mod note (Andy) this was originally posted on 10/26/12
A fundamental contention between bulls & bears seems to be the ability of AAPL to continually sell new iphones/ipads at premium prices given the hyper-competitiveness of consumer hardware. One only has to see the meteoric rise and fall of RIMM to see this fact.

Of course, it's now in vogue to disparage Blackberries, but pre 2008 times were looking bright as ever. With a stranglehold on enterprise/business users, a proprietary security system/network, and an efficient phone design, RIMM could do no wrong. Was that a moat? In hindsight, most definitely not, as missteps in consumer phones (yes, I have one), have brought questions as to RIMM's survival, let alone growth.

For AAPL, bulls point to continual innovation driven backed by $100B-cash on hand, a cheap valuation ~13x ttm earnings vs. 20%+ ttm eps growth. Specifically, Einhorn points to the software/AAPL-halo argument, which says that users who enter the AAPL ecosystem (itunes, icloud, ios, etc.) will continue to upgrade.

In essence, AAPL is a (social) media software company that monetizes through high margin hardware.

Bears point to reduced innovation after Jobs' death, with the recent iPad mini premium-priced but lacking any real new features. At the same time, Samsung's Galaxy S3 has better hardware specs (larger screen, etc) and has outsold the iPhone 4S last quarter (except at AT&T).

Finally my 14-yr old brother, who has an itouch and uses itunes, likes the iPhone 4S better than iPhone 5.

Who is correct? I used to be of the former opinion, but with the recent sell-off and insider selling even into the iPhone 5/iPad mini, I'm not so sure and can think of easier longs to buy.

Other thoughts welcome!


Disclosure: no position in AAPL 

Comments (6)


Well, I'm still maintaining my long position. Apple has done this pullback after Q4 earnings before. So far, the news are that they are selling all the phones they are making. That does not means necessarily that they will break earnings records in Q1 come January, as the supply can be low due to the difficulty of manufacturing the phones. So even when they sell all the ones they make, they don't sell enough. But I think this pullback is way overdone. And it is a nice entry point. So I may add to my position. I am even considering an options play. What do you guys think is the best option play? Also, let's hear from someone who a different point of view.


The only way is down.


Personally, I think apple crashing is a bit overdue. They are going to see margin compression moving forward and cannibalization of their more profitable lines by those that are less profitable like the ipad mini. I am no saying they are going the way of RIMM but certainly their days of growing like crazy are probably going to be past them soon. The new team at Apple needs to prove it can innovate rather than simply maintain the status quo. I hate to say this, but really all they've shown is the ability to screw up the release of the Iphone 5 and then make their newest generation Ipad irrelevant after 7 months and release a smaller, less profitable version of it. None of that inspires to buy Apple shares and scream 1 trillion dollar valuations. Please. Let's come back to earth about apple and realize that they will still make gobs and gobs of money but slowly but surely you are seeing competitors creep up on them (samsung galaxy). Nothing happens overnight, and this move is simply a combination of a ton of factors and then on top of it the fact that every hedge fund on this side of the galaxy is in there and all kinds of other people.


Plz, the don't even need double digit growth anymore to have higher valuation than what its trading at now. But their set backs every quarter is a bit worrying. i hate posted this before, my faith in tim cook is quite low but the product can sell itself still, and unless there is an actual decline in IPhone and IPad sales YoY, i'll hold on. And also does MINI really have lower margins than the full size ones? From the BOM estimates I'd figured after all the other freight costs and what not added, it would be around or even higher than current 10" inch ipads.


apple is a garbage company with garbage, iteration-only derivative products, and passing them off as innovative...nokia developed a touch-screen years before apple and then was scrapped. The best you can say about apple is obviously the marketing acumen...and stop with the use of moat--it is an overused word popularized by morningstar to sound flowery in research notes, which are all pump and dump bullshit anyhow

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