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MacBytes
Jan 17, 2007, 02:49 PM
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Category: Apple Hardware
Link: Don't Buy Apple's One-Trick iPhone Pony (http://www.macbytes.com/link.php?sid=20070117154934)
Description:: Another Wall St. "expert" weighs in on the iPhone.

Posted on MacBytes.com (http://www.macbytes.com)
Approved by Mudbug

ppnkg
Jan 17, 2007, 03:01 PM
What's his problem? The iphone is a brilliant idea and Jobs last week showed that this brilliant idea actually works. The reaction of the market reflects this, and that's all there is to say at this point.

NorCalLights
Jan 17, 2007, 03:06 PM
Well, he's not totally wrong (tho he did spell Macintosh MacIntosh)... if you remove the iPod from Apple's earnings, then they haven't had great success.

The thing is... you can't remove the iPod from Apple's earnings, because they earned money from it. A lot of money from it. Apple is no longer a stagnating computer company, they're an innovating technology company. At the end of the day, computer sales are still up, and iPod sales are way up.

AlBDamned
Jan 17, 2007, 03:11 PM
Another Wall St. "expert" weighs in on the iPhone.

This guy is an idiot:

If Apple didn't have the iPod then sales and business growth would have been modest...

Desktop sales have gone down [ever so slightly] while laptop sales have gone up... (Really? Nobody else knew that, did they?)

If they didn't have the iPhone then Macworld would have been boring... (yes but they did have the iPhone you moron - they'd been planning it for months to be at Macworld...)


Companies can only grow if they're doing well and making money. The iPod has helped Apple make [a lot] of money and they're in a position to try new stuff and grow the business. Saying "if they didn't have this and if they didn't have that" it wouldn't be looking good and making statements of the obvious is just pointless conjecture. take away any company's most profitable product[s] and exciting new releases and they'd be in trouble wouldn't you say?

Equally, if this so-called "expert" didn't have a job - as he shouldn't with lame comments like this - things would be looking a lot less cheesy grin for him, don't you think?

bbarnhart
Jan 17, 2007, 03:23 PM
I think one reason desktop sales had fallen was everyone was waiting for the Intel chip changeover and apps that are UB.

macidiot
Jan 17, 2007, 03:23 PM
This is the email that I sent the author:



Wow, what a stunningly deceptive article.

Your discussion of how the iPod is absurd. Yes, if there was no iPod, Apple's growth and concurrent stock valuation would be a lot smaller. So what? If Microsoft didn't sell Office, it's revenues would be a lot lower too. If Merrill Lynch didn't have investment banking, it's revenues would be smaller. All I have to say is... DUH. Point is, Apple DOES sell the iPod, and it did enjoy a phenomenal growth rate and it did boost the value of Apple stock, justifiably. So what exactly was the point of your iPod discussion?

But let's forget the pointless "if Apple didn't have a business unit that accounted for ~40% of revenues, it would be a smaller company" discussion. Instead, let's look at the deceptive numbers that you use to illustrate how Apple's Macintosh unit is "stagnant."

Using the same 10k numbers, on the face, your numbers are correct. However, you conveniently omit the important numbers, instead using the ones that work for your spin doctoring. You seem to have selectively chosen numbers that support your claim, while ignoring the overall facts.

Yes, Apple's desktop sales last year were a drag on the company. However, this was more than ofset by increased portable sales, which saw significant growth. Additionally, you highlight your ingnorance of Apple by using these numbers. Last year, Apple computer transitioned from IBM cpus to Intel cpus. The last Apple computers to make that transition was it's desktop tower line. Essentially that line was a lame duck, with an obsolete architecture. These new computers were not introduced until August of 2006. Considering Apple's fiscal year ends in Sept., is it any surprise that desktop revenue was down? On the other hand, Apple introduced it's first Intel-based portable in January 2006 and completed the portable transition by May 2006. Is it any surprise that buyers, looking for the most current architecture, boosted portable sales?

Even so, according to the 10k, Apple Macintosh sales increased 17% in fiscal 2006 and 38% in 2005. Revenue from Macintosh sales increased 18% in 2006 and 27% in 2005. While you seem to think this is "stagnant," how do these numbers compare to the overall pc market? Seems to me that both years they grew faster than the overall pc market growth rate. Growing sales faster than the market sure seems like a funny way to be stagnant. Perhaps my understanding of what stagnant means is incorrect... according to you, it seems to mean taking share from competitors.

A few simple clicks of a mouse would have gotten you this information. In fact, simply reading the next page (55, you cite page 54 for your growth figures) of Apple's 10k, would have given you this information. But hey, why let the truth or due diligence get in the way of your spin?

And finally, let's get to the one arguably correct statement and what I gather was the point of this article; Apple's recent stock movement is overdone. On the face, you are quite possibly correct. However, if one looks at the cell phone market, is it really? If Apple manages to sell 1 million iPhones this year, a mere .1% of the cell phone market, and assuming a very modest 20% profit margin, that would translate to an additional 120 million in income. Considering that would only be for 2 quarters (June-Dec), that could be as much as a 10% boost to revenue. Again, I am using conservative numbers here. Additionally, if Apple actually captures 1% of the cell phone market, that would be an additional 6 BILLION in revenue, boosting topline revenue by about 28%.

Which brings us back to Apple stock price. Is the recent runup justified? Short term, as in over the next 6 months, probably not. Long term? Quite possibly yes. Apple stock could even be considered cheap at 96.

Of course, Apple reports earnings today that exceed estimates, 96 might be considered cheap as soon as 5pm EST today.

From my perch, it would seem that you have an axe to grind. Your deceptive use of statistics, deceptive arguments, and false praise of Apple all point to this. Riddle me this... what is the disclosure of your positions in RIMM, NOK, MOT, and MSFT? Of course, there might be no ulterior motive, you might just be clueless about Apple...


Also, digging a little into this writer's history, it seems clear that he is a short. That is, he makes his money selling stocks and profiting when stocks decline. In other words, it is in his best interest to spread negative information. Whether or not it is true doesn't really matter to him.

AlBDamned
Jan 17, 2007, 03:26 PM
This is the email that I sent the author:



Nice. Clearly this guy has an ulterior motive, but no doubt he'll mention the vociferous hate he received by the bucketload in his inbox.

Can I copy that and send it from me? ;-)

Sayer
Jan 17, 2007, 03:37 PM
If Microsoft didn't have Office their sales would be lackluster as well (comparatively speaking).

If Apple had no hardware sales, only software, then their earnings would be different. If Apple licensed OS X for any Intel hardware, then the earnings would be different.

What if is moot, this is the really real world. Apple does have iPod sales, iTunes Music Store sales and increasing hardware sales (laptops have trended towards higher sales than desktops for many years across the entire industry).

This is just another know-nothing who doesn't understand how Apple functions as an end-to-end solutions provider, not a box maker like DELL.

Jerry Spoon
Jan 17, 2007, 03:38 PM
This is the email that I sent the author:

[I]If Apple manages to sell 1 million iPhones this year, a mere .1% of the cell phone market, and assuming a very modest 20% profit margin, that would translate to an additional 120 million in income.

I enjoyed your letter, but one point of clarification. Steve said that they would need to sell 10 million iPhones to reach that 1%. That adds another zero to your hypothetical additional income if I'm doing my math right.

Here's a screenshot of the Keynote:
http://images.macrumors.com/gallery/mwsfkeynote_final/thumbs/Img0136.JPG

Edit: Wait. This image is referring to 2008. Did Steve make mention to how many iPhones he wanted to sell in 2007. I don't remember a reference, but I may be wrong.

wymer100
Jan 17, 2007, 03:39 PM
If you took away Windows and Office from Microsoft, they would probably be taking huge losses every year. The point is that you cannot separate the company from part of their products. It makes no sense.

Wasn't his article supposed to be why someone wasn't supposed to buy the iPhone? Did I miss that part of the article, because it seemed to be mostly about bashing Apple's financials.

macidiot
Jan 17, 2007, 03:41 PM
Nice. Clearly this guy has an ulterior motive, but no doubt he'll mention the vociferous hate he received by the bucketload in his inbox.

Can I copy that and send it from me? ;-)

Sure, but fix the typo...

Of course, Apple reports earnings today that exceed estimates, 96 might be considered cheap as soon as 5pm EST today.

It should be "If Apple reports..."

Then again, Apple just reported blowout earnings.

Estimates were for .78/share.

Apple reported 1.14/share.

Looks like the stock "analysts" got it completely wrong. AGAIN.

Jerry Spoon
Jan 17, 2007, 03:47 PM
Then again, Apple just reported blowout earnings.

Estimates were for .78/share.

Apple reported 1.14/share.

Looks like the stock "analysts" got it completely wrong. AGAIN.

Is this real info? I'm seeing news of Apple reporting .78/share earnings. Am I looking at incorrect info?

redAPPLE
Jan 17, 2007, 03:49 PM
Edit: Wait. This image is referring to 2008. Did Steve make mention to how many iPhones he wanted to sell in 2007. I don't remember a reference, but I may be wrong.

i believe steve meant, until mwsf08...

macidiot
Jan 17, 2007, 03:50 PM
I enjoyed your letter, but one point of clarification. Steve said that they would need to sell 10 million iPhones to reach that 1%. That adds another zero to your hypothetical additional income if I'm doing my math right.

Here's a screenshot of the Keynote:
http://images.macrumors.com/gallery/mwsfkeynote_final/thumbs/Img0136.JPG

Edit: Wait. This image is referring to 2008. Did Steve make mention to how many iPhones he wanted to sell in 2007. I don't remember a reference, but I may be wrong.


1 million is one tenth of one percent, which is what I wrote.

Steve Jobs has been severely mis-quoted regarding that 10 million number. He stated that he would love to sell that many, and that it would be only 1% of the overall cell phone market. He never actually stated what the actual sales goals were. Note that that 1% is for the GLOBAL market, not just the US.

Based on factors, like availability only for 6 months, only in the US, and only on Cingular, and a high price, I'm guessing the sales goals are a lot more modest. Something along the lines of 1-2 million for 2007 sound about right.

macidiot
Jan 17, 2007, 03:50 PM
Is this real info? I'm seeing news of Apple reporting .78/share earnings. Am I looking at incorrect info?

Yes this is real.


http://biz.yahoo.com/prnews/070117/sfw088.html?.v=86

amphi
Jan 17, 2007, 04:11 PM
not that I want to dispute the interpretation of the faithful.

but,

The argument is that apple's stock price reflects the rate of growth in it's markets - and that growth rate is largely due to the iPod. It is not due to other hardware or software. So in order for apple stock to maintain its performance it needs to match the growth in iPod sales from the last three years over the next three. The big assumption here is that the iPod market is approaching saturation (a big assumption given the latest earnings).

Am I glad I owned apple over the last few years - yep, do I imagine it will manage the same performance over the next few, nope (which is what matters if you are looking to buy at the moment).

The article makes a perfectly valid point that expecting the iPhone to drive apple's earning as the iPod has done is risky.

IJ Reilly
Jan 17, 2007, 04:57 PM
The article makes a perfectly valid point that expecting the iPhone to drive apple's earning as the iPod has done is risky.

The author assumes that iPhone revenues are intended to "replace" iPod revenues. This is the word he uses. Not add onto, but replace. But this a complete logical fabrication, made up out of whole cloth for purposes of advancing his argument. This is only one of the reasons why he hasn't got a leg to stand on. One can accept that he has made a valid argument only if they are prepared to accept his invented concepts.

j_maddison
Jan 17, 2007, 05:05 PM
This is the email that I sent the author:

[I]

Wow, what a stunningly deceptive article......
.

I was going to write a post about how this guys areguments were both anal and myopic, and then go on to talk about how Apple are employing an emergent strategy and how his arguments are nescient.... But it looks like you've written an excellent and detailed post there, and pretty much saved everyone else the job of doing so :0)

The only thing I'd like to add into the mix is another example of a company making revenue from an activity that wasnt core to their business. Intel used to manufacture RAM, I believe they no longer do so. By using this guys arguments, Intel are obviously a failure because they now manufacture microchips and don't manufacture RAM anymore. I mean how dare they?? Don't they realise that when you start a company you should always remain a one trick pony until you go out of business!!!

Honestly that has to be the worst piece of journalism I've read........ well ......... this month at least :D

Seriously though, using those arguments he'd be lucky to get a 2:2 (C) grade at Uni. In fact i think he would probably have had a third (D), terrible journalism in my opinion.

Jason

czeluff
Jan 17, 2007, 05:07 PM
His whole claim about Apple not making any money w/o iPods:

MICROSOFT WOULDNT HAVE ANY MONEY WITHOUT WINDOWS YOU IDIOT!

cz

amphi
Jan 17, 2007, 05:18 PM
The author assumes that iPhone revenues are intended to "replace" iPod revenues. This is the word he uses. Not add onto, but replace.

Of course he does because he is assuming that iPod revenues are not going to continue to grow at their past/current pace. It is all about rate of growth - and maintaining that. Microsoft rakes in a fortune every week, but it is unlike apple no longer priced as a growth company.

So for apple stock to maintain it's appreciation either;

The iPod market is nowhere near saturated.

or

Some other product is going to pick up the slack (iPhone, appleTV, shrink wrap OSX to compete with windows, whatever).

But this a complete logical fabrication, made up out of whole cloth for purposes of advancing his argument. This is only one of the reasons why he hasn't got a leg to stand on. One can accept that he has made a valid argument only if they are prepared to accept his invented concepts.

:confused:

I suspect the argument has gone over your head.

IJ Reilly
Jan 17, 2007, 05:36 PM
Of course he does because he is assuming that iPod revenues are not going to continue to grow at their past/current pace. It is all about rate of growth - and maintaining that. Microsoft rakes in a fortune every week, but it is unlike apple no longer priced as a growth company.

No, he clearly says "replace," which in English means "replace."

Despite the protests of many, the iPhone has been hyped for at least the last 12 months as the next growth engine for Apple, intending to replace the iPod's significant contribution.

I understand he is talking about growth rate, but it is purely his assumption that iPod sales will become stagnant. Clearly, this is an argument made against all the evidence. Further, we have to take it on faith that the iPhone has been "hyped" to have this effect on the stock price for the last full year. This is a pretty big leap of logic, considering that the product was only shown for the first time last week.

You have to be on the alert for logical fallacies like this, or you will miss them.

j_maddison
Jan 17, 2007, 05:37 PM
I suspect the argument has gone over your head.

i don't think the argument has gone over his head, I think that the point is tha the article ignores the fact that Apple is a company that is transitional and has been for some time. They are leveraging their core competencies and entering new markets. Sure the iPod growth cannot continue indefinately, but I think that Apple has demonstrated an understanding of this by investing in new and diverse products. i think the iPhone was a logical progression that had to happend, I do think that it will only be the start of things to come. I dont think that everything Apple will bring out will be a success though, I still fail to see what the merrits of Apple TV are outside of the US, and with IPTV (multicast enabled, not unicast) around the corner I dont see its long term appeal.

Jason

Rocketman
Jan 17, 2007, 06:03 PM
As I posted in another thread, the iPhone (ATN=Apple Tablet nano) is a PLATFORM on which iPhone is one of several APPLICATIONS, others of which are Safari, SMS, etc.

The headline of this article is false on its face.

Rocketman

macidiot
Jan 17, 2007, 11:31 PM
Following Apple's earnings announcement, I emailed the following to Mr. Kass:

Oh look, Apple just reported earnings!

Let's have a look shall we? 1.14/share on 7.1 billion. Macintosh sales up 28% YOY. iPod sales magically up 50% YOY.

Let's look deeper, shall we? Macintosh sales in the Americas up 32%. The overall PC market was up just 3%. Globally, Macintosh growth was THREE TIMES the overall growth rate.

Sure sounds stagnant to me.

And it sure sounds like that iPod market is just withering away. Then again, we really shouldn't count that revenue, should we. Because Apple valuation would be absurdly high without those iPod sales.

Oh, and let's look at valuation, shall we? Based on Q1 numbers and Q2 guidance, FY 2007 earnings of $4/share seem easily reachable. At a stock price of 100, that would give Apple a forward p/e of 25. Looking further out, $5/share seems like a modest goal for 2008, which would lower p/e to 20. Hmm, all of a sudden Apple's current stock price doesn't seem to crazy to me... then again I'm a buy and hold type guy, not a rumormongerer.

Oh and those numbers assume ZERO contribution from the iPhone or AppleTV. I'd hate to rain on your parade further by including those numbers...

My advice? Stick to shorting Dell or GM. They actually have tangible problems. Not a series of what if, chicken little type hypothesis.

Flowbee
Jan 18, 2007, 12:03 AM
His next column will be about all of the hate mail he's received from kool-aid-drunk Apple Zealots. :p

IJ Reilly
Jan 18, 2007, 12:20 AM
His next column will be about all of the hate mail he's received from kool-aid-drunk Apple Zealots. :p

Naturally. Two columns for the price of one!

pth-webdev
Jan 18, 2007, 04:56 AM
I thought it would be an article about the iPhone. Somehow this author seems unhappy with Apple's choice to make products they think are worth producing. Off course it is easier for this man to compare companies that do exactly the same thing. A five year old can do that. But now, because there is so much buzz that he can not affort not to write about the iPhone, he comes up with some odd arguments based on a fantasy situation as if Apple were doing exactly the same thing as other companies.

But he still fails because Apple already spans two markets (computers and audio/video content) and is adding a third (mobile telephony).

Does he understand that for Apple to be successfull, they do not need to be the #1 player? They just need to build products that enough people want.

I wonder. Would this man ever have used a Macintosh? Or an iPod? Or is he so far from this world that he only looks at numbers? Reminds me of an scene from the Matrix:
<scene>
NEO
Do you always look at it encoded?

CYPHER
Have to. The image translators sort of work for the construct programs but there's way too much information to decode the Matrix.
You get used to it, though. Your brain does the translating. I don't even see the code. All I see is blonde, brunette, and redhead. You want a drink?
</scene>

What has this author been drinking?

SeanMcg
Jan 18, 2007, 11:07 AM
There is still a lot of room left in the portable digital media player market, which, by the way, Apple essentially created. The personal computer market, however, is more saturated, which make Apple's growth there even more impressive.