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Inside Scoop on the Apple IPhone and Other Patents!

The IPhone is coming, the IPhone is coming, the IPhone is coming!  …On Monday???

  ipod phone 

Well, according to Gizmodo who, I am certain, are just looking for publicity.  This is starting to remind me of when Dean Kamen told us that "IT" would revolutionize transportation, reshape cities, resolve the energy crisis etc. and everyone speculated on everything "IT" could possibly be, from properly recounting the Florida ballots to cold fusion but, in the end, it turned out to be a scooter that very rich people can play polo on!

While I don’t think the IPhone will turn out to be a Segway-sized disappointment, I’m very concerned that I won’t be able to play polo on it and, with expectations running as high as they are it had better at least cure cancer!

One cool thing that is in the works from Apple is a patent they filed earlier in the year to embed "microscopic image sensors" in an LCD screen, effecively turning your monitor or, more importantly, your phone’s screen, into a camera – allowing for true face-to-face communications!

Apple Notebook with Dock

And have you ever wondered why Apple insists on keeping that huge amount of space at the bottom half of their laptops?  Well here’s the embedded docking station they filed a patent on!

Now if that were a cell-capable IPod you could get web access anywhere in the world….  Interesting! 

According to Kevin Rose, of Digg, the IPhone will have the following features:

  • January launch on "all" providers, both CDMA and GSM
  • Extremely small form factor
  • Two battery design (with single charger) — one for playing music, the other for phone functions
  • Flash memory: 4GB for $249, 8GB for $449
  • "Slide-out keyboard"
  • Possibly touchscreen

Apparently the Apple guys are not up on the KISS rule of product design but we’ll see how this all meshes together.  Surely the fear of Apple has been holding down Motorola, who have already shifted their marketing focus to the lower end, ceding the high ground to a product that doesn’t exist yet from their former (or maybe still) partner.

So do we buy into this hype?  Hell yes!  If Steve Jobs came out with a blender 5M people would pre-order on Amazon so when Apple tells you (or doesn’t tell you but you hear anyway) that they are going to sell over 20M $250 phones in year one, you’d better add it to the bottom line at their standard 9% net (+$450M).

Analysts were already expecting them to increase EPS by 20% pre-IPhone but this could add another 20% to that figure.  Then there’s the Tablet (I want a good tablet way more than a phone!) and the Apple Universal Remote (as long as it beeps when it’s lost - I’m a fan!) to go with the Apple ITV Media Center

As a not at all unrelated side note.  The Kleer Corporation has been quietly marketing an "Ultra Low Power Consumption sub-sampling radio architecture delivers excellent radio performance at a fraction of the power consumption of other radio architectures.  The enables OEMs to integrate wireless technology into portable audio players without suffering a large penalty in battery life.  And OEMs can introduce new small form factor products knowing that small batteries will still give them acceptable battery life."

How is this related?  Well you can just drop them a line at 19925 Stevens Creek Blvd in Cuperino, just a quick Segway ride away from Apple’s HQ! 

Visit our member’s site for our 2007 Apple computer plays!


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  1. thrunner

    Phil, you are certainly no stick in the mud if you read something like Gizmodo :) There is certainly an impressive breath of coverage of sites on your blog.
    Apple Dec 15 options expiration (OE) went down to nearly 87.50 yesterday. I noticed that this is right in between the two nearest strike prices of 85 and 90. Apparently the pegging or pinning action of OE could not bring it to either SP so it settled right in between.
    Is this a normal behavior? Thanks for the education and the new site.

  2. Murthy Tadepalli

    That was a cool post….very nice
    -- ramana

  3. size123

    Very interesting and informative. As always, thanks Phil.

  4. Phil

    Sure, the goal of the Max Pain theory (which I need to post a FAQ about how silly it really is (and isn’t)) is to have as many options as possible expire worthless – check out the puts and calls that expired on each side of that strike.

    Also (and this is the big flaw in max pain calculations) look at the total dollars out of the money on each side, not just the sheer volume of contracts.

    =======================================

    TYVM! 8-)

  5. arnie

    phil
    not sure if you explained before but would like to understand better the “income producer” strategy. I suppose buying call and selling calls against it. Am w/ etrade suspect I have to upgrade to do that. Just need to understand this better before I jump in. Possibly another FAQ input. I think you did this on CAT and COF
    Also I sold my GE jun 35 at 3.4 yesterday-not sure if this was bright or not but stock is very high and hate for it to come down -is this like BA where we should buy again at low peak? I always look at analyst 12 month trgt price & credit suisse puts them at 39 -so it seems to me current price pretty close to that ceiling
    Thks again

  6. Phil

    I’m separating the sheet to have a section for long positions which are mainly income producers. I still need to refine the format but I’ll be doing a ton of these set-ups into the new year (the insurance stocks are still playable and are for this purpose).

    I’ll go step by step anytime you want so just pick a cheap one to try out.

    =====================================

    You’re right about GE but I would have kept half (I actually kept all). My attitude is that if I’m such a genius that I called the perfect top, then I can afford to set a 20% (of profit) stop on the rest and I can still proudly tell people I made 90% of the Max.

    On the other hand, if it runs up another 100% on me, I still made 50% more than my “genius” top call would have let me.

  7. pitch78

    Apple delays filing annual report
    Friday December 15, 6:13 pm ET

    Apple Computer Inc. will delay filing its annual report, claiming more time is needed to restate its past financial statements for earlier stock-option grants.

  8. prof

    HOUSING

    Peter Schiff of Euro Pacific Capital just got literally laughed off the Fox program “Bulls and Bears” for predicting a housing disaster in 2007.

    There are not too many housing bears left … let’s hope interest rates stay low to save the housing market!

    //////////////////////////////////////////////////////////////////////////////////

    COINFLATION

    What happens in a few years (max, assuming dollar is not devalued) when higher prices make the penny an nickel worthless, and prices are rounded up to the nearest $.0.10?

    When the feds ask us to turn in our pennies and nickels, do we have to accept face value? Wouldn’t there be a lot of black market melting going on in this scenario? After all, people are stealing copper pipes from construction sites …

    What happened with silver coins? They went out of circulation before I was born …

    ///////////////////////////////////////////////////////////////////////////////////

    SIMPLE, SUPPLY AND DEMAND

    No matter the economic situation or company fundamentals, ultimately it’s Econ 101 for determining the price of any item, including stocks.

    The world being flooded with dollars increases demand as those dollars have to purchase something.

    Supply of stocks continues to decline with companies repurchasing shares (29 of 30 Dow stocks) and $3 TRILLION of private equity dollars ready to pounce on buyouts.

    Barring an unforeseen dollar or derivative blowup, it looks like this market will continue going up for the time being. Is 2006 = 1986? Will we see another crash in 2007? Stay tuned …

    - Prof

    - Prof

  9. prof

    test

    another long post was not posted … :(

  10. Kwan

    Newbie here, just saying hello. Phil reads Gizmodo, interesting… :) Anyhow, I’m anxious to learn and can’t wait to see what sort of fun stuff we will get into.

    Also, I’m trying to subscribe to the comments feed using a desktop aggregator, but *none* of them are letting me do it. Even after I provide them (I’ve tried several) with my username and password. Is anyone else having similar problems? I don’t see how else I’m going to be able to keep up with discussions in the comments.

  11. prof

    HOUSING

    Peter Schiff of Euro Pacific Capital was just literally laughed off the Fox program “Bulls and Bears” for predicting a housing disaster in 2007.

    Not too many housing bears left … interest rates better stay low!

    //////////////////////////////////////////////////////////////////////////////////

    COINFLATION

    What happens in a few years (max, less if dollar is devalued) when prices get to the point where pennies and nickels are basically useless? Will the feds mandate rounding to the nearest $0.10 and then recall pennies and nickels from circulation?

    If so, will we be forced to turn in our pennies and nickels for face value? What happened when silver was taken out of coins? That was four years before I was born …

    ////////////////////////////////////////////////////////////////////////////////////

    SIMPLE, SUPPLY AND DEMAND

    It is not company fundamentals or the economy that ultimately determines stock prices. We need to be mindful that just like any item, Econ 101 explains prices.

    The world is awash in dollars, and those dollars have to buy something, so demand for stocks is increasing.

    Companies are repurchasing their shares (29 of 30 Dow stocks) and there is $3 TRILLION of private equity money ready to pounce on buyouts. Therefore supply of shares is decreasing.

    With demand increasing and supply decreasing, this seems to be the reason the stock market continues to push up to new highs. Barring an unforeseen financial calamity*, this trend looks to continue. Is 2006 reminding anyone else of 1986?

    *Not a reputable source, but tantalizing story:
    http://www.halturnershow.com/ChinaToDumpUSDollars.html

    - Prof

  12. prof

    sorry for the duplicate posts – this comments section is goofy

  13. Jared Woodard

    Prof:

    It helps a lot if you login to wordpress (same as your membership login&pass), that way the system knows who you are and says, “Oh it’s prof, well of course he’s okay!” I’m working on integrating this so it happens automatically when you come to the site, but until I figure that out, you effectively have to login twice. (Once for the site, once for wordpress)

  14. size123

    Jared, the integration seems to be working fine for my posts.

  15. prof

    Jared – thanks for the advice.

    As far as I know, I am logged in twice, but I’ll keep that in mind.

    Plus will be more patient with my posts …

    - Prof

  16. Jon

    Prof,
    Maybe you can comment – What percentage of the total number of homes are built by the major HB’s?

    Looking at the projects built by the large HB’s, publicly-traded at least, they are highly concentrated in the markets that were very overheated; SoCal, Phoenix, Florida, etc.
    In the rest of the country, where prices didn’t go so crazy, the majors may have some activity, but it seems many (most?) houses are built by local/regional HB’s that are not public companies.

    For example, in the northwest where I am, it seems building is still strong, even through this fall/winter with the lousy weather. But only two of the major HB’s, CTX and DHI, have any projects here, and they are few and small. And, we haven’t seen any price contraction here, but price growth has moderated.

    Wouldn’t this regional bias tend to make the major HB’s more vulnerable to the boom and bust markets, while the rest of the country and the market as a whole are not as bad as the headlines say?

    One would also have the factor in the rust belt but their problems are not caused by a housing bubble but the automakers and other economic problems.

    -jon

  17. Murthy Tadepalli

    Hi Phil,
    What about battery makers…esp for mobile products…
    I am just curious any ones you are tracking…
    thanks

    - ramana

  18. Phil

    All posts will be rescued by Jared and I until we fix the spammer (or get rid of it, it doesn’t want to go).

  19. arnie

    phil
    Step by step… start w/ cheap one… income producer
    Not sure what cheap one means but I’ ready and here is the list of my 08 09 calls
    I have 35 SIRI Jan-09 $5 Call, 2 CAT Jan-09 $60 Call, 16 MOT Jan-08 $22.5 Call , 2 CC Jan-08 $22.5 Call
    Also a bunch of others from April to end of year but am guessing we need 08 09 calls??

  20. Phil

    Housing seems to be hurting all over – even in NY/NJ which is “supposedly” immune but I’m in that industry and people are crying.

    There’s a certain inertia that builders have coming off 2 really good years. Using HOV as an example: You can have a great 2003 (+250M), over build in 2004 (+350M), totally overbuild in 2005 (+470M), ride out a “correction” in 2006 (+250M) but you wont’ realize how screwed you are unitl 2007 (proj +140M) and you miss because it’s slower than you thought and costs (up from $2.8B in ’03 to $4.5B in ’05, trending over $5B in ’06 on + 10% sales) don’t come down as fast as you think.

    The company is expected to drop 24% in sales next year (assuming a very soft landing) and the question is can they drop costs 24% fast enough to stop it from decimating what look to be relatively thin profits in the first place.

    We’re not even taking into account that they very obviously paid top dollar for land and materials for 2 years during the run up. On the other hand, this doesn’t seem to bother oil companies who paid top dollar to drillers and tankers and refiners (but they’ve been able to fool the public into continuing to pay top dollar no matter what the demand) builders don’t seem to have as many friends at CNBC…

    ===================================

    Batteries – they are like semis, they live and die by single major clients. Perhaps we can short the guy who makes batteries for the Zune.

    Battery makers are too random

  21. size123

    Here in Florida, in the last month I am starting to see advertising for deep discounts (75K on 350K homes) from the HB’s. I hope you are going to address how we can play this one Phil.

  22. arnie

    Phil
    Reviewing positions and getting concerned about BA friends BEAV
    Bought BEAV Jul-07 $30 Call at 2 now 1.85 -Credit Suisse target 12 mth is 30… pretty high up there isn’t it and would you advise patience…

  23. Phil

    LOL – ask prof – much like oil, the obvious fundamental play has no bearing on a market where the builders manipulate both the stock through buybacks and the news through press releases despite all evidence to the contrary.

    When you hear a housing start report – no one actually goes out and counts houses – they call the press agents of the major builders who give them a figure! The same goes for home inventories – it is whatever the NAR says it is at any given time, there’s no way to check.

  24. Phil

    BEAV – oh no! I sold the April $25s for $3.50 against the July $25s I bought for $3.90 to reduce my basis to .40 on that first run up as that was plenty for me. I have enough faith to feel it will hold $25(ish) into July and I expect to pick up the $2.50 premium against my .40 as we get closer.

    If they don’t bounce off $25 – this is going to be one hurting stock for a while! I also sold the BA Jan $90s against my BA leaps – so far I’m regretting it but the premise is the same – Boeing simply can’t take any more orders without spending money to expand (and no one likes that) while the Boeing Buddies have gotten all the good news and (assuming they service BA and Airbus) the shift in orders to BA is net neutral to them.

    TIE and ATI should hold up the best but ATI is looking very tempting as a Cramer pump short at the moment!

  25. Martin Snider

    Two thoughts:

    Do any of the max pain calulations account for the (approximate) price of the contract when opened. This can be done by applying a range to an increase in open interest which is graphable in Tradestation (and probably others). I always thought that would greatly effect whether the highest interest contract had to finish at zero or if the average contract writer is still profitable at $4 (see any GOOG option).

    Thought two: I will qualify this by repeating that I am an AAPL plunger and most certain AAPL bull here (6% off all-time high). But, if AAPL has solved and patented the parallax error of video instant messaging…

    “One cool thing that is in the works from Apple is a patent they filed earlier in the year to embed “microscopic image sensors” in an LCD screen, effecively turning your monitor or, more importantly, your phone’s screen, into a camera – allowing for true face-to-face communications!”

    …then this stock is going to the moon.

    They seem like the logical ones to get it. They understand how game-changing that patent would be. They understand video instant messaging is the telephone for this century. I always thought that it would be a stereostopic fix with one camera on each side of the screen that would then give a 3D image by processing the two images together and would fake an eyeball looking straight, but if they have a million tiny cameras stitched into the pixels of the screen, then OMG, they will be undervalued at $200. Anyone who doesn’t own a webcam or a macbook (still only laptop with camera, I believe) may not understand. When you open iChat and video-message with someone and IT JUST WORKS, it has a giggle factor that is undeniable.

    Yes, they said the same thing about the Segway, and if that was selling for $249 and played music, you bet your ass that every teenager would want one.

    I can’t really allow myself to believe this is going to be announced before I close my (recently purchased) Jan 90,95,and 100 calls with a large profit (cuz they are going to move), but if they do, I will be out house shopping that afternoon.

  26. Martin Snider

    A man can dream can’t he? Now that I have given up on the oil puts as a buy-and-hold-for-a-month play, maybe we have some really pressure on demand.

    http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061216:MTFH37363_2006-12-16_08-25-03_PEK66384&type=comktNews&rpc=44

    Also, is there a better way to paste links. They are so unwieldy.

  27. Filmflam

    And for those keeping track at home. I just realized my name was up and not my handle. My ADD slows down enough on the weekend for me to catch these things.

    Martin Snider, signing out, Filmflam aka AppleFlamCake, signing in.

  28. Phil

    Max Pain – that would be job one when I get in charge of a fund, Max Pain would be useful if you ran a formula that accounted for WHEN the options were purchased and for what price.

    It tells me nothing to see 60,000 open Apple Dec $90 calls afor .05 if I have no idea how much was paid for them. The owners could be gambling with nickels from yesterday for fun or out $5 from 1/1 – without knowing that, the data is useless.

    ===============================

    To the moon – yes, I thought I implied that! ;-)

    Think about the series of events, the patent, the intel deal the windows deal, the phone deal, the Apple flat screen TVs (oops – shhh)… If they can hold that patent, once you look directly at someone on your phone or your TV or on your laptop and have a conversation as easy (easier actually) than this – it’s a game changer!

    Plus the industrial applications of an overtasked sensor array are stunning – we were talking about coin sorting but I’ll bet this thing can identify pretty much any known object almost instantly (if you can produce a picture in an instant you can decode one just as fast ) probably homeland security applications, I’d love to get my hands on it to study POP behavior at retail outlets, would probably make a heck of a color copier… Well, lots of stuff!

    If they announce the phone on Monday, aside from being weird beyond belief it would mean that they have something so good at MacWorld that you’ll be forgetting the phone (as it takes messages and records your favorite TV shows in your pocket)!

    I don’t know if I will buy them at $90, maybe a spread but I really want them at $85!

    And believe me folks – I kick myself to sleep every night over this 7/03 call: ” AAPL is still out of control with the options pricing but the Aug $55s for $4.80 are tolerable but only if the Nasdaq is heading up”

    I bid on it on the$52.50s for the same price on the 14th but it missed my mark by a nickel and I said I’d catch it on the next dip…. Still waiting!

  29. prof

    HOUSING

    Jon,

    The public homebuilders have long maintained that collectively they share less than 20% of the new home market and that the industry is ripe for consolidation.

    Personally, I don’t buy that story, but unfortunately I don’t have the numbers at my fingertips to disprove it. I will look into it.

    Certainly, the large HB’s have concentrated on areas where they could grab huge spaces of land and utilize their scale economies do drive higher margins. The end result, here in Southern California at least, has been ugly — 700-800k homes on tiny, tiny lots!

    As Phil alluded to, recent land purchases will prove to have been highly overpaid for.

    There is massive denial in the financial community that there are any structural problems (excuse the pun) in the homebuilding industry. Mr. Schiff this morning compared his hecklers to those calling the Nasdaq a “screaming buy at 4,000.”

    To me, it seems as if there has been a concerted effort by those in control of the data and reports to keep a lid on how bad the situation is getting.

    Housing optimists point to extremely low unemployment and interest rates as continued support for home sales. But as we all know, these things go in cycles! Unless, of course, it is truly different this time!

    //////////////////////////////////////////////////////////////////////////

    MAX PAIN

    Here is an online Max Pain calculator, but I don’t think it accounts for options prices:

    http://www.iqauto.com/cgi-bin/pain.pl

    If someone has a better one, please share.

    - Prof

  30. Mike_C

    Stockcharts.com finally up. Goshh…

  31. digger

    Phil, is there any saving grace for BSX?

    The FDA ruling was less than the street wanted to here. The vultures, (lawyers ) are gathering for a free meal, and now they are recalling 51 guide catheters with who knows what ramifications.

  32. rockaintdeadyet

    I put together a quick little study to test the validity of the noon oil pump theory. I havent triple checked it, and I just picked a random span of time, but it’s an interesting look. These are the returns (in cumulative dollars and cents, not percent) for the 30 minute periods throughout the day.
    So, for example, if you’d bought the OIH at the close and sold it at the open every day since June 30 (when I started the study), you would be up 5.14 gross.

    OIH USO
    Overnight: 5.14 1.36
    9.30-10 : -7.08 -0.49
    10-10.30 : -0.13 -3.95
    10.30-11 : -3.09 -10.19
    11-11.30 : 5.24 -3.85
    11.30-12 : 2.98 1.80
    12-12.30 : 11.34 2.05
    12.30-1 : 4.47 4.60
    1-1.30 : -16.48 0.29
    1.30-2 : -5.50 -4.09
    2-2.30 : -5.08 -3.81
    2.30-3 : 9.92 -0.28
    3-3.30 : -0.71 -0.73
    3.30-4 : -0.14 1.90

    Total 0.88 -15.41

    Not sure what can be made of it, but they sure do like to buy during that 12 to 1 period, and the OIH has been weak after the pump ends at 1. It doesn’t look like the pump into the close has been around since June (maybe a more recent phenomenon). The OIH, on the other hand, does seem to run up at 2:30.
    I’ll check it again and probably play around with it some more.

  33. rockaintdeadyet

    That didn’t format very well, did it. My apologies. In case there is any confusion, the first column lists the time period, the second [pseudo] column is the OIH (5.14, -7.08, -0.13, etc.), and the numbers to the right are from the USO (the ETF which tracks crude oil).

  34. rockaintdeadyet

    Also, in the comments on Friday Reinharden pointed out that there were some huge blocks trading hands on the open, in GE, MSFT, etc.

    This has a list of the components of the Dow and S&P 500. As I went down through the list, pulling up the intraday charts on eSignal, that same huge volume bar at 9:30 appears in pretty much every single one of them (well, I only checked the first forty or so of the SP500). Interesting.

  35. Celctic Trader

    test

  36. Celtic Trader

    Phil – do you monitor the admin mail address – if not is there any way to have an offline discussion with you about ideas for the site?

  37. Phil

    BSX – I was just agonizing over them. I don’t see how you can love JNJ and hate BSX, obviously BSX is way more a pure play but if those revenues are going to be off there is no way JNJ can hold $65.

    As you will see, BSX is in now in our Long-Term folder and the Jan ’08 $17.50s, taken for $2.50 on 11/21 in anticipation of no FDA rejection (there isn’t even a black box warning) are down to $2.20, possibly held back due to expiration as how many people took calls ahead of the decision.

    For the current month there were 27,000 $15 calls (the 4 year low) that expired at $1.60 but there were 89,000 $17.50s that got killed on the two-week .80 pullback along with 52,000 $20s, 12,000 $22.50s, 62,000 $25s and another 50,000 higher calls.

    All this comes against about $70,000 puts of $17.50 or less.

    So, if we’re wrong – at least we’re not alone and at least there are 300,000 other contracts feeling our pain (Max that is!). We could sell the $17.50s for .20 (a $1.30 premium – ridiculous) but I’m not worried enough yet. At .50 or better I would be tempted though as it reduces my basis to just $2, where I’ll be a lot more comfortable.

    ================================

    OIH – I’m surprised it’s not more of a move around 1:45 to 2:30 (the usual closing pump)

    ================================

    Hopefully Jared can give us all a way to access the spreadsheets so we can drop that kind of stuff in a public area!

    ================================

    Dow nonsense is just program buying, very important thing to look for if you’re day trading as the end of the program almost always leaves a sectror at an unsustainable level (over the short run).

    ================================

    Jared forwards stuff to me, I’ve been in and out today but will have time in the morning (assuming you’re up earle EST).

  38. Mark Connolly

    Hi Phil n all, just became “official”, so far so good…..depending on if post works that is! Max Pain incurred here on MOT ORCL calls and RYL KO puts….not large amts but enough to knock my confidence down a notch or two. My concern is Jan doesnt look much better, MRVL 20 C, AAPL 95 C, GS 210 C, XOM 70 P, CTX 50 P, and DELL 25 P (got shut out last day b4 earnings by trying for that extra nickel like a DA) all bleeding profusely due to lack of stop mgt.

    The C’s look like they might recover, but the P’s look dismal imo. Any thoughts?

  39. karmcon

    btw if you dont want your proper name to post go to “Profile” and pull the sn you desire from the option on the upper left.

  40. karmcon

    karmcon = bullnotbear that bull…. was just tooooo long

  41. Celtic Trader

    Thanks Phil – feel free to mail and I will follow up with some ideas that might well be of interest.

  42. Phil

    Jan not much better – I think may be paring back a lot into new year’s, there’s little that can convince me I’m likely to miss a huge jump the first week of Jan when I can just have cash ready and see what happens on a short first week.

    We have to literally “go with the flow” until then but I think people just made to darn much money this year and it simply isn’t tax efficient to dump stocks with nothing to write them off against (as the prior two years weren’t so bad either).

    It is reasonable to assume that most profit taking happened in the 1,000 point 5/1 to 7/10 drop, which was convieniently started just days after the 12 month window from the big drop of ’05 that ended on Apri 11th where you could make a think case came a bit more than a year after the 2004′s first majjor correction which came at the end of a 12 month rally that started on 3/10 of 2003.

    Now I’m not one to go looking for patterns but that one’s a doozy! Check it out against a 5 year chart….

    It is possible that the dividend rules have locked us into a very strong cycle that could care less about the actual performance of the market since it gives people all sorts of ways to make money at just 15% (as long as everyone is down with the program).

    So I’m nervous about Jan but, once we get past that, it may be smoothe sailing into a whopper of a crash in late summer.

    =================================

    Done Celt!

    ================================

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