Apple's iPad is Losing Market Share and Profit Margin as Apple Hits All Time High

download Apple's iPad is Losing Market Share and Profit Margin as Apple Hits All Time High

of 4

Transcript of Apple's iPad is Losing Market Share and Profit Margin as Apple Hits All Time High

  • 8/2/2019 Apple's iPad is Losing Market Share and Profit Margin as Apple Hits All Time High

    1/4

    Apple's iPad Is Losing Market Share And Profit Margin

    As Apple Hits All Time High

    Listen up you Muppets!!!!! I'mrehearsing from my Goldman Interview, applying for retail

    stock broker, pushing Apple inventory :-)

    The update to our Apple analysis is now available to subscribersApple Margin & Valuation

    Note. This is a more comprehensive, more "scientific" update and approach to our piece from

    last yearApple - Competition and Cost Structure. Next week, pro subscribers will see a

    downloadable version of the model behind this that will deliver more Apple stuff than you

    can ever digest in one sitting. In review, it is interesting to note certain viewpoints in the

    previous Apple research note, particularly considering Apple's stratospheric rise in price, ex:

    "At current price of $347 Apple trades at 2011 calanderised PE of 12x on our estimatesand 14x on consensus estimates. Yes, we are more optimistic than consensus, but more

    realistic concerning future prospects as well."

    We were considerably more bullish on Apple's fundamentals than the consensus, but alas we

    were off the mark, and Apple's share price has went stratospheric - stratospheric to the point

    that it deserves its own conversation (more on that later). But (yes, there always is a but), the

    hypothesis behind the afore-linked note still holds. As a matter of fact, not only is it as strong

    now as it ever was, it is actually playing out now as I type this. I will delve into this, but

    before I go on I must acknowledge that the mere topic of Apple seems to bring out the

    immature and impolite in the blogoshpere. So much so, many are literally afraid to mention

    anything that is no "Pro Apple". That's right, literally "AFRAID", as was pointed out in this

    recent WSJ article "Apple: Deutsche Dares to Doubt".

    The subscriber document is evident on its face with a variety of valuation scenarios, an

    indepth that the original research document didn't have - an error in execution. So, for those

    that don't subscribe, let me toss out food for thought, and even more telling, proof that clearly

    proves the premise behind articles such as:

    How Google is Looking to Cut Apples Margin and How the Sell Side of Wall StreetWill Enable This Without Sheeple Investors Having a Clue

    Sliced Apple Margins For Dinner? Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet

    Including The Pretty iPad, With Proof!

    What many fail to understand is that what Google as released with its reincarnation of

    Android is not a new mobile OS, or a flexible handheld technology, but an innovative

    business model that harnesses to open source software to profitability turn the suppliers and

    vendors of fat margined leaders against it - literally ingenious and very, very difficult to

    counter without compressing your own margins. Those interested in reading more can

    referenceLooking at the Results of Google's "Negative Cost" Business Model Employed

    Through Android. So, let's get started by reviewing portions of my hypothesis from last

    year...

    Did Android overtake iOS in marketshare and growthYes, Even With Apples SuccessfulLaunch On Verizon, Google Continues To Increase Its Lead In The Smarthphone Space

    http://boombustblog.com/blog/item/6027-goldman-sachs-executive-director-corroborates-reggie-middletons-stance-business-model-designed-to-walk-over-clientshttp://boombustblog.com/blog/item/6027-goldman-sachs-executive-director-corroborates-reggie-middletons-stance-business-model-designed-to-walk-over-clientshttp://boombustblog.com/blog/item/6027-goldman-sachs-executive-director-corroborates-reggie-middletons-stance-business-model-designed-to-walk-over-clientshttp://boombustblog.com/downloads/doc_download/438-apple-margin-a-valuation-notehttp://boombustblog.com/downloads/doc_download/438-apple-margin-a-valuation-notehttp://boombustblog.com/downloads/doc_download/438-apple-margin-a-valuation-notehttp://boombustblog.com/downloads/doc_download/438-apple-margin-a-valuation-notehttp://boombustblog.com/downloads/doc_download/386-apple-competition-and-cost-structurehttp://boombustblog.com/downloads/doc_download/386-apple-competition-and-cost-structurehttp://boombustblog.com/downloads/doc_download/386-apple-competition-and-cost-structurehttp://blogs.wsj.com/marketbeat/2012/03/15/apple-deutsche-dares-to-doubt/?mod=e2twhttp://blogs.wsj.com/marketbeat/2012/03/15/apple-deutsche-dares-to-doubt/?mod=e2twhttp://www.boombustblog.com/index.php?option=com_k2&id=2887&lang=en&view=itemhttp://www.boombustblog.com/index.php?option=com_k2&id=2887&lang=en&view=itemhttp://www.boombustblog.com/index.php?option=com_k2&id=2887&lang=en&view=itemhttp://www.boombustblog.com/index.php?option=com_k2&id=2887&lang=en&view=itemhttp://www.boombustblog.com/index.php?option=com_k2&id=2887&lang=en&view=itemhttp://boombustblog.com/blog/item/5885-sliced-apples-for-dinnerhttp://boombustblog.com/blog/item/5885-sliced-apples-for-dinnerhttp://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/userblog/item/5385?lang=enhttp://boombustblog.com/userblog/item/5385?lang=enhttp://boombustblog.com/userblog/item/5385?lang=enhttp://boombustblog.com/userblog/item/5385?lang=enhttp://boombustblog.com/reggie-middleton/2011/05/06/even-with-apples-successful-launch-on-verizon-google-continues-to-increase-its-lead-in-the-smarthphone-space/http://boombustblog.com/reggie-middleton/2011/05/06/even-with-apples-successful-launch-on-verizon-google-continues-to-increase-its-lead-in-the-smarthphone-space/http://boombustblog.com/reggie-middleton/2011/05/06/even-with-apples-successful-launch-on-verizon-google-continues-to-increase-its-lead-in-the-smarthphone-space/http://boombustblog.com/reggie-middleton/2011/05/06/even-with-apples-successful-launch-on-verizon-google-continues-to-increase-its-lead-in-the-smarthphone-space/http://boombustblog.com/reggie-middleton/2011/05/06/even-with-apples-successful-launch-on-verizon-google-continues-to-increase-its-lead-in-the-smarthphone-space/http://boombustblog.com/reggie-middleton/2011/05/06/even-with-apples-successful-launch-on-verizon-google-continues-to-increase-its-lead-in-the-smarthphone-space/http://boombustblog.com/userblog/item/5385?lang=enhttp://boombustblog.com/userblog/item/5385?lang=enhttp://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/reggie-middleton/2011/03/04/steve-jobs-is-mistaken-in-calling-the-end-of-the-pc-actually-its-the-beginning-of-the-end-of-the-high-margin-tablet-and-heres-proof/http://boombustblog.com/blog/item/5885-sliced-apples-for-dinnerhttp://www.boombustblog.com/index.php?option=com_k2&id=2887&lang=en&view=itemhttp://www.boombustblog.com/index.php?option=com_k2&id=2887&lang=en&view=itemhttp://blogs.wsj.com/marketbeat/2012/03/15/apple-deutsche-dares-to-doubt/?mod=e2twhttp://boombustblog.com/downloads/doc_download/386-apple-competition-and-cost-structurehttp://boombustblog.com/downloads/doc_download/438-apple-margin-a-valuation-notehttp://boombustblog.com/downloads/doc_download/438-apple-margin-a-valuation-notehttp://boombustblog.com/blog/item/6027-goldman-sachs-executive-director-corroborates-reggie-middletons-stance-business-model-designed-to-walk-over-clients
  • 8/2/2019 Apple's iPad is Losing Market Share and Profit Margin as Apple Hits All Time High

    2/4

    Did Apple miss in 4 to 8 quartersYes, as a matter of fact, they missed exactly 4 quarterslater.The Only, and I Mean the Only, Investment/Research House To Warn Of An

    Apple Miss Is Vindicated!!!

    I've had many commenters say things such as "You've been crowing about Apple crashing for

    two years!" The fact of the matter is simply "no", I have never said such a thing. What I did

    say was that Apple will deliver an unpopular and unforeseen miss and margin compression

    due to competition. I said this in Oct. of 10 live on CNBC, and I also said on BoomBustBlog

    that miss will occur 4 to 6 quarters. It is telling that they couldn't get anyone else to say what

    should be obvious (reference the fear and loathing surrounding the Deustch Bank analyst

    note,Deutsche Dares to Doubt). Well, they did miss and they are starting to feel the effects of

    margin compression from competition. this effect on margins is well hidden due to

    management's excellent execution (Kudos to you guys, btw) combined with the fact that the

    mobile market is growing so wide, fast and deep that it easily conceals margin compression

    behind massive unit sales. Although I did start to issue warnings in 2010 about Apple

    margins, but I made it very, very clear that this will occur over many quarters. I also made it

    clear I was not short at the time of the declaration. Short term traders were able to profit from

    myinitial short noteswith tight stops that I suggested...

    http://boombustblog.com/blog/item/5897-yes-thats-right-the-only-and-i-mean-the-only-investment/research-house-to-warn-of-an-apple-miss-is-vindicatedhttp://boombustblog.com/blog/item/5897-yes-thats-right-the-only-and-i-mean-the-only-investment/research-house-to-warn-of-an-apple-miss-is-vindicatedhttp://boombustblog.com/blog/item/5897-yes-thats-right-the-only-and-i-mean-the-only-investment/research-house-to-warn-of-an-apple-miss-is-vindicatedhttp://boombustblog.com/blog/item/5897-yes-thats-right-the-only-and-i-mean-the-only-investment/research-house-to-warn-of-an-apple-miss-is-vindicatedhttp://blogs.wsj.com/marketbeat/2012/03/15/apple-deutsche-dares-to-doubt/?mod=e2twhttp://blogs.wsj.com/marketbeat/2012/03/15/apple-deutsche-dares-to-doubt/?mod=e2twhttp://blogs.wsj.com/marketbeat/2012/03/15/apple-deutsche-dares-to-doubt/?mod=e2twhttp://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&sqi=2&ved=0CE8QFjAE&url=http%3A%2F%2Fboombustblog.com%2FBoomBustBlog%2FI-Absolutely-Dare-Anyone-To-Read-This-And-Still-Not-Consider-The-Probability-Not-Possibility-Of-Apple-Suffering-From-Margin-Compression.html&ei=Hi1iT_C6E8fm0QGDjPSxCA&usg=AFQjCNFudEokZ8PuUr5tOXLCKCPxCnBZQQhttp://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&sqi=2&ved=0CE8QFjAE&url=http%3A%2F%2Fboombustblog.com%2FBoomBustBlog%2FI-Absolutely-Dare-Anyone-To-Read-This-And-Still-Not-Consider-The-Probability-Not-Possibility-Of-Apple-Suffering-From-Margin-Compression.html&ei=Hi1iT_C6E8fm0QGDjPSxCA&usg=AFQjCNFudEokZ8PuUr5tOXLCKCPxCnBZQQhttp://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&sqi=2&ved=0CE8QFjAE&url=http%3A%2F%2Fboombustblog.com%2FBoomBustBlog%2FI-Absolutely-Dare-Anyone-To-Read-This-And-Still-Not-Consider-The-Probability-Not-Possibility-Of-Apple-Suffering-From-Margin-Compression.html&ei=Hi1iT_C6E8fm0QGDjPSxCA&usg=AFQjCNFudEokZ8PuUr5tOXLCKCPxCnBZQQhttp://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&sqi=2&ved=0CE8QFjAE&url=http%3A%2F%2Fboombustblog.com%2FBoomBustBlog%2FI-Absolutely-Dare-Anyone-To-Read-This-And-Still-Not-Consider-The-Probability-Not-Possibility-Of-Apple-Suffering-From-Margin-Compression.html&ei=Hi1iT_C6E8fm0QGDjPSxCA&usg=AFQjCNFudEokZ8PuUr5tOXLCKCPxCnBZQQhttp://blogs.wsj.com/marketbeat/2012/03/15/apple-deutsche-dares-to-doubt/?mod=e2twhttp://boombustblog.com/blog/item/5897-yes-thats-right-the-only-and-i-mean-the-only-investment/research-house-to-warn-of-an-apple-miss-is-vindicatedhttp://boombustblog.com/blog/item/5897-yes-thats-right-the-only-and-i-mean-the-only-investment/research-house-to-warn-of-an-apple-miss-is-vindicated
  • 8/2/2019 Apple's iPad is Losing Market Share and Profit Margin as Apple Hits All Time High

    3/4

    .. but alas, the time to short was premature for a strategy guy (as opposed to a trader), and

    obviously so. That does not obviate the validity of the compression theory though.

    Im a fundamental and forensic

    strategist, not a short term trader. In

    addition, I run a subscription site, henceI do notand will notgive valuation

    bands or price targets to the public for

    freeplain and simple. As a strategist,

    I make medium term projections, and

    they have beenon balancerather

    accurate. This article started out with

    For some absurd reason, the mere topic

    of Apple brings up the most immature

    in the blogosphere. For instance, I

    startedsaying Greece would

    defaultconsiderably before I warned ofApple margin compressionboth

    stances indicated that this would be a

    medium term occurrence. Well, exactly

    two years (8 quarters) later Greece

    defaulted, seeGreece Is Trying To

    Convince Portugal To Make F.I.R.E. Hot!!!For some reason, that is a lot easier to swallow

    than waiting even less time for Apple margins to shudder, even though the miss that I called

    for came at the first month of the window that I anticipated and market share and margins are

    exhibiting behavior congruent to what I anticipated. Of course I know what the issue is, the

    share price has spiked. Alas so did Greek bonds at a point, and so did the shares of RIM, who

    faced the same margin compression scenario that Apple faces, seeRIM Gets RAMMED!Again... Remember That Contrarian Call 1st Quarter of 2010. Apple's management is head

    From Hudson Square research:

    This morning we spot surveyed 20 people at

    locations in Connecticut New York and found

    shorter lines than for the iPhone 4s or the iPad 2.

    We counted roughly 550 people on line at 5

    locations combined, vs. the 2,300 people we

    counted in our iPad 2 survey last year.

    All but three of the people we spoke withalready owned an iPad. During our iPad 2

    survey last year we found 69% of our 80

    respondents did not already have the iPad1. Half of the current iPad owners we spoke

    with this morning had the iPad1 and the

    other half the iPad2.

    http://boombustblog.com/reggie-in-the-news/item/1246http://boombustblog.com/reggie-in-the-news/item/1246http://boombustblog.com/reggie-in-the-news/item/1246http://boombustblog.com/reggie-in-the-news/item/1246http://boombustblog.com/blog/item/6025-greece-is-trying-to-convince-portugal-to-make-the-fire-hothttp://boombustblog.com/blog/item/6025-greece-is-trying-to-convince-portugal-to-make-the-fire-hothttp://boombustblog.com/blog/item/6025-greece-is-trying-to-convince-portugal-to-make-the-fire-hothttp://boombustblog.com/blog/item/6025-greece-is-trying-to-convince-portugal-to-make-the-fire-hothttp://boombustblog.com/blog/item/5960-rim-gets-rammed-again-remember-that-contrarian-call-1st-quarter-of-2010http://boombustblog.com/blog/item/5960-rim-gets-rammed-again-remember-that-contrarian-call-1st-quarter-of-2010http://boombustblog.com/blog/item/5960-rim-gets-rammed-again-remember-that-contrarian-call-1st-quarter-of-2010http://boombustblog.com/blog/item/5960-rim-gets-rammed-again-remember-that-contrarian-call-1st-quarter-of-2010http://boombustblog.com/blog/item/5960-rim-gets-rammed-again-remember-that-contrarian-call-1st-quarter-of-2010http://boombustblog.com/blog/item/5960-rim-gets-rammed-again-remember-that-contrarian-call-1st-quarter-of-2010http://boombustblog.com/blog/item/6025-greece-is-trying-to-convince-portugal-to-make-the-fire-hothttp://boombustblog.com/blog/item/6025-greece-is-trying-to-convince-portugal-to-make-the-fire-hothttp://boombustblog.com/reggie-in-the-news/item/1246http://boombustblog.com/reggie-in-the-news/item/1246
  • 8/2/2019 Apple's iPad is Losing Market Share and Profit Margin as Apple Hits All Time High

    4/4

    and shoulders over that of RIMM's (who should have been replace two years ago, alas it's too

    late now), but compression is still compression.

    Now, I hear many saying, "... but Apple's margins are at all time highs!!!" Really? Did

    iPad margins shrink due to competitionYes.

    Okay - This is the part that the immature are bound to ignore, so I can save some of you

    some time and you can stop reading now. Those who are actually curious about how I

    come up with margin compression while others state record margins...

    As it stands now, Apple is rapidly (much more so than can be gleaned from sell side analyst

    reports and the media) losing market share in both tablets and smartphones!

    As Apple loses market share, its costs to manufacture are actually increasing due to massive

    competition

    Apple's losing tablet market share faster than it lost smartphone market share

    Android has moved to over 44% market share in tablets from less than 3% in less than a year

    and a half. That's amazing and much faster growth than it exhibited in smartphonesa

    category in which Android literally dominated in worldwide and US smartphone growth (as

    well as installed base re: US) in just a few short years. Apple dropped from just over 96% to

    just under 55% in the same time frame. Again, as with the smartphones, the Android tablet

    tech is superior to that of iOS products and as iOS normalizes the difference, margins will

    suffer. Margins will drop (is dropping) faster for tablets because prices are coming down as

    fast as tech is increasing.