iPhone Ubiquity

The iPhone is the coolest gizmo I have ever owned.  Nothing, compares.  Not my baseball cards, my Camera, stereo high def-TV, convertible, toaster oven, None of it.  Not even my Mac Plus (which back in the day was pretty badass)

The iPhone is simply put the single most compelling computing device to hit the market since the first PCs 30 years ago. 

It is clear that the iPhone as a handset and platform are so dramatically different and better than current market offerings that sales growth will continue to be freakish.

Gene Munster Put Apple on its "Alpha"  (Piper Jaffray)List this week indicating that there is significant short term upside in the stock of Apple (AAPL).  While mentioning that he expects Apple to sell 45 Million handsets next year.  45 MILLION.  I have not seen another analyst reporting a number that big.

Reports of manufacturing runs of 800,000 a WEEK being reported by several sources.

Munster mentioned Apples Back to School promotion which gives buyers a $299 incentive to purchase a Mac  (Free iPod woo hoo).

So I did some analysis of my own.  and projected out Sales thru 2014.  It is a Projection so by definition it will be wrong. 

Assumptions

• 15-20% annual price declines
• 10-15% cost declines
  
• iPhone kabuki deferred earnings
• 30% market share in 2014 (Nokia has 40% today you think thats going to hold?)
  
• 37% tax rate
• Declining growth in the Handset market 20-7%

I project Apple with 30% of the handset market in 2014.  (I made it up)  Nokia has 40% of the market currently so it is not unreasonable to assume that one company could have a share of that size.  There will be competition from someone we don't know who yet but someone will come up with a compelling competitor to the iPhone platform.

As a thought experiment Apples earnings per share could be 12 bucks a share from iPhone sales ALONE in 2014.  Oh and BTW 23 Billion in additional deferred earnings.  

Enjoy.

Let me know.  I can send you the Excel...

The writer has been long AAPL for a long time.  The writer is not giving advice (call your mother) am not telling you to buy this stock, and think that people that don't do their own research are lazy and doomed to failure 

iPhone Accounting Sucks

First the Disclaimer

 

Since I have no reason to “Know” anything more than anyone else that reads public documents from Apple.  I cannot make predictions about what will happen or what the company is planning in the future.  That said I do have an ongoing dialog with myself about what and why things happen…  So what follows is a list of questions regarding the unknown and what it might all mean for future quarters.

Some General Observations

24 month recognition of iPhone sales sucks.  It seems designed to smooth earnings and give management a warchest of cash.  It made more sense last year while the previous revenue sharing arrangement with AT&T was still in play but now that they are getting a subsidy at time of purchase It makes little sense.  Management can justify recognizing the earnings anyway they like and it is a reasonable argument that the product has a 24 month life.  That said I get updates on my 2 year old Mac once or twice a month and they seem to be capable of recognizing those earnings at delivery.  Over the last 4 quarters Apple has built up over 4 billion in deferred earnings (about 65 cents a share net NOI) This problem will be more pronounced as time goes forward as the business grows, since Apple will only recognize 1/8th of the sales from the current quarter in the current quarter.  From July 1 to the end of this year Apple will sell 4-6 billion dollars worth of iPhones at retail that will translate to only 500 to 750 million in earnings. Even more dramatically the net earnings per share if recognized would represent as much as $1.00 per share vs. 12.5 cents.