The US Smartphone Wars According to comScore, June 2015 Update – Apple Makes a Move

(Notes: The comScore report “lags” two months – the original date of publication is Aug. 7. Also, this post is primarily in the context of “market share”, which inherently does not account for market unit growth year-on-year. And since this is a comScore meta-analysis, take as many grains of salt as you may require.)

That Was Then, This is…Not Quite One Year Later

When I last looked at comScore’s US smartphone market share data (in November, part 1 is here, part 2 is here), Android OEMs (dominated by Samsung, then LG, Moto and HTC rounding out the “Big 4”) were holding steady at a greater than 50% “market share” per comScore’s 30,000-person survey of smartphone owners, measured on a 3-month average basis. (So, call it a hybrid of installed base and market share analysis, considering the methodology.) Meanwhile, Apple was in the low 40s, but it didn’t look like much else was happening. Android was “holding steady” since Dec. 2012, more or less, and Apple “appeared to have plateaued” (though with a bit of net upward movement from late 2013 onward).

When I took a closer look at the data, though, I noticed Samsung, as the US Android standard-bearer, was losing positive momentum in a pretty relentless way. Combined with their dramatic reversal of financial fortune – and retrograde growth starting CY14 – I predicted that Apple would experience “comScore market share growth” of closer to 400 basis points (similar to its Dec. 2012 – Feb. 2013 comScore share jump) than flat growth (read: essentially zero).

How’s that prediction turning out so far, with 3 data points left to measure? Approaching half-right, perhaps, but that’s secondary to the trends themselves.

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Mav’s $AAPL Maths 101: 2016 Price/Earnings Multiple Calculation, Assuming No Share Price Change, “Normal” + Ex-Cash

I know a few of the arguments against the price/earnings ratio, so I won’t waste words debating them here.

“In the Present” Preliminary Reference Notes:

As of today, Apple’s ttm P/E is (based on Apple’s 10-Q filing of 5.77B diluted shares outstanding) $655.18B est. market cap / $50.737B ttm earnings = 12.9. Where Yahoo! Finance gets its 13.13 and Google Finance its 13.11, I’m not exactly sure, but close enough. Net out Apple’s $149B in net-of-debt cash, and the current ex-cash P/E is around 10, give or take a few percent.

Step One: The Forward P/E

AAPL last closed at $113.49. We’ve gone from Calvin Harris (feat. Kelis) (“Bounce”) to Ella Henderson (givin’ up the ghost) in one day’s time. What next? A Panic! at the Disco? Well…given that pre-market price action…

Full fiscal year (FY) 2016 estimate courtesy of the 47-member Yahoo! Finance (professional) analyst consensus: $9.78 (you’ll see how amusing this number is later on)

Forward P/E (Sep. 2016 FY-end basis, in practical terms, “as of around the late October 2016 FQ4 earnings release”): around 11.6.

Step Two: Ex-Cash Forward P/E

Cash Estimate

Well, to figure out the ex-cash circa. Sep. 2016 P/E, let’s wild-guess what Apple’s cash balance might be in around one year’s and a few weeks’ time.

Apple’s cash balance net of debt is currently $149B. Apple should generate greater than $50B in cash this fiscal year and (yes, I’m calling it now) the next. How do I know this?

Well, as of the end of FY 2014, Apple had $120B net of debt (let’s just assume Apple won’t be paying its hard-borrowed cash back anytime soon – why would it?). We’re $29B north of there:

  • with $22B in share repurchases through FQ3 2015
  • with $8.6B in dividends paid
  • with $7.6B in PP&E purchases (Apple 10-Q, FQ3 2015, pg. 6)
  • with $10.6B in cash (income) taxes paid (same)
  • with $1.3B in taxes paid related to net share settlement of equity awards (same)
  • with $427M paid in interest (seems almost trivial by comparison, doesn’t it) (same)

That’s a grand (sub)total of $50.5B in outflows through three fiscal quarters. Sure, there’s probably some significant counterbalancing inflows not listed here, but – you get the picture, I think. Given all this, I’ll wild-guess a basically static cash balance of $150B.

Share Repurchase Estimate

Seems pretty conservative, even if you add:

• a dividend increase (10%, call it $1-1.5B year-over-year increase in dividend expense?) and

• a faster-than-this-year’s-pace of buybacks I’m projecting ($38B, net of $3B or so share-based compensation expense) if AAPL Silly Season continues much longer – “unlikely”, but you never know.

That $38B is itself fairly conservative when you consider that Apple is due to repurchase some unknown billions of stock for FQ4 2015 – don’t think it won’t take a serious look at buying “more than it otherwise might” during this latest selloff.

Subtract the $38B in net share settlement from Apple’s current ~$655B market cap and you get a 5.8% share reduction, to 5.435B or so diluted shares outstanding versus 5.773B or so now (the most recent share-weighted data point).

FY 2016 EPS Projection

Let’s run a zero-growth baseline just for kicks. Meaning we (1) accept analysts’ FY 2015 EPS projection – which Apple should get to, absent something actually apocalyptic happening to the yuan – say somewhere north of 10% devaluation impact in a quarter, which Apple cannot mitigate with its world-class hedging program, and a ripple/shock effect on consumer spending, both of which seem…premature to call as of today. Then, (2) since we’re assuming zero growth from Apple (oh, people will start thinking that, just you wait), just subtract the net buyback amount to get the fully-financially-engineered FY 2016 EPS number.

FY 2015 Yahoo! Finance consensus EPS: 9.13

Divide by .942 (5.8% share reduction) to arrive at:

FY 2016 EPS: $9.69, also known as nine cents or one percent below the 9.78 analyst consensus. What a coincidence.

~$655B – $150B net cash = ~$505B

Given $113.49 share price:

Forward P/E: 11.7

Ex-cash P/E: *9.02*

Well, if you really want to turn on the pessimism and ignore the significant valuation backstops added since then (from share splits to capital return to Uncle Carl Icahn), Apple’s ttm P/E went to 10 (maybe a bit low briefly)? during the Dark Times of late 2012 to mid-2013.

That’s, what, another 20% or so drop from here? To…$520B or so market cap?

If I had to guess, Apple, with its $150B in net reserves, would not mind racing to retire another 10% of its shares (with an accompanying $1B+ in dividend payout savings per year) if the right opportunity presented itself. It’ll be fascinating enough just to see what Apple does in the next few weeks before quarter-end. As long as the fundamentals hold up, a swoon for investors could well be a boon for the company.

The AAPL Tree “Guide” to Apple Inc. Annual Revenues in Taiwan, China, US: Three Additional Data Sets for (Mostly) Home Gamers

This data is, at the very least, lesser known, so let’s see if I can’t do my small part to get it out there as part of my quest to understand Apple Inc. just that one little bit better.

Hidden Data – Taiwan

This one probably would’ve gone overlooked until at least fiscal 2015, had it not been for a retail reconciliation covering fiscal 2012-2014 that Apple released (probably a bit “grudgingly” – I blogged about it a few months back).

First, the data. Then, where to find it (hopefully going forward), which conveniently segues into the next section.

apple-taiwan-revenues-fy2012-2014

It’s only three fiscal years of knowable data, and only three data points at that, but still interesting, as I noted in my earlier quick blog post.

Wait a second. Apple doesn’t report data for Taiwan.

Well, yes and no. On the “yes”, I’m about 90%+ confident, although Apple IR is welcome to correct me if I’m wrong. And…yes… 😀 … Apple doesn’t report data for Taiwan directly. Yet due to a fascinating quirk in its revenue geography reporting (will the status quo be maintained going forward?), plus a recent accounting adjustment, it now does, indirectly.

Garfield Minus Garfield Greater China Minus China

This part of Apple’s revenue geography reporting is fairly well known:

Screen Shot 2015-07-29 at 10.28.20 AM

In case that’s a bit hard to see or *sigh* you don’t feel like clicking for the full-size image: “The Greater China segment includes China, Hong Kong and Taiwan.”

This part of Apple’s revenue geography reporting…may not be so well known (pick any recent 10-K filing, this one is from page 79 of Apple’s 2014 10-K):

Screen Shot 2015-07-29 at 10.43.13 AM

Interesting, huh? “China”. Not “Greater China”. Ask the experts as to why, but seems Apple might be required by accounting regulations, SEC, FASB, GAAP, international, whatever, to disclose certain information whenever a customer or country accounts for more than 10% of annual sales. More on that later.

So, you have China defined “geopolitically” (if I’m typing that right): Mainland China plus Hong Kong. Notice how Taiwan’s missing?

“But wait!” you reply. “How can you be so sure you can get directly to FY 2012-2014 Taiwan data from here?” Two reasons. First, Apple has specifically given out Retail-inclusive, reconciled data from FY 2012-2014 for “Greater China” – so there’s no (GAAP) revenues unaccounted for in that rev geo. Second, when you compare the “China” data to the ex-Retail Greater China data (which is provided by Apple in that reconciliation) and apply a little plain language analysis (sales by actual country), it seems very clear that the China data encompasses Apple (brick-and-mortar) Retail (Store) sales. For instance, ex-Retail Greater China revenue for FY 2014 was $29.846B, while “China” revenue was $30.638B for the same period. Without mainland China plus Hong Kong including Apple Retail Stores, that number wouldn’t make sense.

And so it happened that Apple’s consolidation of Retail revenue into its five revenue geographies, for the dual purposes of improved visibility and obfuscation, incidentally unlocked 3 annual data points worth of Taiwan revenue. And maybe more going forward. (Fun Fact: Taiwan doesn’t have an Apple Store for whatever reason – even though Apple makes over a billion in revenue there annually – so there’s no “Retail” revenue in that country.)

Now for some not-so-hidden, but arguably even more interesting data.

Not-So-Hidden Data – US and China

First, a little commentary on the annual revenues of Apple’s two most important customer bases – the populations of the United States and China.

First, China, since it’s the huge growth story:

apple-china-revenues-fy2009-2014

Mostly about iPhone, with a side of iPad and some unknown continuing boost from Mac? Pretty much. 😉 And if you think the jump from FY 2009 ($769M) to FY 2014 ($30.638B), a nearly 4000% increase, is impressive, just wait until the FY 2015 numbers are presumably released.

At this point I’d say a decent fraction of you might be asking – as I would have up until yesterday – “wait, wasn’t Asia Pacific the reported revenue geography back in fiscal 2009?” Yes, “Greater China” wasn’t an official segment until Fiscal 2012/2013. However, luckily for us – as at least one Apple commentator by the name of Horace Dediu noticed within the 10-K years before I did – China crossed the 10% threshold of total annual revenue in fiscal 2011 ($12.472B regional vs. $108B total). And as a bonus, Apple reported the prior two fiscal years’ worth of China revenue (as I’m guessing it was required to, see page 74 of the 2011 10-K).[1]

Now that you know where to find the annual revenue data for Taiwan, China and the US (at least until Apple changes things up somehow), I’ll wrap up with a quick note on China and US revenue (UPDATE – which Apple mentions in every quarterly release as domestic – whoops).

apple-us-china-revenues-fy2009-2015E

Sure, the US may not be growing “much”, but look where it is now, with the iPhone 6/6S/Plus wave still in progress, plus the arrival of Watch, plus a little help from the old stalwart Mac, plus iPad sales potentially reversing to steady growth and some point. (Oh, can’t forget the new-lease-on-life iPods finally being less of a weight on Other Products.) Most importantly, Apple is still growing sales in its stronghold/home country at all, which never hurts.[2] Contrast: iPhone stealing the competition’s lunch in South Korea, as per Apple’s latest conference call.

FY 2015 represents a bit of wild guesswork on my part, but given the “blended” YOY trends as seen in the Americas, plus the not-so-hidden trends in Greater China (of which Taiwan is probably far less than 5% of at this point)…”mind the gap”. Or should I say, the rapidly closing one. Thanks to iPhone 6 + China Mobile, Apple’s bounded its way to a stunning new level of success that I’m guessing will lead to around 80%, and possibly more, YOY growth when Apple presumably reports China-specific revenue results in its 2015 10-K, due out around October or so given past history.

Maybe this chart alone is sufficient to stand in for that other blog post I was thinking of writing up. Because when China/Greater China growth cools down from its torrid 70%, 100%+ year-over-year pace…well, it’s really quite normal and expected. And let’s be honest, here – it really won’t take anywhere near 70% annual growth, given Greater/China’s incredible scale, to keep Apple’s overall business growing nicely, sustainably and, despite whatever the bears and skeptics may tell you, at a more than reasonable level for the supergiant $200B+ annual revenue weight class, which no pure-play tech company in history save Apple has ever joined before.


[1] This information is currently found in the “Segment Information and Geographic Data” section of Apple’s 10-K filings. Yes, there’s also some interesting annual data on “long-lived assets” for the US, China and rest-of-world. Perhaps another time.

[2] Bonus/Aside: While only an indirect and annual (UPDATE: NOPE – quarterly, I regret the error) clue, US-specific revenue is still useful for horseshoe-tossing things like US cash generation (capital return).

Apple’s Taiwan Revenues 2012-2014(+?) A “Small” But Fascinating Piece of the Revenue Puzzle

“Minor World Exclusive” 😛 / Did You Know?(tm)

Apple has given out annual revenue data for Taiwan for the past three fiscal years.

At least I’m quite sure it did.

I found this data basically by accident (hint: it’s a little scattered), and yet once I found it, I very quickly knew what it was. For my next super-annoying puzzle: Guess how. 😉 Yes, you can find it too, it’s all there, in the “hiding in plain sight” category. No shoe leather required, in journo-speak. It was all there for a few months, it was just waiting to be found.

apple-taiwan-revenues-fy2012-2014

Based on the very few data points, seems Taiwan revenue grew around 11.6% year-to-year in FY 2013, and 13.5% YOY for FY 2014. Taiwan sales crossed the $1B mark in FY 2013, presumably for the first time. Good, steady business in that country, apparently, and Apple has had a presence in Taiwan for some years now.

Will Apple “provide” Taiwan annual revenue data once again (in indirect fashion) for fiscal 2015? Seems so given recent reporting methodology. Farther out than that? We’ll see. A very interesting piece of the puzzle, in any case.

There’s two other interesting puzzle pieces to be found, MUCH bigger ones, once you know where to look. More on one of them later, maybe. (I’m workin’ on it.)

A Puzzle

(Advance Note: You’ll need to click on the thumbnails to get the full effect.)

The red of tumult, struggle, grimly faithful companion of sweat and tears.

Verdancy, at long last, celebrated and doubted.

A vision at once near-unthinkable, mundane, fantastic. Inherently uncertain, even as a record not yet written already knows.

puzzle-1-revised

What was I, what am I? What might I yet be?

Am I one, more than one, inseparable from the more?

I understand the entirety of tumult is difficult to see at this scale. This should help:

puzzle-2

Feel free to ask, discuss, or guess, whether on Twitter or in the comments below (you just need to choose a name and start typing). Enough right answers may lead to a follow-up, or simply the end of the puzzle. Otherwise, perhaps another clue.

I do like puzzles, even if I might not be the best at crafting them (to say nothing of poetry). Hope you have a little fun with this one.

The Miracle (of Tim Cook), Earnings Chicken, and the Normalcy of Slowing Growth

I apologize in advance…both for this stream-of-consciousness-esque post, and for being unapologetically corny:

I woke up at the moment
When the miracle occurred
Heard some analysts give props the stock deserved

Every point it ever lost
Now has been returned
The most profitable firm I’d ever heard

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$AAPL FQ3 2015 Earnings Preview + FQ4 Quick Look: Set Your Watch to “Tiebreaker”

Welcome to the AAPL Tree’s ninth consecutive home game quarterly earnings preview.

Let’s get right to the two rather obvious storylines of FQ3 in order of importance: (1) iPhone “carryover momentum” and (2) searching for the first, albeit intentionally obfuscated clues of Apple Watch’s sales performance in its first 10 weeks of availability (give or take a day or two)…

…well, after the preliminaries of current analyst expectations, Mac, iPad, Services, and non-Watch Other Products. (REMINDER: Please refer to the About + Disclaimer section. You won’t ever find actionable investing/trading advice here, just a humble home gamer in his corner of the Web trying to understand Apple and tech a bit better. As you know, no one has any clue what AAPL stock will do from day to day, quarter to quarter, year to year, even if earnings “seem good enough”. AAPL’s essentially been in a range for over five months – enough said.)

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An Apparently Subtle Change to Siri Could Be a Bigger Deal than You Might Think

“What on Earth is Mav* talking about this time?!”, I’m reasonably confident a decent fraction of you reading this are thinking.**

Well, ask Siri to remind you to do something.

One fact about Siri: It’s not limited to improving only after firmware updates. This is hardly anything earth-shattering, of course, since it manifests in Siri giving better responses based on your voice input, or, say, better jokes:

Well, maybe different jokes. Anyway, in its most basic use case (iOS/programming experts, look away and try not to laugh), Siri

(1) receives voice input for transmittal to Apple (thankfully, if the connection’s not great yet not completely dead, Siri will retain the input on-device for some period of time while it finds an upload opportunity),

(2) does off-device processing (translating what you said, or it thinks you said, then returning the transcription to you – a long-standing pain point of mine) and

(3) provides a scripted response fed from Apple (though for basic stuff like alarms, it’s probably already on-device).

Since (2) and (3) are done via remote back-end Siri servers or something, Apple is completely free to make whatever changes and enhancements to, say, improve transcription speed/accuracy, or respond with the Siri writers’ latest “canned responses”/Apple-approved humor.

A second fact about Siri: Reminders changed recently on the out-since-April iOS 8.3.

IMG_8722

Notice the difference? This’ll help, if not:

Actually, now that I think about it, there’s two changes. First, Siri finally stopped asking me “Here’s your reminder…shall I create it?” Second, Siri offers an “undo” (“Remove”) button that didn’t exist before.

Whether this code was added to Siri or is only now activated, up and running, the welcome change of removing an “are you sure?” step from the usual interaction model also happens to be something I don’t think Apple has ever done for Siri.

In my exceedingly humble opinion, the reason this small step is both big and important is Apple advanced Siri’s functionality on-the-fly by allowing it to immediately execute the user’s intent (reminder creation).

“Big deal”, a skeptic might reply. “This is just for a simple reminder, and Apple had API hooks into Reminders anyway.”

Maybe the skeptic is right, but my rejoinder – Apple may have just demonstrated, through this mundane improvement, that anything Siri is hooked into via existing firmware can be optimized, and the interface adjusted, without a firmware update.

It’s similar to the App Store app, which also has some ability to self-update between firmware releases, and kinda sorta not entirely unlike changing course on Apple Music free trial streaming royalties after a strongly-worded Tumblr post from Taylor Swift. 😀

Bad pun aside, I’ll be watching the space as a Siri user who sees so much untapped potential remaining. Siri just proved itself to be a more dynamic and adaptable work-in-progress than I initially believed, and I like where Apple’s going with this, even if this step is modest to the point of going unnoticed. The ability to continually refine Siri towards being a more functional and capable voice-activated assistant, in “real time”, will prove very important as the “AI Wars” rage on between Apple and its competition.


* That would be your humble correspondent’s Internet nom de plume, tag, whatever, just in case you didn’t know.

** If I’m right…love it! It’s a small niche I occupy at Blog Lane, and often lonely, but still fun.