AAPL earnings call Apr 27 2015

Nice growth again! Steam was not lost with the holiday quarter. No Watch numbers in this, hopefully some light on it in the call.

Summary:
58B revenue
13.6B profit

27% growth in revenue
40% growth in EPS (not profit)

Watch margins will be lower than other products. There is indication of lower volumes. Meet demand by July.

Unrelated to earning call, I have the watch (basic sport version). It is good in many ways. Except battery life is one day (16hrs with demos to 12% charge) - charge over night or 2 hours.
It has bugs.
Some nice apps.
Can't use it for more than a few seconds but less anxiety of leaving phone at the desk.
Shows time only to the wearer.
Apple Pay worked great!
Taking calls works great in car if you don't have bluetooth, since the hand is resting on the wheel.
Overall some good use cases some bugs. Should be as good as iPad in terms of sales.

From the earnings call the size of the Watch market seems to be about the size of the iPad. 5-10% bonus on the valuation. Will add 5% to my DCF model. I have updated the DCF sheet from last post. Main update was to change the 15% decline in 2016 to 10% decline in profit. Added 5% for the watch.

The Call:

Tim:
Strongest march quarter. Fantastic iPhone, higher rate of switcher. Emerging markets up 63%. App store 29% YOY. Mac business strong eating PC.

Strategic investments, 27 acquisitions in 6 quarters.

Capital return 200B through March 2017!

Momentum in Apple Pay. Discover from fall. Best Buy will take Apple Pay by end of year. Health care payment network (including Stanford).

Momentum in health solutions. 1000 apps.

Health hit integration MyCS app.

Research Kit (same as key note). Exceeding expectations. 1000 researchers interested.

Europe: $2B data centers in Ireland and Denmark. Developers in Europe.

Pro Environment - check website. 100% renewable in US, 87% in supply chain. Protect forest in NC, USA.

June quarter started well. (Watch)
MacBook (recall key note) - good response.
HBO (recall key note) - no cable! top downloads
Apple Watch - Great reaction and excitement on social network. Lots of interest from developers.

Thanks to Developers and Employees! (nice touch)

Luca:
growth due to iPhone, App store, Mac. despite forex. 71% growth in China. 19.4B cash flow - March record.
80% or more growth in iPhone in many markets.
ASP of $624
1M inventory 5-7 weeks.
Macbook. 4-5 week inventory.
iPad sell through 13.7M 5-7 week target inventory. Japan,China did well others did not.
iPad doing better than other tablets.
doing well on enterprise. focus on work.
IBM, 24+ others. DocuSign,MicroStrategy..
App Store 71% more money than Google Pay.
23% growth in online store visits.
21 stores in 11 cities of China.
193.5B in cash balance.
40B term debt.
Solicit input from shareholders.
By Mar 2017 expanded to 197B
52cents/share of dividend 11% increase. Continue to increase yearly.

Outlook:
46-48B (compare 37B)
..

Questions:
Bill:
Gross margins surprise, how?
FX -ve impact was expected and it happened. It will continue. 40 basis points next quarter.
Looking to increase prices in some markets. We feel good about where we are.
Color on dynamics of customer mix?
Higher rate of switchers.
reasonable percentage of first time buyers.

Katie:
Watch may take longer to ramp (supply). Is is happening.
Compare to iPad.
Supply, Demand
Demand > Supply.
We made progress. Delivered more this weekend than anticipated.
New product for us, so it will take time to ramp. Good position by late June.
New countries by late June.
Overwhelmingly positive response.
Ahead on apps ecosystem. Internal goal was 1000 apps but we are at 3500 apps.
Learning about customer preferences. many configurations. matching production to demand.
R&D growth? broader set of projects?
Our current product is already diverse. We are developing core technologies in house. Spending ahead of products, which is why you seed the R&D spend. 8.2% expense to revenue.

Jeane:
Congratulations! What does switchers mean? more market share?
Luca any margin impact from watch?
iPhone 40% growth. 16% market growth (IDC). we did well.
Bullish on current qtr as well.
switchers + first time buyers.
it is tough to find something in the numbers not to like.
Luca: loss of leverage, FX 40 bpts. Apple watch margins will be lower than average.
20% upgraded to 6/6+

Tony:
Revisit the watch. Relative to other products, (superlatives..) consensus expecting more than iPad sales, can you give some hints?
How do we model? compared to iPad..
Tim: I am thrilled with it. Don't read anything else. When demand >> supply difficult to gauge. Can't forecast more than the quarter. We have enough to think about here. 100% positive response from customers.
Q. Margins are lower? surprising, despite the higher price points.. Is it lower volumes?
Tim: We are not going to guide to gross margin on the product. Our quarter guidance.
first quarter will always have learning.
The cost breakdowns you see are not accurate (ever) dig on the data.

Q:
iPhone, what are people saying?
Record in China. Chinese new year. Mac also did well in China 31% (IDC down 7% market). Everything including iPad was good in China. We added Union Pay as a payment options. We are on many cities. Online store revenue 3x increase. 40 stores by middle of next year. 15 new cities.

call got cut. back to work.

Apple Inc Discounted Cash Flow valuation and notes for Mar 10 2015

So far I have been sending this by email to friends but there were more requests for the emails and so I am doing it on a blog this time. However the spirit is still same, it is intended for people I know who have invested in AAPL and are interested in shareholder view points.

If I make predictions or voice opinions they are primarily meant for placing a dollar value on AAPL.

We had two events yesterday and today.
1. Apple Watch/MacBook event.
2. Shareholders annual meeting.

Couple of dates:
Apr 10 - pre orders begin for the Watch. New Macbook available.
Apr 24 - Watch arrives.
We should see some price swings around these days when market sees confirmation.

Before I jump in with the details of the events, here is a DCF calculation I did.

https://www.icloud.com/numbers/AwBWCAESEEmkJadEVFWsA-Aqh7JEhr4aKpyCE399D_DbWtWTkmaTfqK_CKgrHNI20HduO3acWyoxQQ8q6-nZAVNubgMCUCAQEEIGn0zRvTQITggkDYuc3YhiwffRpqXhYyvOPFJ3lv84Ak#Apple_DCF_valuation

First I did a DCF with simple assumptions such as 10% growth this year followed by a lull and then 3% every year after five years and used a discount rate (think of it as bank interest rate) of 5%. I was surprised to see price of $200. That is quite close to the $216 Carl Ichan came out with. Well the market is not stupid so I tried to find out what the market thinks prospects of AAPL are and tweaked untill I got close to the current value. I increased the discount rate to 8% - I will be really happy if I can hit this rate without risk - to get to $120. So even with a pessimistic outlook AAPL is a reasonable stock to hold.

I am going to cash out 25% for immediate needs but I intend to hold unless we find a different stock with better numbers and upside.

To the Events, easy one first:
1. Shareholders meeting.

This time it started at 9:00 and went on till 10:15, so I had time to make it back to 10:30 scrum!

Mr. Cook sounded like he is in control of things. First we voted, there was a group who claimed Apple was reckless in building Solr power stations. 98% voted against it and there were laughs. It shows how much support Apple board and Executives enjoy from shareholders. There was one group who wanted changes to how proposals are introduced - basically small fish like can introduce proposals. CALPERS group said it is moot and it lost with 60% vote against it. Rest all were passed with high majority.

Then Mr. Cook spoke about how Apple is not all about ROI but also about leaving world better than it found. It kind of rattled some people because we are in it for the ROI. But nothing to alarm, They are not throwing cash away. One example is Research Kit (for health research), Apple makes no money on it, and it is open sourced. I do think it does bring some money to Apple but it is easy to believe he means to be genuine. He spoke about products introduced since last meeting and they seemed like old news.

In the QA, there were two interesting topics. Two shareholders asked about buying Tesla. But he gave non-answers and admitted that he is skirting the question and kept repeating Tesla should adopt CarPlay! It was a bit funny. There was lot of talk about diversity.

On to the next event..

2. Apple Watch - Spring forward.

Ncie name and timing.

I have one disappointment - battery life is only 18 hours, I was hoping for a week, can't expect miracles, they are only human and limited by same laws of physics.

One nice thing I found was that using Apple Pay is not so clumsy as I thought on the watch. You double click the small button and then raise just one hand, no awkward movements. Still there are so many questions around the product. I may have to get one of them to really understand it.

The reviews say it does not have a killer feature and it is confusing to use, I can't side with those reviews though. I do think notifications and the freedom to leave the phone where it is, is something we have all been wanting to do - we were tired of it for some time. Will we put up with daily charging (and some money out of bank) for this convenience? We will know in a few quarters.

Watch has potential for many upgrade cycles.

The pricing looks right. 10k price looks steep but as a PC mag article points out some people spend this kind of money on first class flights. For that market it is just one more flight cost. I am subsidizing their iPhone iteration cost, I would like them to pay for the iterations of the watch - as a fellow consumer.

Presentation was better than last time. I liked the model from 'Every mother counts'  very clever marketing. It would be even better marketing if Mr. Cook ran a marathon and gave some of the credit to the watch - likely in my view. Even better if presenters get in shape for next event and give the credit to the watch - long shot.

MacBook was a pleasant surprise. The force touch plus taptic engine under the trackpad can open many possibilities for gaming applications. The Air was a great success and this new product is taking it one notch up. Many questions about why they left the rest of the line as it is. Will take some time to understand their strategy. If I am in the market for a notebook now, I would buy it.

HBO Now, and drop in Apple TV price are good moves.

3. Other notes and thoughts since my previous emails.

Inflation: We have not talked about it before. It has been 8 years since the first iPhone. The value of $650 then is more than $650 now, at 4% inflation it would be $889. Well iPhone is not so novel anymore, a bit commoditized by competition, not fully though - think touchID, better privacy. So the price should be in between. Apple demonstrated it very clearly by increasing the average selling price of the iPhone 6/6 plus by using higher memory gap and larger phone option. For some Apple consumers money is easy to come but not all consumers are like that and have tight budgets. So the inflation angle is important.

International cash: Apple did a good job hedging currency. Microsoft lost revenues but Apple came out unscathed! Mr. Masteri has done a great job. It looks like we are going to get the money home with a simple tax.

Momentum: Money managers are always under pressure to beat the index and AAPL is the winning stock on the index so they need to cover their contrived short positions like Ichan said. Recent movement could be due to this.

India: In previous earnings call Mr. Cook said India is a tough nut to crack saying it has many 'layers'. In the last ER call he said it is possible a China like scenario can playout in India! Looks like he is seeing a path to success there. (I have not added this in my DCF calculations though - very conservative - another upside poetential).

Camera patents: I came across a nice Apple patent, a periscope camera. This allows them to put a much better camera in a small form factor. Lots of scope to improve the camera and bring in some SLR like zoom features.

Apple Car: Poaching of employees from Tesla and A123 and the way Mr. Cook avoided the questions today indicates they are doing something in the space. However I would think it will too lame if they tried to do the same thing Tesla is doing today. They better do the self driving car or find a nice trade off product that can meet it half way paving the way to a mature product in a few cycles.

Health market: I am still hopeful they will add some value in this 3 trillion industry and take a cut in it. I am glad they are not doing Google style data collection.

Maven dependency for Stanford NLP source - StanfordCoreNLP

To get the sources as well include another dependency with sources in addition to the first two given in Stanford page. As of Jul 26 2014.

<dependencies>
<dependency>
    <groupid>edu.stanford.nlp</groupid>
    <artifactid>stanford-corenlp</artifactid>
    <version>3.4</version>
</dependency>
<dependency>
    <groupid>edu.stanford.nlp</groupid>
    <artifactid>stanford-corenlp</artifactid>
    <version>3.4</version>
    <classifier>models</classifier>
</dependency>
<dependency>
    <groupid>edu.stanford.nlp</groupid>
    <artifactid>stanford-corenlp</artifactid>
    <version>3.4</version>
    <classifier>sources</classifier>
</dependency>
</dependencies>

ThreadLocal

ThreadLocal example on Oracle documentation does not work, I tried to report it but the steps involved are so cumbersome, I have chosen to post the solution here.

Here is the code that works as intended (ignore the wrong indentation).

import java.util.concurrent.atomic.AtomicInteger;

public class Threads implements Runnable {

    private static final AtomicInteger numThreads = new AtomicInteger(0);

    private static final ThreadLocal < Integer > threadIdHolder = 

        new ThreadLocal < Integer > ();

    public int getCurrentThreadId() {

        return threadIdHolder.get();

    }

    public Threads() {

    threadIdHolder.set(numThreads.getAndIncrement());

    }

@Override

public void run() {

System.out.println(getCurrentThreadId());

}

private static Integer getNumberOfThreads() {

return numThreads.get();

}

public static void main(String[] args) {

for (int i=0; i<4 i="" p="">

(new Thread(new Threads())).run();

}

System.out.println("Number of threads is: "+getNumberOfThreads());

}

}

The trouble with the code posted in Oracle documentation (http://docs.oracle.com/javase/6/docs/api/java/lang/ThreadLocal.html) is that it tries to use the initialValue() method to increment the numThreads variable. However it is called only once because it is static. It can be fixed by making it non static. Alternately keep it static and assign the value to threadIdHolder in the constructor like in this code.

Here is the output:

0

1

2

3

Number of threads is: 4

No job jar file set. User classes may not be found. See JobConf(Class) or JobConf#setJar(String)

 No job jar file set.  User classes may not be found. See JobConf(Class) or JobConf#setJar(String)

This happened when the class was set (which was the popular fix suggested).

In my case extracting the external jars into the jar when exporting the jar helped.

Data not activated on new iPhone 5

I had to turn off the phone for a minute and bring it back up for AT&T to recognize the phone after going through the on phone setup.

iSuit

Apple Vs. Samsung law suit

Live notes from San Jose courtroom by Forbes:

The beginning (not really, there was a pre-trial)
Jul 31 2012 

Who says the trial has to be inside the court only... This one is out of court law

Aug 03 2012 

Aug 06 2012

Aug 07 2012 

Aug 10 2012 

Aug 13 2012  Apple is done with its presentation, Samsung to follow with it's witnesses.

Aug 14 2012

Aug 16 2012

Aug 17 2012

Aug 21 2012 Closing arguments

Aug 24 2012 Verdict

One upped by Forbes :)