Showing posts with label Apple. Show all posts
Showing posts with label Apple. Show all posts

Wednesday 22 March 2017

Why did Buffett buy Apple Inc. ( AAPL)? - A Cash Cow that turned 24.8% of its Revenues into Free Cash Flow for its Owners.

At the price of US 139.84 per share and with 5,500 million shares outstanding, Apple is priced by the market at a whopping US 769.12 Billion.

It is the company with the highest market capitalisation in a stock market in the world today.

Apple continues to innovate in its products and it is expected to deliver some new surprises in the future.

Despite some negative news in recent years, it has proven its critics wrong in growing its revenues, profit before tax and EPS share over the last 5 years.

The revenue growth showed consistency, however, the profit before tax and EPS were more volatile and less consistent, being affected by efficiency and costs leading to profit margins that were variable over the period.

Though its revenues had grown from US 156 billion in its FY 2012 to US 214 billion in its FY 2016, its net income grew from US 41.7 billion to US 45.7 billion over the same period.

Its profit before tax margins continued to be maintained at high levels of 28.6% and its latest ROE was 38.3%.

Apple started its share buybacks over the years and had reduced the number of shares outstanding from 6,617 million shares in 2012 to 5,500 million shares in 2016.

Due to its huge free cash flow generated yearly and its huge cash reserves, this share buyback should benefit the shareholders who are still holding to its shares.

Apple distributed little dividend in the past.  In 2012, its dividends were US 2.5 billion.  Since 2013, Apple had distributed dividends of US 10.6 billion, US 11.1 billion, US 11.6 billion and US 12.2 billion yearly to 2016.

Over these 5 years from 2013 to 2016, its dividend payout was a total of 22.1% of its earnings.

Apple still retains a lot of its earnings, some being used to buyback its own shares.

This company is a true cash cow.  Its FCF for the year ending Sept 2016 was US 53.1 billion on a revenue of US 214 billion.  This gave a FCF/Revenue of 24.8%.  A remarkably high and cash generating company.

At today's market capitalisation of US 769.12 billion (US 139.84 per share), its FCF to market cap yield is 6.89%.

At today's price of US 139.84 per share, and using the EPS of FY 2016 of US 8.31 per share, Apple is trading at a PE of 16.8x.

When Warren Buffett bought into Apple at the end of 2016, its share price was around US 110 per share.

At US 100 per share then, Warren Buffett bought into Apple which is a great company at a fair price.  At that price, the upside and downside were about even.  The dividend yield was 2.4% and the potential total upside return around 11.1% per year (2.4% from dividends and 8.7% from capital appreciation) for the next 5 years.

At US 139.84 today,  the upside is much less compared to the downside.  The dividend yield is 1.9% and the total projected potential return around 4,5 %per year (2.6% from dividends and 1.9% from capital appreciation) over the next 5 years.




Wednesday 16 December 2015

Apple Inc.

Apple Inc.

AAPL (NASDAQ)
Website: www.apple.com

Sector:  Consumer Discretionary
Beta Coefficient: 0.84
10 Yr Compound EPS Growth:  70.5%
10 Yr Compound DPS Growth   NM
Dividend raises, past 10 years: 3 times.


Financial Result Year 2014

Revenues (b)    182.8
Net Income (b)     39.5
EPS  6.45
DPS 1.82
Cash flow per share 8.09
Current yield 1.5%

High Price  119.8  P/E 18.5    DY 1.52%
Low Price     70.5  P/E 10.9   DY 2.58%


The company designs, manufactures and markets personal computers, tablet computers, portable music players, cell phones and related software, peripherals, downloadable content and services.  

It added the digital watch to its portfolio in mid-2015.

It sells these products through its own retail stores, online stores, and third-party and value-added resellers.

The company sells digital content through its iTunes stores.

It has become a big player in the "digital wallet" mobile payment space, with its Apple Pay apps and network.  

The company is rumoured to be considering a move into the automobile business.

The company's products have become household names:  iPhone, iPod, iPad, MacBook, iTunes, QuickTime, OSX and iCloud.  

Steve Job, who passed away in October 2011,  was clearly the driving and leading force in Apple's innovation, style and success.

The current CEO is Tim Cook.

The company recently split its shares a massive seven for one, and has, in part due to shareholder activist pressures, stepped up its cash returns to shareholders.

It is rumoured the company is planning up to a cumulative $200 billion to be delivered in the form of dividends and share buybacks by the end of 2018.

Investors can expect dividend increases and especially share buybacks to continue large, with about 100 million shares retired each year on a 5.8 billion share base.

The company has already retired about 13% of its shares since FY 2012.

Apple's ability to generate income and now, to distribute it to shareholders is admirable.


Stock Performance Chart for Apple Inc.

Friday 22 June 2012

Investor's Checklist: Technology Software

The software industry has economics few industries can match.  Successful companies should have excellent growth prospects, expanding profit margins, and pristine financial health.

Companies with wide moats are more likely to produce above-average returns.  But superior technology is one of the least sustainable competitive advantages in the software industry.

Look for software companies that have maintained good economics throughout multiple business cycles.  We prefer companies that have been around at least several years.

License revenue is one of the best indicators of current demand because it represents how much new software was sold at a given time.  Watch for any license revenue trends.

Rising days sales outstanding (DSOs) may indicate a company has extended easier credit terms to customers to close deals.  This steals revenues from future quarters and may lead to revenue shortfalls.

If deferred revenue growth slows or the deferred revenue balance begins to decline, it may signal that the company's business has started to slow down.

The pace of change makes it tough to predict what software companies will look like in the future.  For this reason, it's best to look for a big discount to intrinsic value before buying.


Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey



Read also:
Investor's Checklist: A Guided Tour of the Market...

Investor's Checklist: Technology Hardware

Information technology is an increasingly important source of productivity in advanced economies.  In 2002, IT accounted for nearly 50 percent of total U.S. investment in capital equipment, up from 20 percent three decades ago.

Technology innovation means that hardware firms can offer more computing power at an increasingly cheap price; thus, IT can be applied to more and more task.


Because of rapid innovation, technology hardware companies tend to generate rapid revenue and earnings growth.

At the same time, competitive rivalry is often strong in tech hardware.  Moreover, demand for technology hardware is very cyclical.

Technology, by itself, does not constitute a sustainable competitive advantage.  hardware companies that develop economic moats are more likely to succeed over the long term than companies that rely on a lead in technology.

Examples of moats among technology hardware firms include low-cost producer (Dell), intangible assets (Linear and Maxim), switching costs (Nortel and Lucent), and network effect (Cisco).

A company with a sustainable competitive advantage should be able to effectively fend off its rivals and maintain significant market share and/or sustain above-average margins over an extended period of time.


Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey



Read also:
Investor's Checklist: A Guided Tour of the Market...

Wednesday 25 April 2012

Apple crushes Street targets, dispels iPhone fears


The company's logo is seen on the Apple store in Washington October 6, 2011.REUTERS/Yuri Gripas
The company's logo is seen on the Apple store in Washington October 6, 2011.
Credit: Reuters/Yuri Gripas

SAN FRANCISCO | Tue Apr 24, 2012 7:27pm EDT
(Reuters) - Apple Inc's quarterly results beat Wall Street estimates on stronger-than-expected demand for the iPhone, especially in the greater China region where sales jumped five-fold.
While iPad sales were a little lighter than expected, the overall results sent the stock up 7 percent, recouping some losses from the past two weeks that had stemmed from concerns about weakening sales growth for iPhones.
Apple sold 35.1 million iPhones - which accounts for about half its revenue - in the March quarter, outpacing the 30 million or so expected by Wall Street analysts.
Margins blew past forecasts - helped by lower-than-expected commodity costs - while a five-fold iPhone sales surge in China, Taiwan and Hong Kong bolstered revenue in the region to $7.9 billion.
Some investors had feared intensifying competition from Google Inc's Android phones - made by the likes of Motorola Mobility and Samsung Electronics - might pressure margins and eat into its market share.
"That shows they are able to maintain their pricing without compromising on growth," said Morningstar analyst Michael Holt.
"There are lower-priced alternatives from the Android world that are becoming more compelling. The concern was that Apple might sell more older models to be more competitive. That would have shown up in the gross margin. But aggregate gross margin and average revenue per device show that this hasn't happened."
Apple sold 11.8 million iPads, the latest version of which hit store shelves in mid-March. That compared with the average forecast of up to 13 million.
"There's no doubt looking in the last quarter and the Christmas season, Apple has executed very well. But you are starting to see the iPad ... reach some sort of saturation with the current product," said Patrick Becker, a principal at Becker Capital Management, which does not own Apple shares.
"These are the transitions you start to have without coming out with a brand new device. They have been extremely successful at bringing out new categories and it is new products that will drive up the stock price."
RETURN TO FORM?
But it was Apple's flagship iPhone, which has helped revolutionize the smartphone industry, that hogged the spotlight on Tuesday.
"International iPhone sales were on fire," Apple Chief Financial Officer Peter Oppenheimer told Reuters in an interview, adding that sales of the smartphone in the Greater China region jumped five-fold from the previous year.
Responding to concerns that wireless carriers may reduce subsidies for the iPhone, thereby lowering Apple's profit margin, Chief Executive Tim Cook said the subsidies aren't large anyway, compared with what carriers can recoup from consumers over a 24-month contract period.
The so-called churn, or rate that customers switch from the iPhone to other models, is the lowest of any phone they sell, which has a "significant, direct financial benefit to the carrier," Cook added.
As for patent litigation battles with rivals, Cook said he preferred to settle if Apple could get a fair settlement. The company is fighting court battles with several Android phone makers, including Samsung, HTC Corp and Motorola in the United States and other countries.
Apple's strong results came after a 13 percent decline in its shares - long considered a must-have in most U.S. equity portfolios - over the past couple of weeks in unusually volatile trading, as investors fretted over potential competitive and pricing pressures.
Gross margins in the fiscal second quarter climbed to 47.4 percent from 41.4 percent a year earlier, surpassing Wall Street's average forecast of 42.8 percent.
The consumer electronics giant said its fiscal second-quarter revenue rose 59 percent to $39.2 billion, better than the average analyst estimate of $36.8 billion, according to Thomson Reuters I/B/E/S.
Net income rose to $11.6 billion, or $12.30 a share, from $6 billion, or $6.40 per share, a year earlier. That also outpaced Wall Street's target of $10.04 a share.
Apple's stock gained more than 7 percent to $601, from a close of $560.28 on Nasdaq. That is still far below its intraday high of $644 reached this month.
"When you have a strong rally in a stock it often sells off for no better reason than uncertainty. I think you're going to see the naysayers go away," said Michael Yoshikami, chief executive of Destination Wealth Management.

Thursday 6 October 2011

Why the iPad will take over the world


Why the iPad will take over the world

The Apple iPad is the ultimate browsing machine (Photo: REUTERS)
The Apple iPad is the ultimate browsing machine (Photo: REUTERS)
Apple is on the verge of releasing the latest iteration in its operating system for the iPhone and iPad. Sometime in the coming months, it is also likely to bring out a newly beefed up version of the iPad. These may not seem like particularly momentous moments to anyone but the more die-hard Apple evangelists, but for me they have underlined the fact that this little tablet is heading for domination of the mobile computing industry.
Before you dismiss this as hype, I should emphasise that this conclusion has come only after some months of reflection, consideration and intense usage of an iPad, and comparison with its competitors. I was one of those fools who bought an iPad right at the beginning, when they were just out in the US and were yet to touch down in Britain. I picked it up in Washington, where I was attending the IMF's summit, more out of hope and curiosity than an expectation that it would change my life. And the truth is I was initially rather disappointed.
I bought it wondering whether it would be the tool that meant I could throw away my laptop. And so I tried, over the following days, to use it as a journalistic tool – I tried to write articles on it (using the bluetooth keyboard – typing on the screen isn't bad, but it isn't brilliant), take notes with it, use it to read the IMF reports and send emails back home. It was an unmitigated disaster. I lost some of my most important notes because one of the applications kept crashing (this is not good news when you're a journalist – and fellow hacks are, understandably, reluctant to share notes at the best of times); cutting and pasting text (quite important when you routinely have to edit and re-edit your articles) was fiddly; there wasn't a word count in Pages, the main word processing application; you couldn't switch between different applications (multi-tasking); you couldn't search with PDF files (disastrous if you are trying to navigate a 300 page report on banking regulation), etc etc.
I never wrote this at the time (far too much going on with elections, expenses and whatnot), but my abiding feeling was that I had bought the iPad hoping to dispel all those people who said they couldn't see the point of it – and I had come out agreeing with them. What was the point of this device? Not good enough to double as a laptop, not small enough to fit in your pocket, not easy-on-the-eye to read for long periods in the same way as a Kindle. Jack of all trades and master of none – or so I thought.
What I hadn't realised was that this is pretty much the point. The iPad is a disruptive innovation. Disruption, for those of you who, like me until recently, aren't familiar with business theory, is one of the ways companies upend their bigger and older competitors in business these days. The gist is as follows: when a business comes along with an innovative product that challenges an existing one, it is often cheaper, of lower quality and is often deemed "not good enough" by potential customers.
Think of mp3s – their sound quality is far inferior to CDs, but customers realised pretty soon that they were both cheaper, more convenient and of a just about satisfactory quality. When personal computers first arrived, those who built powerful mainframe room-sized computers dismissed them as incapable – and indeed they were often so slow that they couldn't keep up with the people typing into them. But the point behind disruption is that in due course the quality of the product gets to a standard that is acceptable to consumers (and if not better than the incumbent product, it is at least cheaper). Right now, flash memory is disrupting hard disks. And so on.
The graph below tells the story: sustaining technologies, such as hard disks, or dedicated digital cameras, improve over time, but eventually reach a standard beyond what most consumers, and perhaps even high end users are after. Into the market comes the disrupting technology, for instance flash memory or cameraphones, whose qualities (be they size or picture quality) are initially well below the standards of the sustaining technology but are compensated by their cheaper price or added convenience. Sometimes a whole new range of customers enters the market at this lower price/quality point. Eventually the quality of the disrupting product can surpass the old sustaining one.
susdir2
The iPad is disruptive to notebook computers: in its first iterations it doesn't meet the exacting standards that many computer users have, so it is not an obvious replacement. It wasn't good enough for me as a journalist; or indeed for anyone who wants to use their laptop for photo manipulation, DJing, game playing and so on. But it is good enough for many others.
It is good enough for students, for instance. Since returning to college, I have found myself using the iPad more and more. It is smaller than the laptop, I can use it to read as well as take notes and write. It still isn't brilliant for article editing, but it more or less does the job (and given I don't have to pump out articles at the rate I did as a professional journalist, so be it). I produced this blog (and indeed have written almost all of my recent blogs, papers, essays and all the stuff one needs to produce at college) on it. A couple of weeks ago my laptop spontaneously combusted. It didn't matter, because by then I hadn't been using it for some months anyway.
The imminent update to the iOS takes the iPad one step forward. In comes multitasking, in comes midi support and a host of other upgrades that, gradually, remove more demanding customers' resistance to shifting down the iPad. Then along will come the next iteration, with higher resolution and more power, making it less attractive, in comparison, to own a laptop, and so on and so on.
It isn't just the iPad that's doing the disruption; it looks increasingly as if Apple's existing operating system, Mac OS, will soon be disrupted by its mobile OS, which has been inserted as a kind of trojan horse into the next update of Mac OS.
This is classic disruption, as laid out by Clay Christensen in The Innovator's Dilemma. The interesting thing in this case is that usually the company that does the disrupting is quite independent from the one that gets disrupted. In this case, Apple is disrupting itself, which is quite an achievement for a giant company. The only question is whether they can keep it up.

Steve Jobs: key quotes

Steve Jobs, Apple co-founder and former CEO, dies at the age of 56

Candles, flowers, and an iPhone with Steve Jobs photo displayed outside the Apple Store at West 66th Street in New York
Steve Jobs, the Apple co-founder and former CEO, has died at the age of 56
after a long and highly public battle with cancer. "Apple has lost a visionary and
creative genius and the world has lost an amazing human being," Apple said.
"Steve's brilliance, passion and energy were the source of countless innovations
that enrich and improve all of our lives."





Here are some key quotes from Steve Jobs, the legendary 
co-founder and former chief executive of Apple Inc, 
who has died aged 56 after a long battle with cancer.
Apple CEO Steve Jobs holds a new iPod shuffle MP3 player at the 2005 Macworld Expo January 11, 2005
Apple CEO Steve Jobs holds a new iPod shuffle MP3 player at the 2005 Macworld Expo January 11, 2005 Photo: Getty Images


"Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything - all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.''
"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma - which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice.''
"Stay hungry, stay foolish."
Commencement speech at Stanford University, 2005
"Innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we've been thinking about a problem. It's ad hoc meetings of six people called by someone who thinks he has figured out the coolest new thing ever and who wants to know what other people think of his idea.''
"And it comes from saying no to 1,000 things to make sure we don't get on the wrong track or try to do too much. We're always thinking about new markets we could enter, but it's only by saying no that you can concentrate on the things that are really important.''
Interview with Business Week, 2004
"In most people's vocabularies, design means veneer. It's interior decorating. It's the fabric of the curtains and the sofa. But to me, nothing could be further from the meaning of design. Design is the fundamental soul of a man-made creation that ends up expressing itself in successive outer layers of the product or service.''
"My position coming back to Apple was that our industry was in a coma. It reminded me of Detroit in the '70s, when American cars were boats on wheels.''
Interview with Fortune Magazine, 2000
"These technologies can make life easier, can let us touch people we might not otherwise. You may have a child with a birth defect and be able to get in touch with other parents and support groups, get medical information, the latest experimental drugs. These things can profoundly influence life. I'm not downplaying that. But it's a disservice to constantly put things in this radical new light - that it's going to change everything. Things don't have to change the world to be important.''
Interview with Wired, 1996
"I don't think I've ever worked so hard on something, but working on Macintosh was the neatest experience of my life. Almost everyone who worked on it will say that. None of us wanted to release it at the end. It was as though we knew that once it was out of our hands, it wouldn't be ours anymore. When we finally presented it at the shareholders' meeting, everyone in the auditorium stood up and gave it a 5-minute ovation. What was incredible to me was that I could see the Mac team in the first few rows. It was as though none of us could believe that we'd actually finished it. Everyone started crying.''
Interview with Playboy, 1985
"You think I'm an arrogant [expletive] who thinks he's above the law, and I think you're a slime bucket who gets most of his facts wrong.''
Answering a New York Times reporter who asked about his health, 2008
"We don't get a chance to do that many things, and everyone should be really excellent. Because this is our life."
Interview with Fortune, 2008
"Design is not just what it looks like. Design is how it works."
Interview with The New York Times, 2003
"Being the richest man in the cemetery doesn't matter to me. Going to bed at night saying we've done something wonderful, that's what matters to me."
Interview with The Wall Street Journal, 1993
"You can't just ask the cutomers what they want and then try to give that to them. By the time you get it built, they'll want something new."
Interview with INC magazine, 1989

Thursday 22 July 2010

Apple Inc.




Tue, Jun 10, 2008
Apple shares fell 4% following the release with investors booking profit from the recent boost in stock in anticipation of the 3G iPhone. It is currently trading around $181 with market cap of around $160 billion. In after-hours trading, it fell about 1% to trade around $180. The future of the Apple stock, however, still looks very promising.

Tuesday 26 January 2010

The Company in Middle Age (2): Midlife crisis of Apple


The company in middle age can have a midlife crisis. 

Whatever it's been doing doesn't seem to be working anymore.  It abandons the old routines and thrashes around looking for a new identity.  This sort of crisis happens all the time.  It happened to Apple.

1980:  In late 1980, just after Apple went public, it came out with a lemon:  the Apple III.  Production was halted while the problems were ironed out, but then it was too late.  Consumers had lost faith in Apple III.  They lost faith in the whole company.

There's nothing more important to a business than its reputation.  A restaurant can be 100 years old and have a wall full of awards, but all it takes is one case of food poisoning or a new chef who botches the orders, and a century's worth of success goes out the window.  So to recover from its Apple III fiasco, Apple had to act fast.  Heads rolled in the front office, where several executives were demoted.

The company developed new software programs, opened offices in Europe, installed hard disks in some of its computers.  On the plus side, Apple reached $1 billion in annual sales in 1982, but on the minus side, it was losing business to IBM, its chief rival.  IBM was cutting into Apple's territory: personal computers.

Instead of concentrating on what it knew best, Apple tried to fight back by cutting in on IBM's territory:  business computers.  It created the Lisa, a snazzy machine that came with a new gadget:  the mouse.  But in spite of the muse, the Lisa didn't sell.  Apple's earnings took a tumble, and so did the stock price - down 50% in a year.

Apple was less than 10 years old, but it was having a full-blown midlife crisis.  Investors were dismayed, and the company's management were feeling the heat.  Employees got the jitters and looked for other jobs.  Mike Markkula, Apple's president, resigned.  John Sculley, former president of Pepsi-Co, was brought in for the rescue attempt.  Sculley was no computer experts, but he knew marketing.  Marketing is what Apple needed.

Apple was split into 2 dividsions, Lisa and Macintosh.  There was spirited rivalry between the two.  The Macintosh had a mouse like the Lisa and was similar in other respects, but it cost much less and was easier to use.  Soon, the company abandoned the Lisa and put all its resources into the Macintosh.  It bought TV ads and made an incredible offer:  Take one home and try it out for twenty-four hours, for free.

The orders poured in and Apple sold 75,000 Macintoshes in 3 months.  The company was back on track with this great new product.  There was still turmoil in the office, and Jobs had a falling out with Sculley.

This is another intersting aspect of corporate democracy:  Once the shares are in public hands, the founder of the company doesn't necessarily get what he wants.

Sculley changed a few things around and solved a few more problems, and the Macintosh ended up doing what the Lisa was supposed to do:  It caught on with the business crowd.  New software made it eary to link one Macintosh to another in a network of computers.  By 1988, more than a million Macintoshes had been sold.

A company's midlife crisis puts investors in a quantdary.  If the stock has already dropped in price, investors have to decide whether
  • to sell it and avoid even bigger losses or
  • hold on to it and hoe that the company can launch a comeback. 
In hindsight, it's easy to see Apple recovered, but at the time of the crisis, the recoverry was far from assured.



The Company in Middle Age (1): Still growing but not as fast. Occasional Midlife crisis

Companies that manage to reach middle age are more stable than young companies.

They have made a name for themselves and they've learned from their mistakes.  They have a good business going, or they wouldn't have gotten this far.  They've got a proven record of reliability.  Chances are they've got money in the bank and they've developed a good relationship with the bankers, which comes in handy if they need to borrow more.

In other words, they have setled into a comfortable routine.  They're still growing, but not as fast as before.  They have to struggle to stay in shape, just as the rest of us do when we reach middle age.  If they allow themselves to relax too much, leaner and meaner competitors will come along to challenge the. 

A company can have a midlife crisis, the same as a person.  Whatever it's been doing doesn't seem to be working anymore.  It abandons the old routines and thrashes around looking for a new identity.  This sort of crisis happens all the time. It happened to Apple.

A company's midlife crisis puts investors in a quandary.  If the stock has already dropped in price, investors have to decide whether
  • to sell it and avoid even bigger losses or
  • hold on to it and hope that the company can launch a comeback. 
In hindsight, it's easy to see that Apple recovered, but at the time of the crisis, the recovery was far from assured.