AAPL 4Q14 Preview. Solid Quarter; Solid Outlook

aaplorchard:

Revenue: $39.8 billion (AAPL guidance: $37-40 billion range/Consensus: $39.9 billion)

  • I expect Apple’s revenue to increase 6% year-over-year.

Gross Margin: 38.0% (AAPL guidance: 37-38% range)

  • I expect Apple’s margin to decrease sequentially to 38.0% from 39.4% last quarter, primarily reflecting iPhone 6 shipments. Management’s margin guidance is approximately 0-100 basis points better than the 36.9% margin reported in 4Q13.

EPS: $1.32 (Consensus: $1.31)

  • I expect Apple to report 11% yoy EPS growth. I am including a 6 billion share count (implying around $5 billion of buyback - similar to last quarter).

Product Unit Sales and Commentary

Macs: 5.0 million (9% yoy growth)

  • Apple has reported Mac unit sales growth over the past three quarters and I expect this trend to continue with back-to-school sales and iPad fatigue (students opting for MacBooks vs. an iPad). After a difficult 2013, the Mac line-up seems to be holding its own and the idea of “Peak Mac” (Apple will never sell as many Macs as it did in 1Q12) is starting to look a bit premature. 

iPad: 12.4 million (12% yoy decline. Consensus is closer to 13 million.)

  • I expect Apple to report continued Pad unit sales declines. As I previously highlighted, the iPad is in a perilous position and I don’t see last week’s iPad refresh as having much impact on the category’s trajectory.

iPod: 1.7 million (50% yoy decline)

iPhone: 36.5 million (8% yoy growth. Consensus is closer to 37-38 million.)

  • iPhone launch quarters can be a wild animal. With many moving parts, including channel dynamics, sales vs. shipped differences, and the degree of delayed purchase behavior in August and early September, the actual sales number shouldn’t be judged too harshly, but instead be included with next quarter’s results to get a better idea of overall iPhone sales trends. Similar to last year, many ordered an iPhone 6 online hours after launch only to have the phone ship in October, so it’s clear that a large number of iPhone 6 (especially the Plus) launch sales will be pushed into 1Q15. My 36.5 million iPhone unit estimate assumes 7 million units of iPhone 6 and 1 million units of iPhone 6 Plus units, along with 29 million legacy iPhone units selling at roughly a 20% slower weekly sales pace than seen in 3Q14 (2.9 million).

I expect Apple’s earnings to come in close to consensus demonstrating continued EPS growth from stronger net income and a lower share count resulting from share buyback. In terms of 1Q15 guidance, I am expecting approximately $56-60 billion of revenue (consensus is around $63 billion) and 38.0-39.0% margins (which would equate to EPS of approximately $2.25, or a 9% increase from 2014). It is important to remember that weaker iPad mini sales, as a result of stronger iPhone or iPad Air sales, will actually help Apple’s financials as the iPad mini’s lower ASP and margins weighed on Apple results. 

I exclude foreign exchange impact from results given its non-operating nature. Apple is hedged against significant foreign exchange moves, but nevertheless there may be some impact flowing for the results. 

The primary Apple story over the next few months will be the iPhone 6 rollout and corresponding implications on margins (iPhone 6 Plus running with a higher margin than iPhone 6, with both models positioned stronger than iPhone 5). 

Fireworks: This week’s market performance report

Despite all the fireworks this week, when we take a look at the closing numbers, it really wasn’t that bad.

The S&P 500 Index fell 20 points to close at 1886, a loss of 1% for the week.

The NASDAQ Composite fell 18 points to close at 4258, a loss of .5% for the week.

The Dow Jones Industrial Average fell 168 points to close at 16376, a loss of 1% on the week.

The Russell 2000 Small Cap Index rose 30 points to close at 1083.91, a gain of 2.8% for the week.

30 Year Treasury Bond Yields fell 7 basis points to close at 2.97%, a loss of 2.3% for the week.

Crude oil fell $1.60 to close at $82.99, a loss of 1.9% for the week.

You’d almost never even know that Wednesday morning felt like Armageddon approaching with the Dow trading off well over 400 points,  treasury yields cratering and crude getting crushed.

Almost.

Photo Credit: paul gy

The Economy is Getting More Stable, Financial Markets Are Getting More Fragile

This is a reblog of Conor Sen’s Tumblr post from yesterday. You can find Conor’s excellent Tumblr here

csen:

Still processing the bond market moves of yesterday…

Yesterday was really stupid. As have been the past few weeks, which increasingly feel like a “baby August 2011,” when markets were even more stupid.

The challenge for portfolio managers in 2014 is that you’d be hard-pressed to find a 5-year period in US history where the economic trajectory was more stable. Real GDP has generally grown between 2-3%/year. Inflation has been in the mid 1%’s. Job growth has been remarkably stable, averaging 150-225k/month. Profit margins have been stable for the past few years, and overall earnings growth has been, I don’t know, 5-8%/year. Monetary policy has been ultra accommodative. Fiscal policy has been…consistent in its level of frustration.

And it’s hard to argue we’re building up economic excesses, with the exception perhaps in the energy sector. Apartment construction has been booming, but rent growth keeps rising and vacancy rates haven’t yet risen. Single family residential construction remains in recession. Bank capital ratios are rising, and the biggest gripe about them is that maybe they should break themselves up to reflect the new economic/regulatory environment. Large cap tech/semiconductors have great balance sheets and cash flow, and subpar growth prospects are the concern. A bellweather industrial like General Electric continues to reduce its debt and spin off or sell tangential business lines. A major airline that wants to be treated as a high quality industrial company has reduced its net debt from $17 billion to $7.4 billion over the past 5 years, and is on pace to do $3.5 billion in free cash flow this year. Occupancy rates for hotels are at 14-year highs with a very modest supply growth pipeline. Financial obligation ratios for households are at multi-decade lows, as are homeownership rates for everyone under 50. Ask people from whence the next recession will come, and you get macro tourism potpourri, “Europe! China! The Fed! Congress!”

Yet the ecosystem surrounding our financial markets is getting more fragile. The two rising generations of investors, Gen-X and Millennials, are a combination of conservative and distrustful of active managers (either themselves or firms), preferring low-cost passive index investing. Baby Boomers are mostly crossing their fingers and hoping for the best with what they have.

Big banks continue to reduce their participation in order facilitation, and prop desks are mostly a thing of the past. The most prominent hedge funds are no longer trading shops like SAC or macro firms like Soros’s, but rather activist investors like Icahn and Ackman who agitate for corporate change and/or more buybacks. Twitter mostly serves to amplify the prevailing mood. Stabilizing mechanisms are absent.

That’s how you get a “mini 1987” in August, 2011, with stocks crashing despite no change in earnings trajectories. It’s how you get the taper tantrum last summer, or the tech growth rout in April/May, or the 7 point move in ultras yesterday.

I expect both of these trends — the economy getting more stable and financial markets getting more fragile — to continue for the foreseeable future, which creates an interesting environment for those hardy souls brave enough to attempt active management in 2014.

Welcome to the industrial internet via Ben Evans

Andreessen Horowitz’s Ben Evans recently presented at GE’s Minds and Machines event in New York City. 

Its a brilliant top down look at the state of the Industrial Internet.

He says:

But what software is eating the world means is that all the benefits we’ve seen from the pc in the past will move out into every aspect of our lives, every aspect of industry and industrial companies, every aspect of the things we do every day.

Below is the video which is well worth the watch for those thinking deeply about the internet, technology in general and where we are headed.

Below the video are the slides he presented so you can follow along.

Enjoy.

Slides: Keynote on industrial internet from Benedict Evans

Sorry, no one can help you during a market correction

This coming weekend, if not already, you will see articles in the finance media that will attempt to explain to you why you are now losing money in the market, why it is just a part of human nature to be an irrational investor and then what you can do about it.

These posts will use fancy phrases like representative heuristic and recency bias to explain why people tend to be poor investors. Then, they’ll tell you to stop doing stupid things like selling at the bottom and buying Priceline at 1280 or Tesla at 280.

I have seen these articles every stock market correction forever and they are all useless.

First off, they oversimplify the concepts social psychologists and behavioral economists use to explain irrational market behaviors. This is not a small point, because the concepts are complicated and difficult to really understand.

Next, and worse, they will try to give you armchair advice. They will tell you to stop doing stupid things with your investments. Maybe they’ll even put it in a listicle like 9 things you can do to stop losing money now. This is all worthless advice, I am sorry to say, and akin to telling a monkey to stop eating bananas.

So go ahead and read them all if they make you feel a little less bad about losing your money or maybe have a drink.

You are going to do what you are going to do.

Photo Credit: Tax Credits

Android and iOS are copying the best parts of each other

Union Square Ventures’ Fred Wilson published a piece this morning about things he is noticing after switching from a device powered by Google’s Android mobile operating system over to Apple’s new iPhone6 (and iOS8).

His observations are valuable, of course, but he saves the best stuff, his big picture thinking of what is going on here, for the last 2 paragraphs. Fred writes:

It is interesting to me that the two dominant operating systems are becoming more similar as Apple copies the best parts of Android (notifications being a prime example) and Google copies the best parts of iOS. It was not that hard to move from Android to iOS (other than downloading all of those apps and configuring them). When I go back to Android in three to six months, I don’t think that change will be particularly hard either.

We have a duopoly in mobile operating systems and that seems how the mobile market will operate, at least in the near future. Both Apple and Google are spending huge sums of money to stay competitive with each other. Both make fantastic mobile operating systems that work really well. As I’ve said before, mobile has matured. Maybe if I’m looking to get outside of my comfort zone, I need to be looking somewhere else for a new and different experience.

After reading this, it seems like such a simple and obvious point - Apple and Google are both copying the best of each other’s mobile operating systems - but it is the critical one.

Source: Some Initial Thoughts On iPhone6 and iOS8 (AVC)

Photo Credit; TechCrunch

After opening higher, the S&P 500 is nose diving again
After losing 3% last week, the S&P 500 opened slightly higher this morning in an attempt to shake off the selling.
However, the rally appears to be short-lived as the selling is picking up again. At 10:37, the index is trading down .6% to 1895, its first foray below the 1900 level since May.
This is 116 points below the all-time high close of 2011 set on September 18th. 
That’s a 5.8% correction so far. Zoom Permalink

After opening higher, the S&P 500 is nose diving again

After losing 3% last week, the S&P 500 opened slightly higher this morning in an attempt to shake off the selling.

However, the rally appears to be short-lived as the selling is picking up again. At 10:37, the index is trading down .6% to 1895, its first foray below the 1900 level since May.

This is 116 points below the all-time high close of 2011 set on September 18th. 

That’s a 5.8% correction so far.

The top 20 U.S. based employers
This was originally posted by Exploring Market on his excellent Tumblr.
Simply amazing, how many employees Wal-Mart has in the States and world-wide.
exploringmarkets:

Love them. Hate them. Cherish them. But you cannot ignore the simple fact these companies employ the most people in the US, and even around the world. It is truly remarkable. The jobs do not discriminate or hold much expectation but they offer a wage for work. Take it or leave it but know it’s always there. #walmart #mcdonalds #tech #jobs #wages #money #work #charts #economics
Zoom Permalink

The top 20 U.S. based employers

This was originally posted by Exploring Market on his excellent Tumblr.

Simply amazing, how many employees Wal-Mart has in the States and world-wide.

exploringmarkets:

Love them. Hate them. Cherish them. But you cannot ignore the simple fact these companies employ the most people in the US, and even around the world. It is truly remarkable. The jobs do not discriminate or hold much expectation but they offer a wage for work. Take it or leave it but know it’s always there. #walmart #mcdonalds #tech #jobs #wages #money #work #charts #economics

Stock Market Rout! 29 of 30 Dow components close lower on the day
The Dow Jones Industrial Average closed down 272 points (1.61%). This was the biggest rout since July 31st and the lowest close since August 15th.
29 of the 30 Dow 30 stocks closed lower on the day.
Only The Coca-Cola Company managed a fractional gain, trading up 33 cents (.76%). Zoom Permalink

Stock Market Rout! 29 of 30 Dow components close lower on the day

The Dow Jones Industrial Average closed down 272 points (1.61%). This was the biggest rout since July 31st and the lowest close since August 15th.

29 of the 30 Dow 30 stocks closed lower on the day.

Only The Coca-Cola Company managed a fractional gain, trading up 33 cents (.76%).