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  1. Phil

    CNBC holding a gleeful funeral for AAPL.  

    AAPL's Conference Call.

    Funny how these word clouds can sometimes sum things right up:  "Company Introduced New Products" – that pretty much sums up the Q and explains the thin margins with $1Bn spent on R&D, which is $700M more than usual, which is 5% of the profits and accounts for the shortfall in gross margin.  

    Also ignored by analysts is the 13 week quarter vs 14 weeks last year (7%) as a huge handicap.  Guidance did not make up for things though but they are still well on track to make $45Bn+ this year – and that's a p/e of 10.  AAPL sells $4Bn worth of stuff a week and makes $1Bn and a week was missing from this Q – keep that in mind…

    They also bought back $4.5Bn in stock (1%), probably the best thing they could have done with their cash at these prices. Plans on giving back $15Bn a year to shareholders, which indicated dividend will be closing in on 3%. 

    Other highlights from the CC:

    500M iOS devices sold – 10 per second in the last Q (80M) so overall iOS sales are accelerating.  

    Cook reminds people quarter was short a week – no mention on CNBC, that's for sure

    Average weekly revenue was $4.2Bn vs $3.3Bn last year – up 27%

    This also explains drop in operating margins: "For segment reporting purposes we’re allocating certain manufacturing cost and variances including cost related to product tooling and manufacturing process equipment to our operating segments instead of including these expenditures in corporate expenses as we have done in the past."

    "We were very pleased to sell 47.8 million iPhones compared to 37 million in the year ago quarter, an increase of over 10 million iPhones."

    "This represents a rate of almost 3.7 million iPhones per week in the current year quarter compared to 2.6 million per week in the year ago quarter."

    "That’s an average increase of 39% per week consistent with IDC’s latest published forecast for the global smartphone market in the December quarter." – In other words, no loss of market share globally. 

    "And on a sequential basis iPhone sales grew 78% over the September quarter’s results. That’s over 3.5 times IDC’s latest published projection for sequential growth of the overall market resulting in iPhone market share growth."

    "Turning to iPad, we were thrilled to sell 22.9 million iPads during the quarter compared to 15.4 million in the year ago quarter. That translates to over 1.7 million iPads per week in the current year quarter compared to 1.1 million per week in the year ago quarter, an average increase of 60% per week, ahead of IDC’s latest published estimate of 56% growth for the tablet market."

    "As we projected a quarter ago, we were significantly constrained with respect to the new iMacs and were only able to ship them for the final month of the December quarter. We believe our Mac sales would have been much higher absent those constraints. "

    "Moving to iPod, we sold 12.7 million iPods compared to 15.4 million in the year ago quarter."

    "iTunes generated record results with revenue of $2.1 billion in the quarter."

    "The App Store had a record-breaking December quarter with over 2 billion downloads in the month of December alone. The App Store now offers more than 775,000 apps to over 0.5 billion account holders in 155 countries"

    "we’re delighted to have paid our app developers over $7 billion for sales"

    "Apple retail stores, revenue was in all-time high of over 6.4 billion with growth yield primarily by record iPhone and iPad sales. We opened in total 11 new stores during the quarter including four new stores in Greater China. We excited the quarter with 401 stores, a 150 of which are outside United States. We also relocated or expanded 14 stores that had outgrown their former space during the quarter. With an average of 396 stores opened, average revenue per store was 16.3 million or 1.25 million per store per week compared to 1.22 million per store per week in the year ago quarter. Retail segment income was 1.6 billion."

    "Operating expenses were $3.9 billion included $460 million in stock based compensation expense. (Inaudible) was $462 million and the tax rate for the quarter was 26%. Turning to cash, our cash plus short term and long term marketable securities totaled a $137.1 billion at the end of the December quarter compared to a $121 billion at the end of the September quarter, a sequential increase of almost $16 billion."

    "The increase in cash was net of 2.5 billion in dividends paid and 2 billion in an upfront payment in conjunction with our accelerated share repurchase program. Over 94 billion of our total cash was offshore at the end of the December quarter. Cash flow from operations was a record 23.4 billion growing by almost 6 billion year-over-year of 33% increase. Our Board of Directors has declared a dividend of $2.55 for common share payable on February 14th, 2013 the shareholders at record as of the close of business on February 11th, 2013."

    "For the March quarter we’re providing revenue guidance of between $41 billion and $43 billion compared to $39.2 billion in the year ago quarter. We expect gross margin to be between 37.5% and 38.5% reflecting approximately $90 million related to stock based compensation expense. We expect OpEx to be between $3.8 billion and $3.9 billion including about $480 million related to stock based compensation."

    "I know there has been lots of rumors about order cuts and so forth and so let me just take a moment to make a comment on these, I don’t want to comment on any particular rumor because I would spend my life doing that but I would suggest it's good to question the accuracy of any kind of rumor about build plans and also stress that even if a particular data point were factual it would be impossible to accurately interpret the data point as to what it meant for our overall business because the supply chain is very complex and we obviously have multiple sources for things, yields might vary, supply performance can vary. The beginning inventory positions can vary, I mean there is just an inordinate long list of things that would make any single data point not a great proxy for what’s going on."

    "If you look at the previous year, our Mac sales were about 5.2 million (units). This year, they were 4.1 million and so the difference is 1.1 million. And so let me try to bridge that. iMacs were down by 700,000 units year-over-year. As you remember, we announced the new iMacs late in October and when we announced those, we announced that they would ship, the first one, the 21.5-inch would ship in November and we did ship it at the end of November, we announced that the 27-inch would ship in December and we did ship that in mid-December. And so there were limited weeks of ramping on these products during the quarter, we left the quarter with significant constraints on the iMac. And we believe we know that our sales would have been materially higher if those constraints would not have exist. We tried to tell people this on the conference call in October, I think I said that we would have significant constraints on iMacs, but I recognized to some folks this maybe to surprise.

    Number two, if you look at last year, as Peter went through in his opening comments we had 14 weeks in the quarter. We have 13 weeks in the quarter this year. Last year, in the average week, we sold 370,000 Macs. The third part of the bridge here would be that our channel inventory was down from the beginning of the quarter by over 100,000 units. And that’s because obviously we didn’t have the iMacs channel inventory was in significant constraint. So, if you just take these three factors, they bridge more than the difference of between this year sales and last year sales.

    Now, in addition to these three points, I would point out two other things, and these are lesser things than these other than the total of these other three obviously. One, the market for PCs is weak. IDC’s last estimate I believe was around negative 6%. Two, we sold 23 million iPads and we obviously could have sold more than this, because we could not build enough iPad minis to come into a demand balance. And so there was – we have always said there is some cannibalization there. I am sure there was some cannibalization of Macs there, but the three large factors of it, the aggregated totals of three large, the iMac, the difference in seven days of the previous year having seven extra days and the channel inventory, I think more than explains the difference between this year and the previous year. As a side note, if you looked at our portables alone, they were in line with IDC’s projections of market growth."

    "If you look at our total China, total Greater China, which would include our retail stores that are in China. Our revenues were $7.3 billion in the quarter. So, this is incredibly high, it’s up over 60% year-on-year. And again, that’s comparing 13 to 14 weeks and so it’s really the underlying growth, it’s higher than that. We saw exceptional growth in iPhones into the triple digits."

    "In terms of cannibalization and how we think about this, I see cannibalization as a huge opportunity for us. One, our base philosophy is to never fear cannibalization. If we do, somebody else will just cannibalize it and so we never fear it. We know that iPhone has cannibalized some iPod business. It doesn’t worry us, but it’s done that. We know that iPad will cannibalize some Macs that doesn’t worry us. On iPad in particular, we have the mother of all opportunities here, because the Windows market is much, much larger than the Mac market is. And I think it is clear that it is clear that it’s already cannibalizing some and I think there is a tremendous amount more opportunity there. And as you know, I have said for two or three, actually three years now I believe that I believe the tablet market will be larger than the PC market at some point. And I still believe that. And you can see by the growth in tablets and the pressure on PCs that those lines are beginning to converge."

    I think AAPL's biggest mistake was not calling the IPad a Flat Mac, so they could have just kept it in Mac sales and impressed everyone.  Cook also made a point that average selling prices for IPads were down $101 – as the mini is much cheaper – but unit sales more than made up for it, giving them the better overall sales numbers.  

    2,725 not breaking up on the Nas (/NQ) so far.  Not good if we hit resistance there. 

    Playing AAPL/Wombat – We won't know until it opens and we see the option pricing.  On the one hand, if it rebounds quickly, there's no need to do anything and, if it falls further – we'll be glad we waited (assuming our plan is to ride it out, which it still is).  So no need for quick action except, possibly, selling puts if the pricing is favorable. 



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ValueWalk

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By Salient Partners. Originally published at ValueWalk.

“How did you go bankrupt,” Bill asked.

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Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

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