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    Should You Believe Even Positive News About Apple?

    June 3rd, 2018

    It wasn’t so many months ago when there were loads of reports that Apple’s great experiment, the iPhone X, was a huge failure. Inventories were growing, there were major cutbacks in production. All this allegedly based on reports from the supply chain.

    Such blatant examples of fake news aren’t new. It happens almost every winter. After a December quarter and peak sales, Apple routinely cuts back on production from the March quarter. It’s not the only company to follow such seasonal trends, but somehow Apple gets the lion’s share of the attention.

    From time to time, Tim Cook schools the media about relying on a few supply chain metrics, reminding them that, even if true, it doesn’t necessarily provide a full picture of supply and demand.

    He might as well be talking to himself since he’s almost always ignored.

    In any case, the numbers from the December and March quarters painted a decidedly different picture than those rumors depicted. The iPhone X was the number one best selling smartphone on Planet Earth for every week it was on sale. I don’t know if the trend has continued, but Apple has nothing to apologize for.

    Now one of the memes presented in the days preceding the arrival of the iPhone X — before the talk about its non-existent failure arose — was that it would fuel a super upgrade cycle. Up till then, the usual two-year replacement scenario was beginning to fade. In part this was due to the end of the subsidized cell phone contract in the U.S. fueled by T-Mobile’s supposedly innovative “Uncarrier” plans. They appeared to represent something different, but at the end of the day, not so different in what you had to pay, at least for the term of your smartphone purchase.

    Originally, you’d acquire a cell phone either by buying the unit outright, or signing up for a two-year contract in which you’d pay something — or nothing — upfront and then be obligated to keep the service in force for at least two years. If you cancelled early, you’d pay a penalty to cover what the carrier presumably lost because you didn’t pay off the device.

    After two years, you’d be able to cancel your contract without penalty, but if you kept it in force, the price wouldn’t change even though the device had been paid off. It was a boon to the carrier if you didn’t upgrade. But if you did, the two-year requirement would start all over again.

    With an “Uncarrier” deal, the cell phone purchase was separated from your wireless service. You could buy it, add one you own to the service if it was compatible, or acquire a new handset for an upfront payment, plus a given amount every month until it was paid off. It was essentially a no-interest loan, but you’d have the right to exchange it for a new device after a certain amount of time, usually 12 to 18 months. This way, the purchase became a lease, and you’d never own anything. In exchange for getting new hardware on a regular basis, you’d never stop paying.

    What it also meant is that, once your device was paid off, the price would go down, giving you an incentive to keep your hardware longer if it continued to perform to your expectations.

    Now that predicted iPhone super upgrade cycle didn’t occur as predicted. Yes, iPhone sales did increase a tiny bit in the last quarter, but revenue has soared because the iPhone X dominated new purchases, thus boosting the average transaction price. That, too, was contrary to all those predictions that Apple’s most expensive smartphone was way overpriced, and customers were reacting negatively.

    How dare Apple charge $999 and up for a new handset?

    Rarely mentioned was the fact that Samsung, Pixel Phone by Google and other mobile handsets makers also sold higher-priced gear, but there were few complaints. It’s not that sales were great shakes, but some regarded such handsets as certain iPhone killers, except that Apple overwhelmed these products in sales.

    So where’s what’s the latest alleged super (duper?) upgrade cycle about?

    Well, according to a published report in AppleInsider, Daniel Ives of GBH Insight claims that “the Street is now starting to fully appreciate the massive iPhone upgrade opportunity on the horizon for the next 12 to 18 months with three new smart phones slated for release.”

    Deja vu all over again?

    For now Apple has become a Wall Street darling. But don’t bet on that continuing. The next time someone finds reasons, real or imagined, to attack Apple’s prospects for success, the stock price will drop again. Of course, there are other reasons for stock prices to vary, including the state of economy, possible trade wars and other reasons, including investor psychology.

    So what is Ives expecting?

    He is projecting that Apple might sell up to 350 million iPhones over a period of 18 months after this fall’s new product introductions. Supposedly they will be so compelling that people who might have otherwise sat on the sidelines and kept their existing gear will rush to upgrade.

    As regular readers might recall, predictions have focused on a new iPhone X and a larger iPhone X Plus, plus a regular iPhone with an edge-to-edge LCD display. Will there be an iPhone 8 refresh, or will Apple just sell last year’s models at a lower price? What about a smaller model, the alleged iPhone SE 2?

    I don’t disbelieve the rumors about the 2018 iPhone lineup, but predictions of super upgrade cycles may not be so credible. People appear to be keeping their smartphones longer, so long as they continue to deliver satisfactory performance. And. no, I won’t even begin to consider the performance throttling non-scandal.

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    Is Apple’s Stock on a Roll?

    May 8th, 2018

    For several weeks, Apple’s stock was dropping over fake news that iPhone X sales had collapsed. Whether misreading the supply chain tea leaves or just making things up, those stories all turned out to have no basis in fact. Through the March quarter, the iPhone X was Apple’s best-selling smartphone and the best-selling smartphone on the planet, but the falsehoods about collapsing demand merely continued a trend that began the previous quarter.

    Even then, we were told the news would be real bad, and when they weren’t, that the poor sales wouldn’t be revealed until the March quarter. Once that claim was also demonstrated to be false, yet again, there were apologies here and there, but you might have expected the trend would resume all over again after a quarter or two.

    After all, this nonsense has gone on for several years. At the end of a year, when you’d expect Apple to routinely cut back on parts orders after the holiday quarter ended, when sales would obviously be lower, the claim was that Apple was in deep, deep trouble.

    That other tech companies exhibited seasonal sales trends didn’t seem to matter. It always seems to be just about Apple.

    This is similar to complaints that the iPhone X, starting at $999, was too expensive, even though other smartphones over the years have exceeded the $1,000 threshold. Again, it always seems to be just about Apple.

    But since the March financials were revealed on May 1st, Apple’s stock has increased, and the trend continues. This time, however, the company’s financial position has vocal support from one of the world’s richest men, Warren Buffett.

    So in the last quarter, Buffett’s company, Berkshire Hathaway, bought 75 million shares of Apple, raising its holdings to 240 million shares. Now it may seem like a lot, but that total is just below 5% of Apple’s shares, and it surely doesn’t mean that Buffett plans to attempt to buy the company. In turn, that’s roughly 21% of his company’s stock portfolio.

    Now if you don’t recognize that corporate name, consider its holdings, which include a large insurance company, GEICO, and a fast food restaurant, Dairy Queen. It’s also the largest stockholder in United Airlines and Delta Air Lines.

    It’s also the third largest pubic company in the world.

    Clearly Buffett isn’t swayed by false reports about Apple’s impending doom, not is former Microsoft CEO Bill Gates, who sites on Berkshire Hathaway’s board. In a recent interview, Gates referred to Apple as an “amazing” company.

    While this may seem surprising to you, the fact of the matter is that Steve Jobs and Bill Gates, though fierce competitors, apparently had a warm personal relationship in the former’s final years. I recall one Macworld keynote in which Jobs casually mentioned having dinner with Gates. There were also those joint public appearances, where you can see, by the photos of both on stage, that they really liked each other.

    Yes, it’s possible to keep your friends even if they run a rival company.

    In any case, news of big holdings by Berkshire Hathaway aren’t new; the large increase is, and no doubt it’s because the stock was undervalued and they took advantage of a good deal. More to the point, Buffett clearly wasn’t impacted by the claims that Apple was in trouble, that it couldn’t move enough iPhones.

    Consider the December quarter, where the iPhone X took one-third of the profits of the entire market. How can that happen with a product people are rejecting in droves because it’s too expensive? How does the average price of a new iPhone increase when there are problems moving the most expensive model? How come eight of the ten most popular smartphones on the planet bear the iPhone label?

    Obviously, the smartphone market is saturated, and total sales actually decreased — except for Apple and a few other companies. It’s not unlikely that, over the next few years, growth in iPhones will stall again, as they did in 2016. But that doesn’t mean sales of the Apple Watch will stall, or that Apple’s services will suffer.

    Or that there aren’t other products in the pipeline that will become ascendant. Or even that Apple won’t invent new iPhone, iPad and Mac variants or successors that will help spur Apple’s ongoing growth. But even if revenue and profits increase only incrementally in the years to come, we’re talking here about an incredibly successful multinational corporation that’s having a great run. There need be no apologies for what Tim Cook and crew have accomplished on a year-over-year basis.

    Remember, over 20 years ago, the late Steve Jobs, soon to be joined by Cook, were busy salvaging a company that was bleeding red ink and was only weeks away from ruin. And over all those years, the critics were still actively claiming it was all a fluke, that Apple was destined to fail any time now.

    Don’t forget what the boy cried.

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    Doesn’t Apple Deserve Fair News Coverage?

    May 2nd, 2018

    After several weeks of fake news about iPhone X sales, Apple revealed the truth. It was the company’s best-selling smartphone every single week it was on sale over two quarters. This is the first time Apple’s most expensive model achieved that level of sales.

    This comes after all the fear-mongering that people wouldn’t pay for a mobile handset costing $999 and more, depending on the configuration. There were surveys demonstrating that a majority of potential customers would reject the costlier models, which is understandable. But with iPhones starting at $349, it only demonstrated that different people have different priorities and different budgets.

    But the iPhone X still led the pack among iPhones. I’m sure this is clear to you.

    Now I suppose some of you might be skeptical of Apple’s claims about revenue, profits, and the number of items shipped. But the company is following SEC requirements. Filing false reports could get them in a heap of trouble. Look up companies who have run afoul of that agency.

    In short, it’s fair to say that Apple is reporting the truth, whereas some members of the media who have repeated the fictions about poor sales are clearly mistaken, or perhaps deliberately lying.

    Some of the fake news about poor iPhone X sales allegedly originates from the supply chain. But Apple CEO Tim Cook has said on several occasions that you can’t take one or a few supply chain metrics and assume anything about sales. Apple will routinely adjust supply allocations among different manufacturers and, in some cases, manage inventory in different ways that will impact total shipments.

    What’s most disturbing about the iPhone X is that false reports of poor sales are only the latest in a long stream of falsehoods published about the product.

    Even when the iPhone X was referred to as an iPhone 8, there were claims that Apple had to make a critical last-minute design change because they couldn’t find a way to make a front-mounted Touch ID work embedded or beneath an edge-to-edge OLED display. The rumors were based on the alleged reason that Samsung put its fingerprint sensor at the rear of the unit.

    Sure, Apple went to Face ID, but that feature was supposedly under development for several years. Regardless of the alleged limitations of an OLED display, Apple may have switched to facial recognition anyway. Indeed, there are reports it may ultimately replace Touch ID on all gear.

    Once the rumors about facial recognition became more credible, the next effort at fear-mongering suggested it would present potential security problems, or maybe not even work so well. After all, Samsung has a similar feature that can be readily defeated with a digital photo, at least on the Galaxy S8 smartphone. I’m not at all sure at this point whether there are similar limitations on this year’s Galaxy S9, which supposedly has improved biometrics.

    Even after Face ID proved to be extremely reliable — nobody claims perfection — there were the inevitable complaints that the iPhone X would be backordered for weeks or months, and thus, after it was introduced early in November of 2017, you wouldn’t be able to get one in time for the holidays.

    Over the next few weeks, Apple managed to mostly catch up with orders. So in the days before Christmas, you still had a good chance of getting one on time.

    That’s when the critics began to suggest sales had been underwhelming. Apple’s great experiment in fueling an alleged — and never confirmed — iPhone “super” upgrade cycle had failed.

    When Tim Cook announced that the iPhone X was the best-selling iPhone and the best-selling smartphone on the planet for each week it was on sale in the December quarter, the next rumor had it that sales collapsed after the holidays, and March quarterly numbers would be perfectly awful.

    It got to a point by mid-April that Apple’s stock price, which had approached $180 per share, plummeted to near $160. You can see the trend over at Yahoo Finance and similar sites.

    After this week’s news from Apple that all these unfavorable reports were false, the stock price soared. It closed at  $176.57 on Wednesday.

    So is that the end of the latest cycle of spreading fake news about Apple? I doubt it. There were similar rumors about previous iPhones, using alleged supply chain cutbacks to fuel such claims. In each case, the rumors turned out to be false, only to return months later in full force.

    One would think that, after this keeps happening, the reporters, bloggers and industry analysts who keep spreading this nonsense would learn a thing or to. Then again, if some of it is designed to talk down the stock price, and thus allow the instigators to buy the stock at a lower price before it increases again, you can expect it won’t stop.

    I suppose some of these rumors may also have been started by Apple’s competitors. I would hope that the media won’t be fooled by such antics anymore.

    But don’t bet on it.

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    The iPhone Super Cycle Was Fake News!

    May 1st, 2018

    For months, we’ve been hearing about an alleged “iPhone Super Cycle.” The introduction of a premium model, the iPhone X, was supposed to be so compelling that scads of people were expected to upgrade, far more than in the usual cycle. Thus sales would soar, and, until things died down, or unless a new super cycle was launched, Apple would sell far more iPhones.

    Now this claim has been repeated over and over again, and has been used as leverage by some of Apple’s critics to claim that the iPhone X was thus a failure for failing to meet such unrealistic expectations. Add to that the persistent claims that the most-expensive iPhone was a big fail, not matching Apple’s alleged inflated expectations whatever they were.

    Of course, these outsiders no doubt haven’t a clue how many units Apple expected to sell, beyond the usual quarterly earnings guidance. The claim about an alleged super cycle never had anything to do with reality. It was just a made up story, a product of someone’s imagination that caught a wave and was given a level of credibility it did not deserve.

    But before I get to the sales numbers that many of you have probably read about already, consider that the smartphone market is highly saturated. Manufacturers are finding it more difficult to convince you to upgrade. After all, the better models are good enough already. Take a nearly three-year-old iPhone, such as the iPhone 6s. Unless damaged beyond repair, they still work just fine. Well maybe it needs a new battery. But Apple continues to sell them. Even an iPhone 6 works pretty well with iOS 11, and if the one you have is in good shape, do the new models offer enough compelling new features to convince you to buy the latest and greatest?

    Apple’s apparent solution to this dilemma is to sell several lines of iPhones, dating back to 2015 models. So if the iPhone X is too rich for your blood, way too rich, consider the iPhone 6s. Or the 2016 iPhone SE, for $349, if you don’t mind a smaller display.

    Despite that, during the March quarter, the iPhone X remained Apple’s largest selling iPhone. You can’t do much better than that, and this happened despite all the stories about collapsing sales, huge supply chain cutbacks and so forth and so on.

    During Tuesday’s quarterly conference call with financial analysts, Apple CEO Tim Cook remarked, “It’s one of those things where a team wins the Super Bowl. Maybe you want them to win by a few more points, but it’s a Super Bowl winner and that’s how we feel about it. I could not be prouder of the product.”

    In its March quarterly financials, Apple reported sales at the higher end of its guidance and in line with some analyst expectations. So total sales were $61.1 billon, an increase of 16% over last year. Apple sold 52.2 million iPhones, a unit increase of 3% over last year, where some 50.8 million units were sold. The average iPhone sales price was $728.30, compared to $655 last year. While down from the $796.42 number during the December quarter, it’s still clear the iPhone X continued to make a substantial difference.

    So iPhone sales are flattening, but earning more money per sale surely compensates.

    Obviously, the claim that Apple is having trouble convincing people to pay $999 and up for an iPhone is false. And despite rumors of falling sales in China, Apple reported 20% growth in “Greater China and Japan.”

    Sales of other products and services mostly increased too. Apple’s wearables business, for example, has become as large as a Fortune 300 company, and the Apple Watch remains number one in its market. Don’t forget how it was denigrated year after year, as the rest of the smartwatch market collapsed around it.

    iPad sales increased slightly to $4.1 billion, compared to $3.9 billion last year. Sales came in at 9.1 million, up from 8 .9 million last year.

    The Mac, however, had a slight dip, from 4.2 million down to 4.1 million. This is in keeping with an overall flatness of the PC market, although Cook said that some 60% of purchases were made by people new to the platform. This may indicate the fact that people are keeping their Macs for longer periods, while more people in the enterprise, when given a choice of which personal computer to place on their desks, choose Apple.

    For this quarter, Apple is expecting revenue between $51.5 billion and $53.5 billion, and gross margins between 38% and 38.5%. This appears to be at the higher end of Wall Street expectations, so the volume of the fear mongering has been quieted.

    For now.

    If you want to know more about Apple’s March numbers, you can check its press release.

    I am not going to bother writing about the stock buybacks and increased dividends. If you’re already invested in Apple you know about it, and if you’re not able to afford the price of Apple’s stock, no sense in worrying about it. It’s just typical of what’s been happening in greater frequency since the 2017 tax cut was passed. Rather than give large wage increases to employees, companies are focusing mainly on stock buybacks and other money games that seldom enrich anyone but investors and executives.

    Meantime, fears about iPhone X sales will temporarily abate — until the next time.

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