Last year I wrote "The "Believe In Germany Bailing The EU" Trade: Go Long Magic Wand Raw Materials & Harry Potter Paraphernalia" wherein I warned of both the risk in Germany as a save all, and the risks posed to European FIRE sector companies (and insurers in particular) as a result of this believe in magic over math. 

Well, now Bloomberg reports that Poland has literally confiscated private pension manager's bonds with essentially no compensation, ex., they stole them, as per Bloomgerg - Poland to Cancel Bonds From Pension Funds in System Revamp:

Poland will take over and cancel government bonds held by its privately managed pension funds, stopping short of fully “nationalizing” the system as it seeks to curb public debt, Prime Minister Donald Tusk said.

Whaaaat!!!??? Cancel bonds? Outright theft! Listem carefully here. It's not as if I didn't tell you so. Now, what happens to those insurers whose pension funds under management were robbed? Again, revisit "The "Believe In Germany Bailing The EU" Trade: Go Long Magic Wand Raw Materials & Harry Potter Paraphernalia". This plain as day and easy to see coming, and there's a lot more coming!

Remember my many warnings this year on the Irish and EU banking system:

Transparency In The European Banking? Madness, I say! Sheer, Utter Madness!!!

If I Provide Proof That The Entire Irish Banking System Is A Sham, Does It Set Up A Much Needed System Reboot? Let's Go For It...), the chances of there being any recovery is somewhere between zilch and nil, give or take a euro or two - reference LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%? and The Anatomy of a Serial European Banking Collapse to realize that once a counter party driven bank run starts, there may be less than nothing to divy up in the end. Lehman Brothers' US creditors received roughly 10 to 40 cents on the dollar, but after 5 years of wrangling, the European International arm was full repaid. Hey, do you feel lucky with your life savings? Even if you do feel lucky, you'll still need 5 years to spare and a ton of cash for legal fees.

However, some member states have not ruled out the possibility that insured deposits, i.e. deposits under €100,000, would be forced to bear losses in the event of a bank collapse even though these deposits would be likely to be protected by the deposit guarantee scheme.

As stated earlier, this ain't AAA coverage!

This year Jeroen Dijsselbloem, head of the group of 17 euro zone finance ministers, said that losses on bondholders and depositors could form part of future bank bailouts as euro zone officials seek to move the burden of bailouts away from taxpayers – as was the case in the Irish bailout – and on to private investors.

The European Commission argues that this switch from so-called “bailouts” to “bail-ins” would result in an allocation of losses that would not be worse than the losses that shareholders and creditors would have suffered in regular insolvency proceedings that apply to other private companies.

Ahem, that non-sense only works on the uneducated and/or the unassuming. The major difference is that creditors that would be subject to regular dissolution proceedings AND that are unsecured, would demand considerably higher rates of return. A borderline solvent bank whose officers AND regulators admit publicly is in need of additional capital infusions after receiving three thus far, and 96% losses in its publicly traded equity, would have to borrow money at 18%, not 2% - and that's being generous. See the bank deposit rate calculator below.

While the inclusion of large savers in future bank bailouts is now widely accepted, significant differences still remain between member states.

While the new rules governing bank resolution were first intended to come into place in 2018, since the Cypriot bailout there have been calls from senior EU figures such as European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn to introduce the new regime as early as 2015.

The Irish presidency of the European Council is hoping to reach a common position by the end of next month.

The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???

Side note: 

The video below was the result of a collaborative effort to bring Mr.Middleton to Ireland through a crowdfunded campaign. While the effort fell through, we have recycled some of the material to ascertain interest in his visiting Ireland on an independent basis.  If you're Irish, from Ireland or simply find this financial/ethical malarkey disagreeable and would be interested in seeing Reggie Middleton visit Ireland to disseminate his research, create new resarch, hold town hall style discussions on how to "occupy the banks" or simply have a good, old-fashioned breaking of the bread, let us know of your willingness to contribute to a crowdfunded project on Indiegogo. If there is enough interest to make this happen, we will create a project to fund Reggie's trip and create saleable research. Let Reggie know directly by contacting him via email: reggie at boombustblog dot com

Other hard hitting pieces on the resurgent EU banking crisis

• Is The Cypriot Government Crazy Or Do They Really Fear Bankers That Much?
• Mainstream Media Says Cyprus Salvaged By…
• Economic Depression Is The New Success
• The Canadian Government Offers "Bail-In"…
• EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive - Bank Risk, Reward & Compensation
• Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" As This Bank Scrambled For Capital!!!
• As If On Cue, BoomBustBlog Shenanigan Research Gets Real In Ireland, Why Aren't These Guys Knocking On My Door?
• Are You About To Get Cyprus'd in Ireland? When A Single Word's Worth Billions Of Euros...
• Dear Ireland (& AIB), Haven't We All Learned The Problem Is Insolvency, Not Liquidity?
• Oh No! Is It Possible? A 3rd Irish Bank With Hidden Charges Not Revealed In Its Annual Reports?
• Ireland, You May Very Well Be Bust & I Make No Apologies For What I'm About To Show You
• The Next Leg Of That Counterparty Led European Bank Run Has Put On It's Running Shoe
• I Illustrate How The Irish Banking Cancer Spreads to UK Taxpayer & Metastizes Through US Markets
• Allegations Of Big Irish Banks Operating…
• Readers Respond With Evidence That AIB (…

"Till default do us part, A half-hearted banking union raises more risks than it solves". To wit:

Almost a year ago, as the euro crisis raged, Europe’s leaders boldly pledged a union to break the dangerous link between indebted governments and ailing banking systems, where the troubles of one threatened to pull down the other. Yet the agreement that seems likely to emerge from a summit later this month will be one that does little to weaken this vicious link. If anything it may increase risks to stability instead of reducing them.

Almost everyone involved agrees that in theory a banking union ought to have three legs. The first is a single supervisor to write common rules and to enforce them uniformly. Next are the powers to “resolve” failed banks, which is a polite term for deciding who takes a hit; these powers also require a pot of money (or at least a promise to pay) to clean up the mess left by bust lenders and to inject capital into those that can get back on their feet. The third leg is a credible euro-wide guarantee on deposits to reassure savers that a euro in an Italian or Spanish bank is just as safe as one in a German or Dutch bank. National insurance schemes offer scant reassurance to savers when sovereigns are wobbly and insured deposits make up a big chunk of annual GDP (see chart).

Allegations of Fraud, 20% Drop In Stock Price, Market Manipulations, Internal Investigations: Nothing To See Here, Move On...

I believe I was one of the first financial types to extol both the virtues and the potential of Samsung in the handset space early on. Way back in the days of (3 years ago) the Galaxy S2 I said that Samsung, with the assistance of Google's Android, will eat Apple's lunch. Those who don't regularly follow me should reference A Quick Peek Into the REAL WORLD Logic That Went Into Building the BoomBustBlog Apple Model: It’s Called Compression!!! and Deconstructing The Most Accurate Apple Analysis Ever, to wit...

Well, nothing lasts forever and I've said it before, and I'll say it again...

• Smartphone Hardware Manufacturers Are Dead Nov 29, 2012 - Two and a half years ago I declared in my mobile computing wars series that Google would commoditized the mobile computing space, th...
• Computer Hardware Vendors Are Dead, Part Deux! Dec 10, 2012 - Last week I told the world that hardware vendors are DEAD! At least the fat margin business model hardware vendors (like those whose name 
• What Sell Side Wall Street Doesn't Understand Jan 25, 2013 - Or at least the fat margined hardware model. Reference SmartphoneHardware Manufacturers Are Dead and Computer Hardware Vendors Are
• Angels, ArchAngels and Data Demons Jun 7, 2013 - Remember, I proclaim smartphone hardware vendors are dead! Google's recent comments support that assertion, as well as recent market 

You have to keep innovating in the mobile handset space or your margins will start dropping and your product will be commoditized. This is guaranteed! Paying subscribers should feel free to email me about this if they have any questions. Institutional and professional subscribers are free to call me and chat in depth as well. 

I've written several articles on this topic, with Samsung, Apple, RIMM, NOK and HTC used as prime examples:

n early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion. I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

1. Looking Through Windows To See The Big Data On Fruit - Or Aug 7, 2013 - ...and this was exactly as predicted in Samsung Will Be Ready To Do ThatFruit Thing ... and Smartphone Hardware Manufacturers Are Dead 
2. Samsung Will Be Ready To Do That Fruit Thing ... - BoomBustBlog Mar 7, 2013 - applecutsabreandriod3d Two and a half years ago I declared in my mobile computing wars series that Google would commoditize the mobi...
3. Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Jul 25, 2012 - First things first, those who still believe Apple can walk on water are setting themselves up for a big one. I haven't received so much flak abou...
4. Blackberries, Apples & Fruit Borne Successitis May 27, 2013 - Blackberries, Apples & Fruit Borne Successitis - The Problem With the original trajectory of the original vision, which was to make the thing an 

The Intel Haswell processor has killed Microsoft's Windows RT before it even grew legs. The only reason to ever opt for a device that runs a slimmed down OS such as Windows RT was the moribund decision between higher performance/larger form factor or longer battery life/smaller form factor. Well, Intel's Haswell chips promise (and deliver, I'm typing on a 2 pound, .68 inch carbon fiber, touch screen notebook right now) to offer full blown i5 and i7 desktop performance in tablets and ultrabooks for 7 to 10 hours at a clip. That promise has been kept. Say goodbye to Windows RT and its ARM architecture. It may have been good to know you, but we will never really find out, will we?
Now, I know the more swift among you are problably saying, "Hey, wait a minute!!!" "If Haswell kills off the ARM powered RT devices, what about all of the other popular ARM devices?

Three years ago, I warned everybodey - Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet. Remember, the iPad and Android tablets run on on ARM. As a matter of fact, imagine having an i5 Haswell on a 6 inch smartphone that runs FULL BLOWN windows on a HD+ screen that lasts 9-15 hours on a charge.

I'm writing this on an i5 Haswell Sony Vaio that is lighter, and also as thin, as an iPad. It has my full quite of apps along with a very usable touch screen. To be frank, the iPad now seems like a collosal waster of money.
Of course, the discussion doesn't stop there. Just as Intel was forced to step up its game due to natural market pressures, other companies had to do so as well - only some companies are the aggressive and their market pressures stem from the need to usurp new markets rather than defend old cash cows. Enter, Qualcomm and their new Snapdragon 800 chipset clocked over 2.2 Ghz. This chip finally brings the abilities of desktop computing to a handheld, and does so with promises of 12-15 hour battery lives. Sound familiar? Damn skippy!
It's a fight ladies and gentleman. Which would you choose, a desktop light and long lasting enough to act like a tablet, or a tablet strong and powerful enough to act like a desktop? What do you think happens when Android 5.0 Keylime Pie is loaded on a tablet running a 3.0 Ghz Haswell i7? Yeah, I had the same reaction.

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

•  Apple 3Q2013 Valuation Update - Retail
  (Technology)
•  Apple 3Q2013 Valuation Update - Pro & Institutional
  (Technology)

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

•  Apple 1Q2013 update - Pro & Institutional
  (Technology)
•  Apple 1Q2013 update - Retail
  (Technology)

See also:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

 The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

See also:

Microsoft Finally Bought Nokia As I Susp…

On Tuesday, 15 February 2011 I penned The Nokia/Microsoft Alliance & Android's Commoditization Of The Mobile Computing Platform... In said missive, I apparently foretold the future, to wit: The Nokia/Microsoft Marriage via Force of Android team up is definitely a plus for Nokia despite the appearance that Microsoft ex-management is moving heavily into company. Nokia probably makes some of the best hardware around, but...

Google's Rumored To Bid For NFL Sunday T…

All Things Digital ran a story today concerning Google bidding for the NFL Sunday Ticket package. CNBC hosts discussed the topic as well. James Cramer asserts that Google may charge for the NFL content if it is successfully acquired. My first thought when hearing this was... Not so fast. The AllthingsD article put it interestingly: Here’s a fun combination to ponder: The...

Have We Reached "Peak Premium Smartphone…

Quartz.com has an interesting set of articles on the topic of the peaking of the smartphone market. Let's start with thier commentary on Samsung, "Yes, Samsung is acutely aware that we’ve reached “peak trophy smartphone” - as excerpted: South Korean electronics giant Samsung reported soaring profits on Friday, but despite the company’s attempts to manage expectations, the results undershot estimates and its stock dropped almost...

iPad Shipments Decline As BoomBustBlog T…

Let's keep this short and simple. Up to two years ago, I claimed that Apple's tablet market share will be subsumed by that of Android's, and it's margins will follow suit. If one were to Google this topic, this would be the result: Apple's iPad Is Losing Market Share And Profit ...  Mar 16, 2012 - Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All...   Call The End Of The Fat Margin...

Read more

Was The Google Purchase of Motorola A Ha…

I have yet to release my review of Google's most recent quarter earnings results, but thus far I've seen nothing that would materially sway me from the conclusions drawn from the last set of forensic valuations released to subscribers (Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?). One question that I am getting is "Did...

On Tuesday, 15 February 2011 I penned The Nokia/Microsoft Alliance & Android's Commoditization Of The Mobile Computing Platform... In said missive, I apparently foretold the future, to wit:

The Nokia/Microsoft Marriage via Force of Android team up is definitely a plus for Nokia despite the appearance that Microsoft ex-management is moving heavily into company. Nokia probably makes some of the best hardware around, but there OS game has been lacking for some time. The only real unaddressed issue is that Elop never addressed the real reason why he didn't adopt Android, and the MSFT alliance doesn't address it either. Reference this quote from Endgadget:

1. 1. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
   2. 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

Long story short, the only company that is positioned to come out on top of this hardware battle is Google, at least thus far. But that begs the question, what if one of the other big boys catches on? On Thursday, 25 October 2012 I penned Microsoft Is Doing What The "Has Been Giants Of Yesteryear" Were Afraid To Do, Make A Radical Change BEFORE ITS TOO LATE!, to wit:

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.

You see, although Microsoft doesn't get much mobile respect these days (and for good reason), their Windows mobile platform is quite capable. After securing the full purchase of Nokia's handset business and licensing of its patents, MSFT is actually well positioned to do some damage in the space if it truly has the balls to do what it takes. Before I go on, let's take a look at the weapon of choice that I would use...

NOKIA

It's the 41-pixel camera that makes the Lumia 1020 competitive as a point-and-shoot and phone all rolled into one.

So, what happens if you take that hardware, it's competent but not necessarily Android-dominating OS, and embue it with the two things that 90% of smart phone consumers use and want, but don't have available on their smartphones? What is that, you ask? Well, I'm talking about fully capable Microsoft Office and X-Box gaming! Integrate full, usable, uncrippled Office suite and the full port of XBox gaming and media on this Nokia handset with just a tad larger screen with no premium in pricing and you start attracting power users such as myself to the table. When people like me sit down and eat, we often bring our family, friends, readers, followers and clients. That's how Android did it!

The caveat is... In order for Microsoft to accomplish this they will have to eat margin compression in the short to medium term - and big time. Of course, anyone paying attention knows MSFT will eat this dish best served cold anyway, it's just a matter of who serves it to them. Either they do it themselves and leave room for expanded revenues to compensate, or they let Google's Android force feed them at the compression table. The decision is theirs, I suggest they choose wisely...

Subscribers, see also... 

•  Google Q1 2013 Valuation Note - Retail
  (Technology)
•  Google Q1 2013 Valuation Note - Professional & Instititional
  (Technology)
•  Google Q1 2013 Valuation Note - Professional & Instititional
  (Technology)

Quartz.com has an interesting set of articles on the topic of the peaking of the smartphone market. Let's start with thier commentary on Samsung, "Yes, Samsung is acutely aware that we’ve reached “peak trophy smartphone” - as excerpted:

South Korean electronics giant Samsung reported soaring profits on Friday, but despite the company’s attempts to manage expectations, the results undershot estimates and its stock dropped almost 1%. That’s on top of a 13% slump in June that wiped $26 billion off Samsung’s value—a bigger loss than Sony’s entire market capitalization.

This may seem odd, given that its flagship smartphone, the Galaxy S4, has flown off the shelf, supported by a super-sized marketing campaign. The problem is that amid steep competition, there aren’t many customers left who can afford flashy trophy phones and don’t already have one.

As a result, Samsung’s management is beginning to pivot away from its current reliance on the Galaxy series—it announced a $1 billion increase in investmentexpected to go to other businesses on Friday—even if it is still keen to tap into some developing markets still hungry for shiny high-end telephonic gadgets. It already leads the world in televisions, chips and displays, and recently launched a high-end OLED television. Its memory chip business announced a 71% increase in operating profit from last year, and it has a powerful reputation in many emerging markets.

Of course, BoomBustBloggers were on this at least a year and a half ahead of time, referencing Samsung Will Be Ready To Do That Fruit Thing ... and Computer Hardware Vendors Are Dead, Part Deux! As excerpted:

rotten blackberries

Research in Motion in early 2010: Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion

Rotten plus GreenApple

Apple from 2010 till the ultimate short call in October just past: Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

andriod-vs-apple

I also laid clear the path to Google's prominence as far back as 2010, when there was not a peep from the sell side, see Google's Q4, 2012: This Looks To Be The Leader Of The New Distributed Information Paradigm .

Now, Samsung seems to be the most innovative of the handset vendors to date, but if I'm right, they will end up having to innovate in a commodity space just like the traditional PC manufacturers (Dell, HP, etc.) have to do now. Why?  Because of point number Three...

The new PC is not even a PC anymore, its a multi-tiered, multi-function, distributed cluster of interactive, location aware, multimedia applications sharing your social activities and data through a network of servers - in short, it's the cloud!

For right now, GOOGLE IS THE CLOUD! See my video descriptions of Google's business models above.

 Quartz then went on to write "Tim Cook is right. Smartphones haven’t peaked", as excerpted:

Tim Cook on peak smartphone: "I don't believe that."

Obviously, I beg to differ. First of all, the rate of adoption and overall growth rate is slowing. This is natural and to be expected, though - particularly since the market is still experiencing healthy growth. It is by far not the biggest issue at hand, and I feel the article is missing the bigger picture. Even if the high end smartphone market is still matching its historical growth projectory (which it is not), the margins on said growth are shrinking, and shrinking rapidly. Apple's financial dominance, it's share price and much of its cache are predicated on being able to sell pretty widgets at 50%-70% margins. Google's extreme success with Android, it's negative margin business modeland the natural law of economics and business market maturation guarantee those margins are a thing of the past as I've promised in years past - Right On Time, My Prediction Of Apple Margin Compression.

Steve Cook preaches innovation, but Apple is being out-innovated at a ridiculously rapid clip. Not only are the Andriod phones and tablets producing hardware/software configurations that are making the iPhone (and to a lesser extent, the iPad) look historical and dated, but Google is at the forefront of the next generation form factor for the new "smartphone". 

In addition, Apple is losing market share in a market whose growth is slowing. I warned about this two years ago. There is a positive correlation between margins and market share, and chances are when you start losing much of the latter, the other will follow suit.

As excerpted from "Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!" 

... the financial metrics, over time and in handset companies, heavily favor market share over initial profit margin. As a matter of fact, I demonstrated that as market share decreases margins drop commensurately, or in other words "Quantity is quality in a fast moving, technologically dynamic market!"

In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion. I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

As I said in 2010, 2011, 2012 and this year, the less than free Android business model is killin 'em - Apple in particular. On Friday, 02 September 2011 I posted Google's Android Now Leads In Market Share, Growth Rate and Potential Buyer Preference. I made it clear that Apple's slowing of Google's growth was paramount to their continued success. I take it they didn't get that memo. Earlier this year I posted "Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!" and it went something like this:

Tim Cook was in the media yesterday weighing in on market share. It's as if he is in a delirium, that is if you believe his words, which I don't. He states that for Apple, quality is more important than quantity (or something of that sort). As per Endgadget:

Apple's head honcho Tim Cook is chatting up Android's growth explosion, and it turns out he's not flustered. "Do I look at that? Of course, I don't have my head stuck in the sand," said Cook." But for us, winning has never been about having the most." Instead, he stands by the old Apple line of quality versus quantity. "Arguably, we make the best PC, but we don't make the most," he added. "We made the best music player, and we wound up making the most -- but we didn't initially."

Mr. Cook is ignoring his own ex-boss's words. For those who didn't read my piece yesterday, "Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!!", I quote:

What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.

You see, my post yesterday clearly showed that the financial metrics, over time and in handset companies, heavily favor market share over initial profit margin. As a matter of fact, I demonstrated that as market share decreases margins drop commensurately, or in other words "Quantity is quality in a fast moving, technologically dynamic market!"

In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion. I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysis

The has been the case with IBM, Nokia, Dell, HTC, Apple, Blackberry, etc. Mr. Cook, take the advice of Mr. Jobs if you don't wish to follow Mr. Middleton. I actually do believe that Cook understands these dynamics and is just putting on a dog and pony show for the media but his corporate actions don't bear this out. I strongly suggest they start spending that $174B cash horde on something other than massaging hedge funds.

Fastforward to today and reference this IDC press release:

FRAMINGHAM, Mass. August 7, 2013 – Despite beating Wall Street expectations in terms of shipment volumes, Apple's share in the worldwide smartphone operating system market posted a year-over-year decline during the second quarter of 2013 (2Q13). Meanwhile, Android and Windows Phone both managed slight increases during the same period. According to the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker, vendors shipped a total of 236.4 million smartphones in 2Q13, up 51.3% from the 156.2 million units shipped in 2Q12. Second quarter shipments grew 9.3% when compared to the 216.3 million units shipped in 1Q13.

"The iOS decline in the second quarter aligns with the cyclicality of iPhone," says Ramon Llamas, Research Manager with IDC's Mobile Phone team. "Without a new product launch since the debut of the iPhone 5 nearly a year ago, Apple’s market share was vulnerable to product launches from the competition. But with a new iPhone and revamped iOS coming out later this year, Apple is well-positioned to re-capture market share."

"Last quarter we witnessed Windows Phone shipments surpassing BlackBerry and the trend has continued into the second quarter," said Ryan Reith, Program Manager with IDC's Mobility Tracker Programs. "Nokia has clearly been the driving force behind the Windows Phone platform and we expect that to continue. However, as more and more vendors enter the smartphone market using the Android platform, we expect Windows Phone to become a more attractive differentiator in this very competitive market segment."

Smartphone Operating System Highlights

Android maintained its leadership position, with strong contributions from Samsung and its Galaxy S4. Not to be overlooked were LG and Chinese vendors Huawei, Lenovo, and ZTE, which each recorded double-digit shipment volumes in the millions. Combined, these vendors accounted for 62.5% of all Android-powered smartphone shipments during the quarter. Still, the remaining vendors within the Android ecosystem should not be overlooked, as many have developed a strong local presence within key developing markets.

...and this was exactly as predicted in Samsung Will Be Ready To Do That Fruit Thing ... and Smartphone Hardware Manufacturers Are Dead ...

iOS finished the quarter as the clear number 2 operating system, showing that, even without new product launches, demand remains strong. Moreover, Apple added new mobile operators to its camp, boosting short-term volumes and cementing long-term end-user relationships. What remains to be seen is how the new iOS 7 will be received once it reaches the market later this year, as much of the look and feel of the user interface has been revamped.

Windows Phone posted the largest year-over-year increase among the top five smartphone platforms, and in the process reinforced its position as the number 3 smartphone operating system. Driving this result was Nokia, which released two new smartphones and grew its presence at multiple mobile operators. But beyond Nokia, Windows Phone remained a secondary option for other vendors, many of which have concentrated on Android. By comparison, Nokia accounted for 81.6% of all Windows Phone smartphone shipments during 2Q13.

BlackBerry saw its market share decline during the quarter, reaching levels not seen in the history of IDC's Mobile Phone Tracker. However, BlackBerry has shown steady progress since the launch of its BB 10 platform, which has grown to three models, additional mobile operators, and a greater presence within its total volumes. It is still early days for the platform, however, and BlackBerry will need time and resources to evangelize more end users.

My opinion on Blackberry hasn't changed for 3 years... See Blackberries, Apples & Fruit Borne Successitis and BoomBustBlog Research Performs a RIM Job!

Top Smartphone Operating Systems, Shipments, and Market Share, 2013 Q3 (Units in Millions) 

Source: IDC Worldwide Mobile Phone Tracker, August 7, 2013

This chart is intended for public use in online news articles and social media. Instructions on how to embed this graphic are available by clicking here.

Top Android Smartphone Vendors, Shipments, and Market Share, 2013 Q3 (Units in Millions) 

Source: IDC Worldwide Mobile Phone Tracker, August 7, 2013

Top Windows Phone Smartphone Vendors, Shipments, and Market Share, 2013 Q3 (Units in Millions) 

Source: IDC Worldwide Mobile Phone Tracker, August 7, 2013

Note: Data are preliminary and subject to change. Vendor shipments are branded shipments and exclude OEM sales for all vendors.

So, does Mr. Cook's lack of adherence to Steve Jobs wisdom portend a potentially uber-successful company misunderstood by the markets (meaning time to buy stock) or is this the beginning of the end of an iconic corporate era?

I refer my subscribers to the research documents below for the answers... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

•  Apple 3Q2013 Valuation Update - Retail
  (Technology)
•  Apple 3Q2013 Valuation Update - Pro & Institutional
  (Technology)

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

•  Apple 1Q2013 update - Pro & Institutional
  (Technology)
•  Apple 1Q2013 update - Retail
  (Technology)

For Google...

Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read  Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

•  Google Q1 2013 Valuation Note - Retail
  (Technology)
•  Google Q1 2013 Valuation Note - Professional & Institutional
  (Technology)

The biggest risks to these price points are:

1. A market that's being levitated by central bank magicians running short on magic spells...
2. Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term.

Related links...

Was The Google Purchase of Motorola A Hardware Disaster With Overpriced Patents?

See also:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

 The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

Google has launched its first, conceived from scatch, phone - the Moto X. It was rumored to be priced between $200 to $250. This would have been a game changer for it meant that its competitors (who are also its business partners) would have had to slice thier margins to compete. As it turned out, the Moto X branded phones are priced at $199 on contract, ie. the same price as all of the other high end phones. The big problem with this is that the Moto X has middling specs as well as middling benchmark scores. That's a tad bit disappointing for us techie/nerds.

But then, I actually looked at the device and the business model around it. To beign with, Google/Motorola has focused on software rather than hardware. This is, in part, what Samsung has tried to do but Samsung is several generations behind Google Android, despite being able to piggyback off of Android functionality. By bringing the fight to the software cloud, Google can make drastic usability changes, some profound and some actually rather ubiquitous - simply not properly marketed.

A good example is reliance on Google Now, what Siri would look like if it actually worked. Ironically, this is probably the Moto X's killer app/feature. Google Now is by far my favorite mobile assistant. The catch is you can use it on any phone that runs Android 4.04 or higher - which is most phones. The difference with the Moto X is that it's always listening, and now you can use it without touching your phone. Even if your phone screen is off, once the command is given (video examples show "Ok Google Now") the Moto X will activate and offer the info you're looking for - which can be quite wide and varied. Android algorithms apparently learn your voice, so (theoretically) only a really good impersonator could activate your phone with voice.

Google has kept the device and the battery small, as well as the processor. This keeps costs down (ie. margins up), but more importantly left room for software innovations to shine without hardware overhead. Examples? The wake from sleep feature allows users to glance at the phone to get pertinent information without the phone fully powering up. If you look at most people commuting, walking, or just standing still, they glance at their phones very often. It's not as if this glance conveys tomes of information and besteller novels. By leaving the AMOLED screen dark and illuminating a small section to convey pertinent timely info such as the time, notifications, etc., significant power is saved (the screen is the signle biggest battery hog) while convenience and user experience is simultaneously increased. 

The choice of screens show that Google is aiming for the mainstream and not the bleeding edge. Although I prefer a 1080p screen for resolution, it drains the battery much faster than a 720p screen. I notice the difference clearly, but most people wouldn't, although they would notice the 40% difference in battery life.

Camera performance is increased, while costs are maintained, reference Moto X camera specs leak, 10MP stills and 1080p@ 60 fps video 

According to Taylor Wimberly, former editor for Android and Me, the Moto X will feature a 10MP Clear Pixel camera with a pixel size of 1.4 microns. This means the pixels will be larger than those on the Galaxy S4 sensor (1.1µm), but smaller than HTC One's (2µm). The bigger pixels, combined with the Clear Pixel technology should go a long way towards improving the low-light performance.

The Motorola Moto X camera is said to be capable of recording 1080p videos at 60 frames per second - a first for a smartphone. The camcorder will use pixel binning, combining information from 4 pixels to reduce noise and provide clearer videos.

Finally, the Moto X will pack three microphones and will be capable of recording 3D audio.

60 fps 1080p video is piercing professional video quality. This is coupled with an intuitive interface that uses the phones sensors to trigger and fire the app versus actual tactile manipulation, resulting in faster picture taking and more contextual use - all with the leading camera specs.

Here's more on this topic Here's a hint Ultra HD 4000 x 2000 pixels is the highest video specification available for consumer media products. Sony, Pioneer and Samsung have just released TVs that can display this stuff, starting at over $60k when first released.

The Moto X’s camera actually supports Ultra HD (you just can’t use it)

Motorola is counting on three things to make the Moto X a success: Google Now, multiple colors, and its Clear Pixel camera, and now some extra details about the latter have emerged thanks to manufacturer OmniVision. The new OV10820 [pdf link] sensor may not have a snappy name, but it’s a mighty capable chip, in fact able to capture 4k2k Ultra HD video.

That’s assuming the rest of the device is up to the challenge, of course, which right now the Moto X is not. The new Motorola is in fact limited to 1080p HD video capture – which it can do with both its front and rear cameras, no less.

On paper, though, the OmniVision sensor is capable of a whole lot more. It can record up to 3840 x 2160 resolution video at 30fps, or up to 1920 x 1080 at up to 60fps, both at a native 16:9 widescreen aspect-ratio.

The sensor itself – described as RGB Clear (RGBC) – includes a fourth color filter for better low-light performance, which Motorola claims improves things by up to 75-percent on the Moto X.

... There are indications that the 10.5-megapixel sensor is only the start of things, too; the OV660 is in fact capable of handling up to 20-megapixel RGBC sensors, in addition to a secondary, front-facing RGBC sensor.

That could mean the same sort of low-light performance for your selfies in future iterations of the Moto X, though we’d be more interested in the potential of recording Ultra HD footage from a smartphone. Late last month, hints of Ultra HD support were spotted in Android 4.3 code, while long-standing rumors have suggested that the upcoming Sony “Honami” will support video recording at that resolution.

That is very serious for a small smartphone, and even more seriosu considering Motorola is keeping component costs down, thus working on increasing margins. I believe Google will do what Apple should have done, and that is it will create fatter margins and then commences to compress them themselves, in lieu of waiting for a competitor or new comer to do it for them. If so, expect these prices to either drop very, very quickly or expect this relatively new and apparently demanded technology to increase dramatically over a very short period of time - or worse for Samsung/Apple/Nokia/HTC,  both will occur simultanesouly. Expect the smartphone race to heat up substantially in just a few weeks. Samsung and Apple are going to have to pull some pretty big rabbits out of their asses! 

The customs order features are a unique edge. It remains to be seen how well this will work in the smartphone field, but then it again its awhat made Dell what it was!

What should we expect next? Well, for one it appears as if Google is taking the Moto X very, very seriously. How seriously? Let's count the ways...

 Google is launching the Moto X on ALL major carriers simultanesouly, with no major skinning to the OS. That's right, damn near stock Android on every major outlet in the most lucrative cell phone markets - with direct access through Google Play Store. Sans the playstore, the only other OEM to do this was Samsung with the Galaxy S4, and you see how that turned out. In addition, Google is about to spend half of Apple’s annual marketing budget promoting a single phone...

Google's Moto X advertising budget will be up to half a billion dollars, or half as much as the $1 billion Apple spent advertising ALL of its products in 2012. Of course, the current Android handset leader Samsung's marketing budget topped out at $4 billion in 2012. There's no big mystery as to why Samsung came out on top, eh?

Samsung’s advertising budget makes other tech companies look stingy.Asymco

Quoted from the quartz.com article linked above:

There is some industry precedent for getting ahead by spending heavily on advertising. Some have argued that Samsung’s dominance of Android smartphones and its market share victories against Apple are due almost entirely to Samsung’s massive advertising budget. While Apple failed to maintain its advertising spend as a percentage of revenue on its mobile devices—essentially coasting on existing brand recognition—Samsung ramped up its ad budget to more than 15% of sales.

Samsung’s spending on advertising goes up every quarter to keep pace with revenue.Asymco

Similarly, Google’s half-billion dollar advertising campaign could threaten Apple, but it’s more likely to threaten Samsung, which until now has been the market share leader in Android smartphones. Consumers will benefit as Google begins to compete directly with the companies that made Android so popular—so long as they can see through the massive fog of marketing that’s about to roll their way.

BoomBustBloggers knew this was coming as early as last year, reference Thoughts on Glass, Fashion, Fads, Moto X and Samsung's Phenomenal Yet Brief Trip To The Top

as well as:

• Google Has Officially Gone On Record To Confirm Reggie Middleton's "Negative Margin Business Model" Tactics
• Samsung Will Be Ready To Do That Fruit Thing, Just Like Blackberry & Apple - Courtesy Of Google, #MarginCompression!
• Samsung's Galaxy S4 Flagship Device Is Outed, What Does It Mean For The Industry? SoothSayer Speaks Truth To Tech!
• Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All)!

Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read  Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

•  Google Q1 2013 Valuation Note - Retail
  (Technology)
•  Google Q1 2013 Valuation Note - Professional & Institutional
  (Technology)

The biggest risks to these price points are:

1. A market that's being levitated by central bank magicians running short on magic spells...
2. Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term.

Related links...

Was The Google Purchase of Motorola A Hardware Disaster With Overpriced Patents?

I have yet to release my review of Google's most recent quarter earnings results, but thus far I've seen nothing that would materially sway me from the conclusions drawn from the last set of forensic valuations released to subscribers (Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?). One question that I am getting is "Did Google overpay for its Motorola acquisistion?"
Quick answer, I seriously do not think so. Please understand, the Wall Street fee/commission churning machine along with the tabloid financial media which has to churn content for advertising eyeballs has taught many (if not most) to view the investment world one fiscal quarter at a time. This is not a prudent, not sustainable model for building long term success. One of the most admirable traits of Google's management is their proclivity to think longer term, and to plan and invest accordingly.
Below are excerpts from the big Google report that I put out two years ago. It outlines the acquisitions that Google had made to date. Among these acquisitions are investments that the financial media and the sell side analytical community swore were overpriced because they actually ate their own BS sandwiches, literally convincing themselves that one quarter at a time is the way to run a business poised to take over an industry.

Three examples come to mind also happen to be three of the largest acquisitions - YouTube, AdMob and Android. Were they worth it? What single company controls and/or leads in internet video content distribution, computing OS (not just mobile OS, but all computing OSs), and mobile advertising? All three of these acquisitions amounted to less than $5 billion and for that amount and additional investment, Google literally and absolutely dominates each and every one of those industries. 

Compare and contrast this to the Microsoft/Apple/Blackberry consortium that paid $4.5 billion for 6,000 telecomm related patents from Nortel. These companies are ALL currently lagging in growth and reach compared to Google, even if you just consider this one investment or if you look at their entire enterprise. The reason? Google's management is considerably more entrepenurial and are more adventurous at risk taking.

Google purchased Motorola for its cell industry patents for protection of its Android OS. Everything else that came with the deal was gravy. Factoring the handset/hardware biz, the set top box biz (recently sold) and the patents, the patents were purchased extremely cheap (17,000 of them) compared to what the RIMM/MSFT/Apple consortium paid for the Nortel patents ($4.5B for 6,000 patents). Even with the patent value significantly downgraded, it's still was a better deal than its competitors. Motorola can now be used to directly drive down the cost of hardware and hardware profit margins.

One of the reasons why I think Google's missing of the mean analysts forcasts this quarter is not that big a deal is the extremely value rich product pipeline of product's nearing launch. As a beta tester and early explorer of Google Glass, I'm convinced that Microsoft, Blackberry and Apple have absolutely nothing to compare. Expect Google to expand its advantage over these companies materially over the next fiscal year.

Here I present...

Glass for the Hospitality Industry

Glass for Real Estate

Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read  Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

•  Google Q1 2013 Valuation Note - Retail
  (Technology)
•  Google Q1 2013 Valuation Note - Professional & Institutional
  (Technology)

The biggest risks to these price points are:

1. A market that's being levitated by central bank magicians running short on magic spells...
2. Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term. 

Following up on my timely post "Here Come Those Municipal Defaults That Everyone Said Couldn't Happen, Pt 2", I comment on Meredith Whitney's OpEd in the Financial Times. If you remember, she - like I - warned of municipal defaults years ago and was ridiculed for such. Ms. Whitney is quoted as saying:

"As jarring as the reality may be to accept, Detroit's decision last week to declare bankruptcy should not be regarded as a one-off in the U.S. municipal market." she said.

"There are five more towns like Detroit in Michigan alone. There are many more municipalities across the country in similar positions."

"The bill for promises past is now so large for some cities and towns that it is crowding out money for the most basic of services – in the case of Detroit, it could not even afford to run its traffic lights," she said.

"Will [lawmakers] side with taxpayers, unions or the municipal bondholders? If they back residents, money will be directed to underfunded public services at the expense of pensions and bondholders. If they side with the unions, social services will continue to be cut and the risk to bondholders will increase considerably. If they side with bondholders, social services and pensions are at risk."

In the case of Detroit, elected officials, for the first time in a very long time, are siding with residents, Whitney said. This is a new precedent that boils down to the straightforward reality of the survival and sustainability of a town or city, she said.

"After decades of near-third-world conditions in the richest country in the world, the city finally stood up and said enough was enough,"

Well, this is the problem. Defaulting on revenue bonds where the underlying asset (ex. a housing project, utility, or infrastructure project) is not generating the sufficient cash flows is part and parcel of the risk of investing in said class of bonds. This is widely accepted and understood, which is likely why those bonds have a slightly higher yield.

For some obscene reason, defaulting on the general obligation bonds which purportedly carry the "full faith and credit' of the municipality as a back stop is deemed as wholly different affair. The reason? Who the hell knows? This is a point I tried to drive home in the original  Here Come Those Municipal Defaults That Everyone Said Couldn't Happen article in 2011. Backing by the full faith and credit of a public entity does not make an investment risk free. To the contrary, if said entity is fundamentally insolvent, the investment is actually "riskful"as opposed to risk free.

Treating these bonds as unsecured in the bankruptcy is essentially the way to go. If you don't want to do that, well you can still consider them backed by the full faith and credit of the insolvent municipality, which is essentially unsecured - and move on anyway - particularly as many potential collateral assets of value would have likely been encumbered by agreements with a little more prejudicial foresight.

A GO default from a city the size of Detroit will dramatically change the face of GO bonds going forward. Now that the hoi polloi and tax free investing masses have been awakened, a true accounting of the risks involved will cause a much more realistic risk premium to be placed on GO bonds everywhere.  This wll be in addition to the natural increase of rates coming from the end of a 28 year natural bull market in bonds, in addition to the economic and market snapback borne from the end of the artificial eztension of said bull makret through ZIRP and direct credit market maniputlation by the Fed.

Yes, a triple whammy coming to a bankrupt (or soon to be) state, city, town, or political subdivsion near you!

The good news? Those pension funds that hold municipal assets (due to the uneccesary tax shielding from muni's in a qualified account, not many) will get a higher yield on their bonds. The bad news? That yeild likey will not get paid!

This may push rates higher in general, after all they're artificially low to begin with. ZIRP has done it's fair share of damage, and a snap back to market rates will hurt all the more...

And then there's those monolines who're just working out that 90x leverage problem from the housing crisis (reference A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton)...

Last Wednesday I posted BS... Defined: Bernanke Seeks (BS) to Divorce QE Tapering From Interest Rates - OR - Economic Prestidigitation! wherein I ridiculed the notion of being able to withdraw economic financial aid while expecting rates not to spike. The fact of the matter is we are the at the end of a 33 year old bull market in credit. Or, to put it more accurately, we are at the end of a 5 year synthetic extension of a 28 year old credit market bull run....

I urge readers to keep in mind what I expoused in Apple Bonds Proven To Have A Nasty Taste wherein Apple bonds lose 9% in six weeks:

We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there's no way to go but up. As excerpted from theMarket Realist site:

Yes, this goes for muni investors as well! Municipalities have a dual edged sword up the ass. Not only are higher funding rates to be expected from a shifting market, but the actual fundamentals of municipalities are in the crapper as well, putting an even larger premium on what is already a steep increase in funding costs. What do  you think happens next?

• Detroit Slides From Industrial Might to Bankruptcy Bloomberg
• Judge seeks to halt Detroit bankruptcy filing CNBC
• Detroit bankruptcy fight could be long CNBC
• SEC charges city of Miami with fraud CNBC

• How To Profit From The Impending Bursting Of The Student Loan Bubble, Pt 2
• How To Profit From The Impending Bursting Of The Student Loan Bubble, Pt 3
• Calculate The Value & ROI Of Your College Education Now With BoomBustBlog

Saturday, 24 May 2008 The Municipal Bond Market and the Asset Securitization Crisis, pt 2

Thursday, 20 January 2011 Here Come Those Municipal Defaults That Everyone Said Couldn't Happen

In the multifamily housing segment, default rates increased significantly and were extremely high for the period 1987-90, i.e. at the time of the S&L crisis when real estate lending was reckless due to declining lending standards by banks and other financial institutions. The default rate peaked in 1988 in the eleven year period reviewed to 4.31%, followed by 3.41% in 1989.

 Don't let me say I told you so. Will those monolines start feeling part 2 of credit crunch?

Ambac is Effectively Insolvent & Will See More ... 

What is the Fallout of the Ambac Bankruptcy on the ...

My Analyst's Comments on MBIA/Ambac/Moody's ...

Moody's Affirms Ratings of Ambac and MBIA