average Selling Price (ASP) of Apple's iPad has fallen more than $100 in the past year. The iPhone's ASP, on the other hand, has been remarkably stable since the beginning of 2009, despite Apple's introduction of lower-cost options. The disparity probably reflects the relative maturity of the smartphone market versus the tablet market, where Apple is starting to shed its near-total dominance.

chart of the day, the ipad's average selling price, august 2012

Well, now its the iPhones turn, and this was foretold at least a year and a half in advance as well... 

• How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue
• Sliced Apple Margins For Dinner?

What many fail to understand is that what Google as released with its reincarnation of Android is not a new mobile OS, or a flexible handheld technology, but an innovative business model that harnesses open source software for a path to profitability and turn the suppliers and vendors of fat margined leaders against it - literally ingenious and very, very difficult to counter without compressing your own margins. Those interested in reading more can reference Looking at the Results of Google's "Negative Cost" Business Model Employed Through Android. So, let's get started by reviewing portions of my hypothesis from last year... enter the Google Cost Shift

Did Apple miss in 4 to 8 quarters after my first warning? Yes, as a matter of fact, they missed exactly 4 quarters later. The Only, and I Mean the Only, Investment/Research House To Warn Of An Apple Miss Is Vindicated!!!  As a matter of fact, Apple missed twice in that 12 month period - telling since it hasn't missed since 2004!!!

This October will mark the 8 quarter period that I gave publicly since the original CNBC interview for Apple to start feeing the heat from Android competiton. It's looking pretty good thus far...

Reggie Middleton on CNBC's Squawk on the Street - 10/19/2010

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Mr. Middleton discusses JP Morgan, bank risk and technology and is the only pundit in the financial media that we know of that called Apple's margin compression issues and did so successfully just hours before they reported! Clickhere or click below to see the video.

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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...

1. Looking at the Results of Google's "Negative Cost" Business Model Employed Through Android  
2. Did A Blog Best Wall Street's Best of the Best In Guaging The True Value of Google? We Have To Think More Like An Entrepreneur & Less Like A Wall Street Analyst

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

 

TechCrunch reports: iPhone 5 Sells Over 5M In Opening Weekend, Limited Only By Device Supply

Apple broke records again opening weekend, with the iPhone 5 selling more than 5M in its first three days, compared to 4M for the iPhone 4S.

Wait a minute! Apple's share price was spiking due to speculation that the iPhone 5 debut may double or more the sales of the iPhone 4S, remember? Let's take a gander at some of the bullshit that came out of the press.

1. Analyst Estimates On iPhone 5 Launch Weekend SalesRange From 3M-10M TechCrunch‎ - 5 days ago Analysts have begun making their predictions about the iPhone 5's odds of success for launch weekend sales, and in fact there's quite a range ...
2. Blockbuster iPhone 5 launch expected to push Apple stock to $850 Apple Insider‎ - 3 days ago
3. iPhone 5 Crushes Sales Forecast In First Weekend - Forbes – Apple (AAPL) announced today that pre-orders for the new iPhone 5 have now exceeded supplies, forcing some phones to be shipped in ...
4. Surge in iPhone 5 sales forecast - FT.com Sep 13, 2012 – Apple's rapid international rollout of the new iPhone 5 has prompted many analysts to upgrade their sales forecasts for the smartphone, with ...
5. Some analysts increase iPhone 5 sales predictions - CBS News Sep 13, 2012 – (CNET) Some analysts expect the iPhone 5 to be so popular that they've recalculated their iPhone sales estimates for September despite a lack ...
6. Holiday iPhone sales projected to reach 46.5M as pundits ... – Holiday iPhone sales projected to reach 46.5M as pundits 'underestimate' Apple. By Neil Hughes. Tech pundits who find the iPhone 5 "boring" ...
7. iPhone 5 Sales Projections: 10 Million Units to be Sold Following ... – The iPhone 5 has high expectations upon its release, not just for Apple customers, but the effect it could have for the US economy. Apple began ...
8. iPhone 5 sales to hit 170 million over next year, predicts analyst ...cnet.com/.../iphone-5-sales-to-h.. And based on past sales, the iPhone 5 will capture around 85 percent of ... Schiller explained the company's ... 

From Business Insider:

Apple sold the iPhone 5 in 9 countries over its opening weekend. It sold the iPhone 4S in 7. It actually sold fewer iPhones per country this year than the last. That's not just deceleration, that's shrinkage:

iPhone Sales per country

Decelerating growth is not good for a company like Apple, which despite a modest P/E ratio, has one of the most generous trailing 12 month revenue multiples of any hardware company on the public markets.

 As I explained in detail on the Max Keiser show, Google will be a very difficult company for Apple to successfully compete with. The problem is that practically no one seems to understand what kind of company Google is, and hence why Apple will have a nigh impossible time competing....

This thesis has come into its own with Apple's new iOS6 operating system and its exclusion of Google Maps for its inclusion of its own in-house mapping system. The end result? #FAIL, ##disasater!!!

Hacker reportedly ports Google Maps to iOS 6 CNET‎ 

iPhone 5 Problems: Apple Tries to Steal Google Maps Staff to Fix Its iOS 6 Maps Mess PolicyMic‎

iOS 6 Maps problem, maybe Apple should have called it beta ... www.phonesreview.co.uk/...

Wrong turn: Apple's buggy iOS 6 maps lead to widespread - The Verge Apple has a maps problem. The major new feature of the company's new ...

Apple Mapocalypse Sends iOS 6 Users Into a Tizzy, Riverbank - Wired

Apple On iOS 6 Maps Flubs: This Is Hard, Okay?

Apple statement apologises for iOS 6 Maps problems | Electricpig

I clearly called Apple's problem in the Max Keiser interview above. Google is light years ahead of Apple in cloud/distributed computing/applied data tech, experience and capabilities. This maps fiasco is merely the beginning, for Apple TV will face a real challenge from YouTube once it becomes an actual network in lieu of simply a platform (witness and reference the push for new, original content) and Google's many cloud based apps start making the iOS functionality appear as dated as it is. Apple has a very, very slim chance of catching up, and if it does it will because it spend a LOT of money, chopping up those margins.

Hence the prophetic, yet lonely and controversial piece from two years ago - Apple on the Margin, as well as Evidence Of Apple's Margin Compression Crops for its tablets.

Follow me:

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