To support a margin compression theory, the article begins by using institutional selling as proof and presents increasing Android market share as an argument. Let’s take a closer look.
1. Institutional Selling
The two examples provided (one institution selling and another expressing worry) are insufficient to support the conclusion that big money has started to dump Apple. What’s happening in the aggregate? Might other institutions have initiated positions or increased their holdings? Unless this table (http://www.nasdaq.com/asp/holdings.asp?symbol=AAPL&selected=AAPL&FormType=Institutional) is out of date (It does include Capital Growth Management’s sale.), there is no significant net change in the number of shares held by institutions.
Now, one could argue that CGM’s Heebner and FEAM’s Obuchowski are such stellar managers that their opinion warrants special attention. Well, Heebner’s CGM Focus fund is only a two-star Morningstar rated fund (http://finance.yahoo.com/q/pr?s=CGMFX+Profile). Heebner “knows how to count”, as the author writes, I suppose, but he doesn’t know how to outperform; Obuchowski’s FEAM50 (http://www.1empiream.com/FEAM50_Q3%2010.pdf) and APA125 (http://www.1empiream.com/apa.htm) funds have beaten their benchmark. However, he’s expressed concern about holding Apple two years from now. He hasn’t sold yet.
The article hence doesn’t provide either quantitative (as the number of shares held has not changed significantly) or qualitative (as no star manager is cited as selling) evidence of big money starting to dump Apple because of margin compression. For the one under performing manager cited for selling, no reason is provided. As a matter of fact, there’s no evidence for net institutional selling of Apple, period.
2. Increased Android Market Share
With a 35% profit share in 2009 (http://www.businessinsider.com/chart-of-the-day-revenue-vs-operating-pro...), the hardware industry's highest, hasn’t Apple been successful in the personal computer market? I would say so, and yet it had only captured a 7% market share. How has it accomplished this feat? By offering something different that consumers value at a premium.
The author writes: “Jobs also (understandably) failed to mention that the “commodity’ Androids materially outperform the iOS products in terms of features and functionality. This is pretty much in direct contravention to the concept of the term “commodity”, isn’t it???? I don’t think many Samsung Galaxy S, Droid X or HTC Evo owners will characterize their devices as “commodities”.”
A product’s characterization as a commodity is not a function of the quality of its features and functionality or user opinions thereof. The Android clones are commodities because there’s fundamentally little difference between them. One might have a bigger screen, another longer battery life, and yet another a thinner form factor, but they all run the same OS and hence offer the same functionality. If an innovative feature proves popular, it can quickly be duplicated. There’s little that sets one phone apart from the other. They are interchangeable. As such, they must compete on price. You might prefer the Galaxy S, but settle for a Droid if its price is sufficiently lower to sway you. Their makers will generate lower profit margins, just like Windows PC makers.
The iPhone, on the other hand, offers something different: superior aesthetics, greater ease of use, no bloatware, superior integration with related products (Mac & iPad), a certain prestige, but mainly a distinct OS. It offers the whole package. Its hardware competitors might best or equal some features, but not the whole. If you value this different product, you can only buy from Apple. By maintaining full control of the iPhone experience, Apple prevents it from becoming a commodity like all the Android clones and, so long as it’s able to produce a superior experience on the whole, ensures premium pricing and high profit margins.
The author also writes: “…its business model may prove unassailable unless Apple makes some drastic changes (ex. allowing cloning)…”
What if Apple did pursue the Google model and licensed its OS? If it allowed iOS clones, it would cannibalize its sales and its margins would be obliterated, as it would lose its main differentiator. Would it be able to keep generating a $238 profit per phone (http://www.asymco.com/2010/10/31/making-it-up-in-volume-how-to-view-unit-profitability-vs-volume-in-handsets/)? In light of the fact that Google is giving Android away, it’s highly unlikely.
Android has already won. The battle for market or unit share, that is. Apple will henceforth never sell as many phones. That’s OK because Apple will probably keep generating the lion’s share of profits (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/) by executing a business model proven successful with the Mac.
As it reaches critical mass, Google’s model might indeed become unassailable. No other company will beat Google at its game. Apple has chosen to play a different game that might also be unassailable. They’re two different ways to win. Google will attempt to monetize Android through market share dominance, while Apple will maintain its profit share dominance among hardware makers through innovation and differentiation. Apple’s margins will suffer significantly only if it’s unable to keep offering something different, valued at a premium by consumers.
In short, the article fails to show an institutional dump of Apple shares. It doesn’t even show that the one (marginally competent) institutional manager mentioned for selling did so because of expected margin compression. Moreover, it is misguided in using Android’s unit share dominance to deduce margin compression at Apple. Apple’s profit margin will only suffer significant compression if it fails in the execution of its business model.
To further the analysis, is Google’s licensing model superior to Apple’s integrated model, as many seem to believe? In the personal computer market, Microsoft made money by selling Windows to hardware makers. In the mobile phone market, Google is giving Android away, while planning to monetize market share dominance through services (search and others). The hurdles it faces with this model are not insignificant. Its lack of control over its OS is a liability: witness Verizon’s pre-installation of Bing on some Android phones (http://www.broadbandreports.com/shownews/Verizon-Bing-Wont-Be-Exclusive-On-All-Android-Phones-110294). Its platform is a customizable OS that hardware makers and wireless carriers can tailor to suit their own ends, which may be to Google’s detriment, and they don’t have to pay for it. Its success is far from assured. Might Google be going back to producing its own branded phone because its current strategy is proving difficult to monetize (http://www.engadget.com/2010/11/11/this-is-the-nexus-s/)?
Apple, on the other hand, is already monetizing the iPhone. As a matter of fact, it made as much money in Q3 2010 as all other phone makers combined (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/), in spite of commanding only 4% market share. Apple won both the unit share and profit share battle in MP3 players with the iPod, as no worthy competitor came forth. This is not the case in smart phones with the emergence of Android. Nonetheless, the Mac, with 35% of PC profit share in spite of only 7% market share, has proven that Apple’s model can thrive even in the face of strong competition.
Growing up,
I always assumed that people in a position of power or authority got there
based on merit. It never crossed my mind that someone might actually be in
charge of something VERY important like, say, the monetary system, and NOT know
what he or she was doing.
After all,
the US has created a system for verifying if you’re an expert or not, hasn’t
it? If you have an advanced degree, especially from a prestigious school, then
you should know what you’re talking about, right? And if you not only graduated
from a prestigious school but actually TAUGHT at one for decades… well then
you’ve GOT to be an expert, right?
After all, you literally have been PAID to
study and think for your entire adult life.
I only ask
all of this, because according to Fed Chairman Ben Bernanke, the Fed sees
little risk of inflation occurring in the US at this time. This is rather
staggering given that ANYONE with access to the Internet (forget the education
and degree) could gain access to charts that clearly show the US is heading
towards, if not ALREADY IN, an inflationary storm.
Below is a
chart of the US Dollar. I got this chart from a research tool called
stockcharts.com. It costs about $180 ($15 per month). However, this same image
can be culled from numerous free sources. So if budgetary restraints forbid
ear-marking $200 for “research” at the Fed, a quick visit to Bigcharts.com or
Yahoo! Finance should do the trick.
As you can
see, the US Dollar has fallen from about 88 to 76 in the last six months.
That’s a 13% decline… in six months. I
realize this might be hard for those who don’t look at charts too often so I’ve
annotated things so it’s easy to grasp.
Now, I DON’T
have a PhD in Economics from Harvard, but it seems pretty obvious to me that
when the currency in which assets are priced loses value, the prices of assets denominated in that currency will
rise… which is inflation.
Now if only
there were a tool for visualizing the price of various assets…
Surprise!
Stockcharts has this one too! The below chart is for the Jeffries Commodities
index (a basket of commodities or hard assets). As you can see, while the US
Dollar has fallen, these prices have RISEN.
Of course,
this means that when you lump together ALL commodities, their prices are
generally rising. I realize this is pretty out
there as far as economic research goes. So let’s try to make things more
concrete and “close to home.”
The below
chart shows the price of agricultural commodities over the last year.
Agricultural commodities are things like wheat, soybeans, cotton, orange juice,
and coffee. Human beings use these materials to create things like food and clothing, which they need to survive on Earth.
As you can
see, the prices of agricultural commodities are rising. Because of this, the
cost of food will… RIIIIIISE. So will
the cost of making clothing. This means humans will have to spend MORE money to
buy the SAME amount of FOOD and CLOTHING... which is innnnnflation.
We’ve
already covered a lot of ground in this research, but I’ve saved the best for
last.
You see,
there’s one commodity which is VERY important for the US economy. It’s called
oil and it’s used to make our cars go VROOM! Just as importantly, oil is used by truck companies to ship
food and other goods around the US.
I mention
all of this because the price of oil is also… going up!
In closing,
I know this research isn’t presented in the usual academic format. As such it
may not be ivy-league material. However, on planet earth, the cost of
commodities is an important gauge for inflation. The same goes for the value of
the US Dollar. If the US Dollar falls
and prices rise, then you are
experiencing inflation.
Which, as
the above charts show, we are experiencing NOW. Forget risk of it happening. It
is happening right now. Today.
On a closing
note, I know I’ve been as vocal a critic of the Government’s spending as
anyone, but I personally would not mind if Obama and pals want to earmark an
additional $200 in the 2011 National Budget for “Fed Research.” I assume once
Ben Bernanke and the rest of the folks at the Fed get ahold of this incredible
charting technology, they’ll be better able to monitor how the world operates
and make better forecasts.
After all,
that’s how research works, right?
Good
Investing!
Graham
Summers
PS. If you’re worried about the future of the stock market
and have yet to take steps to prepare for the Second Round of the Financial
Crisis… I highly suggest you download my FREE Special Report specifying exactly
how to prepare for what’s to come.
I call it The
Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a
wealth of information about portfolio protection, which investments to own and
how to take out Catastrophe Insurance on the stock market (this “insurance”
paid out triple digit gains in the Autumn of 2008).
Again, this is all 100% FREE. To pick up your copy today, got
to http://www.gainspainscapital.com
and click on FREE REPORTS.
<!--EndFragment-->
bench craft company itliano
Willie Nelson Arrested for Pot Possession | Rolling Stone Music
Willie Nelson was arrested yesterday at a border patrol checkpoint in Sierra Blanca, Texas after agents reportedly found 6 ounces of marijuana on his ...
Fox <b>News</b> Watch - Twitter - Daily Beast | Mediaite
The evolution of news media in light of personalized, instant-gratification social networking sites like Twitter has the landscape evolving at a rapidfire pace. For some in the media, this is a reason to mourn the passing of a more ...
Portland terrorist bomb plot: <b>News</b>, opinion from The Oregonian and <b>...</b>
Return to OregonLive later today for more from The Oregonian on the terrorist arrest.
bench craft company spa service
Willie Nelson Arrested for Pot Possession | Rolling Stone Music
Willie Nelson was arrested yesterday at a border patrol checkpoint in Sierra Blanca, Texas after agents reportedly found 6 ounces of marijuana on his ...
Fox <b>News</b> Watch - Twitter - Daily Beast | Mediaite
The evolution of news media in light of personalized, instant-gratification social networking sites like Twitter has the landscape evolving at a rapidfire pace. For some in the media, this is a reason to mourn the passing of a more ...
Portland terrorist bomb plot: <b>News</b>, opinion from The Oregonian and <b>...</b>
Return to OregonLive later today for more from The Oregonian on the terrorist arrest.
bench craft company spacers
To support a margin compression theory, the article begins by using institutional selling as proof and presents increasing Android market share as an argument. Let’s take a closer look.
1. Institutional Selling
The two examples provided (one institution selling and another expressing worry) are insufficient to support the conclusion that big money has started to dump Apple. What’s happening in the aggregate? Might other institutions have initiated positions or increased their holdings? Unless this table (http://www.nasdaq.com/asp/holdings.asp?symbol=AAPL&selected=AAPL&FormType=Institutional) is out of date (It does include Capital Growth Management’s sale.), there is no significant net change in the number of shares held by institutions.
Now, one could argue that CGM’s Heebner and FEAM’s Obuchowski are such stellar managers that their opinion warrants special attention. Well, Heebner’s CGM Focus fund is only a two-star Morningstar rated fund (http://finance.yahoo.com/q/pr?s=CGMFX+Profile). Heebner “knows how to count”, as the author writes, I suppose, but he doesn’t know how to outperform; Obuchowski’s FEAM50 (http://www.1empiream.com/FEAM50_Q3%2010.pdf) and APA125 (http://www.1empiream.com/apa.htm) funds have beaten their benchmark. However, he’s expressed concern about holding Apple two years from now. He hasn’t sold yet.
The article hence doesn’t provide either quantitative (as the number of shares held has not changed significantly) or qualitative (as no star manager is cited as selling) evidence of big money starting to dump Apple because of margin compression. For the one under performing manager cited for selling, no reason is provided. As a matter of fact, there’s no evidence for net institutional selling of Apple, period.
2. Increased Android Market Share
With a 35% profit share in 2009 (http://www.businessinsider.com/chart-of-the-day-revenue-vs-operating-pro...), the hardware industry's highest, hasn’t Apple been successful in the personal computer market? I would say so, and yet it had only captured a 7% market share. How has it accomplished this feat? By offering something different that consumers value at a premium.
The author writes: “Jobs also (understandably) failed to mention that the “commodity’ Androids materially outperform the iOS products in terms of features and functionality. This is pretty much in direct contravention to the concept of the term “commodity”, isn’t it???? I don’t think many Samsung Galaxy S, Droid X or HTC Evo owners will characterize their devices as “commodities”.”
A product’s characterization as a commodity is not a function of the quality of its features and functionality or user opinions thereof. The Android clones are commodities because there’s fundamentally little difference between them. One might have a bigger screen, another longer battery life, and yet another a thinner form factor, but they all run the same OS and hence offer the same functionality. If an innovative feature proves popular, it can quickly be duplicated. There’s little that sets one phone apart from the other. They are interchangeable. As such, they must compete on price. You might prefer the Galaxy S, but settle for a Droid if its price is sufficiently lower to sway you. Their makers will generate lower profit margins, just like Windows PC makers.
The iPhone, on the other hand, offers something different: superior aesthetics, greater ease of use, no bloatware, superior integration with related products (Mac & iPad), a certain prestige, but mainly a distinct OS. It offers the whole package. Its hardware competitors might best or equal some features, but not the whole. If you value this different product, you can only buy from Apple. By maintaining full control of the iPhone experience, Apple prevents it from becoming a commodity like all the Android clones and, so long as it’s able to produce a superior experience on the whole, ensures premium pricing and high profit margins.
The author also writes: “…its business model may prove unassailable unless Apple makes some drastic changes (ex. allowing cloning)…”
What if Apple did pursue the Google model and licensed its OS? If it allowed iOS clones, it would cannibalize its sales and its margins would be obliterated, as it would lose its main differentiator. Would it be able to keep generating a $238 profit per phone (http://www.asymco.com/2010/10/31/making-it-up-in-volume-how-to-view-unit-profitability-vs-volume-in-handsets/)? In light of the fact that Google is giving Android away, it’s highly unlikely.
Android has already won. The battle for market or unit share, that is. Apple will henceforth never sell as many phones. That’s OK because Apple will probably keep generating the lion’s share of profits (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/) by executing a business model proven successful with the Mac.
As it reaches critical mass, Google’s model might indeed become unassailable. No other company will beat Google at its game. Apple has chosen to play a different game that might also be unassailable. They’re two different ways to win. Google will attempt to monetize Android through market share dominance, while Apple will maintain its profit share dominance among hardware makers through innovation and differentiation. Apple’s margins will suffer significantly only if it’s unable to keep offering something different, valued at a premium by consumers.
In short, the article fails to show an institutional dump of Apple shares. It doesn’t even show that the one (marginally competent) institutional manager mentioned for selling did so because of expected margin compression. Moreover, it is misguided in using Android’s unit share dominance to deduce margin compression at Apple. Apple’s profit margin will only suffer significant compression if it fails in the execution of its business model.
To further the analysis, is Google’s licensing model superior to Apple’s integrated model, as many seem to believe? In the personal computer market, Microsoft made money by selling Windows to hardware makers. In the mobile phone market, Google is giving Android away, while planning to monetize market share dominance through services (search and others). The hurdles it faces with this model are not insignificant. Its lack of control over its OS is a liability: witness Verizon’s pre-installation of Bing on some Android phones (http://www.broadbandreports.com/shownews/Verizon-Bing-Wont-Be-Exclusive-On-All-Android-Phones-110294). Its platform is a customizable OS that hardware makers and wireless carriers can tailor to suit their own ends, which may be to Google’s detriment, and they don’t have to pay for it. Its success is far from assured. Might Google be going back to producing its own branded phone because its current strategy is proving difficult to monetize (http://www.engadget.com/2010/11/11/this-is-the-nexus-s/)?
Apple, on the other hand, is already monetizing the iPhone. As a matter of fact, it made as much money in Q3 2010 as all other phone makers combined (http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4-unit-share-22-sales-value-share-and-48-of-profit-share/), in spite of commanding only 4% market share. Apple won both the unit share and profit share battle in MP3 players with the iPod, as no worthy competitor came forth. This is not the case in smart phones with the emergence of Android. Nonetheless, the Mac, with 35% of PC profit share in spite of only 7% market share, has proven that Apple’s model can thrive even in the face of strong competition.
Growing up,
I always assumed that people in a position of power or authority got there
based on merit. It never crossed my mind that someone might actually be in
charge of something VERY important like, say, the monetary system, and NOT know
what he or she was doing.
After all,
the US has created a system for verifying if you’re an expert or not, hasn’t
it? If you have an advanced degree, especially from a prestigious school, then
you should know what you’re talking about, right? And if you not only graduated
from a prestigious school but actually TAUGHT at one for decades… well then
you’ve GOT to be an expert, right?
After all, you literally have been PAID to
study and think for your entire adult life.
I only ask
all of this, because according to Fed Chairman Ben Bernanke, the Fed sees
little risk of inflation occurring in the US at this time. This is rather
staggering given that ANYONE with access to the Internet (forget the education
and degree) could gain access to charts that clearly show the US is heading
towards, if not ALREADY IN, an inflationary storm.
Below is a
chart of the US Dollar. I got this chart from a research tool called
stockcharts.com. It costs about $180 ($15 per month). However, this same image
can be culled from numerous free sources. So if budgetary restraints forbid
ear-marking $200 for “research” at the Fed, a quick visit to Bigcharts.com or
Yahoo! Finance should do the trick.
As you can
see, the US Dollar has fallen from about 88 to 76 in the last six months.
That’s a 13% decline… in six months. I
realize this might be hard for those who don’t look at charts too often so I’ve
annotated things so it’s easy to grasp.
Now, I DON’T
have a PhD in Economics from Harvard, but it seems pretty obvious to me that
when the currency in which assets are priced loses value, the prices of assets denominated in that currency will
rise… which is inflation.
Now if only
there were a tool for visualizing the price of various assets…
Surprise!
Stockcharts has this one too! The below chart is for the Jeffries Commodities
index (a basket of commodities or hard assets). As you can see, while the US
Dollar has fallen, these prices have RISEN.
Of course,
this means that when you lump together ALL commodities, their prices are
generally rising. I realize this is pretty out
there as far as economic research goes. So let’s try to make things more
concrete and “close to home.”
The below
chart shows the price of agricultural commodities over the last year.
Agricultural commodities are things like wheat, soybeans, cotton, orange juice,
and coffee. Human beings use these materials to create things like food and clothing, which they need to survive on Earth.
As you can
see, the prices of agricultural commodities are rising. Because of this, the
cost of food will… RIIIIIISE. So will
the cost of making clothing. This means humans will have to spend MORE money to
buy the SAME amount of FOOD and CLOTHING... which is innnnnflation.
We’ve
already covered a lot of ground in this research, but I’ve saved the best for
last.
You see,
there’s one commodity which is VERY important for the US economy. It’s called
oil and it’s used to make our cars go VROOM! Just as importantly, oil is used by truck companies to ship
food and other goods around the US.
I mention
all of this because the price of oil is also… going up!
In closing,
I know this research isn’t presented in the usual academic format. As such it
may not be ivy-league material. However, on planet earth, the cost of
commodities is an important gauge for inflation. The same goes for the value of
the US Dollar. If the US Dollar falls
and prices rise, then you are
experiencing inflation.
Which, as
the above charts show, we are experiencing NOW. Forget risk of it happening. It
is happening right now. Today.
On a closing
note, I know I’ve been as vocal a critic of the Government’s spending as
anyone, but I personally would not mind if Obama and pals want to earmark an
additional $200 in the 2011 National Budget for “Fed Research.” I assume once
Ben Bernanke and the rest of the folks at the Fed get ahold of this incredible
charting technology, they’ll be better able to monitor how the world operates
and make better forecasts.
After all,
that’s how research works, right?
Good
Investing!
Graham
Summers
PS. If you’re worried about the future of the stock market
and have yet to take steps to prepare for the Second Round of the Financial
Crisis… I highly suggest you download my FREE Special Report specifying exactly
how to prepare for what’s to come.
I call it The
Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a
wealth of information about portfolio protection, which investments to own and
how to take out Catastrophe Insurance on the stock market (this “insurance”
paid out triple digit gains in the Autumn of 2008).
Again, this is all 100% FREE. To pick up your copy today, got
to http://www.gainspainscapital.com
and click on FREE REPORTS.
<!--EndFragment-->
bench craft company team
Willie Nelson Arrested for Pot Possession | Rolling Stone Music
Willie Nelson was arrested yesterday at a border patrol checkpoint in Sierra Blanca, Texas after agents reportedly found 6 ounces of marijuana on his ...
Fox <b>News</b> Watch - Twitter - Daily Beast | Mediaite
The evolution of news media in light of personalized, instant-gratification social networking sites like Twitter has the landscape evolving at a rapidfire pace. For some in the media, this is a reason to mourn the passing of a more ...
Portland terrorist bomb plot: <b>News</b>, opinion from The Oregonian and <b>...</b>
Return to OregonLive later today for more from The Oregonian on the terrorist arrest.
bench craft company click here for service
Willie Nelson Arrested for Pot Possession | Rolling Stone Music
Willie Nelson was arrested yesterday at a border patrol checkpoint in Sierra Blanca, Texas after agents reportedly found 6 ounces of marijuana on his ...
Fox <b>News</b> Watch - Twitter - Daily Beast | Mediaite
The evolution of news media in light of personalized, instant-gratification social networking sites like Twitter has the landscape evolving at a rapidfire pace. For some in the media, this is a reason to mourn the passing of a more ...
Portland terrorist bomb plot: <b>News</b>, opinion from The Oregonian and <b>...</b>
Return to OregonLive later today for more from The Oregonian on the terrorist arrest.
bench craft company spa service
Willie Nelson Arrested for Pot Possession | Rolling Stone Music
Willie Nelson was arrested yesterday at a border patrol checkpoint in Sierra Blanca, Texas after agents reportedly found 6 ounces of marijuana on his ...
Fox <b>News</b> Watch - Twitter - Daily Beast | Mediaite
The evolution of news media in light of personalized, instant-gratification social networking sites like Twitter has the landscape evolving at a rapidfire pace. For some in the media, this is a reason to mourn the passing of a more ...
Portland terrorist bomb plot: <b>News</b>, opinion from The Oregonian and <b>...</b>
Return to OregonLive later today for more from The Oregonian on the terrorist arrest.
bench craft company management
No comments:
Post a Comment