lesson to independent analysts:  don’t believe your own press

  • Posted: 18 October 2011 10:39 PM #31

    Brad Hutchings (Bosco) - 19 October 2011 12:53 AM
    DawnTreader - 18 October 2011 11:17 PM

    Clearly, the underlying eco-system is not as developed as I expected and product demand remains heavily dependent on new product introductions.

    Follow that logic to understand how Google continues to positively surprise and Apple couldn’t meet consensus numbers. An open ecosystem with multiple competing players offers choices, spurs innovation, and institutionalizes churn. 16 months for a speed bump iPhone? Cracks easily if you drop it on its face? Seriously????

     

    I’m so tired of hearing your crap. 

    Speed bump ??  It’s 7 times as fast , the camera is much better and Siri is getting rave reviews not to mention they sold over 4 million in a weekend.

    A product so well designed in the first place is not easy to upgrade .... not like the crap that people pass of as innovation ... read ANDROID.

    From the bottom of my heart .... FUCK YOU.

         
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    Posted: 18 October 2011 10:39 PM #32

    DawnTreader - 19 October 2011 01:10 AM

    Brad:

    I don’t usually agree with what you say, but I appreciate your putting your name on your comments. I’m not really happy with Google’s performance at the moment (remember, I’m long GOOG too).

    Overall, the lack of growth in the underlying eco-system is what concerns me. If you take out of the equation the growth in Mac sales, iOS devices had a languid quarter.

    This morning in the Android ecosystem, we had a MOTO event that Schmidt showed up to where the super thin and super tough (Kevlar, Gorilla Glass) Droid RAZR was introduced—it was a Verizon event too.

    This evening, in about 35 minutes, we’ll see the Samsung Galaxy Nexus and Ice Cream Sandwich unveiled. It’s a bigger phone.

    It’s just more exciting in Android space. No matter who you are, there’s someone trying to make the perfect phone for you.

         
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    Posted: 18 October 2011 10:40 PM #33

    Xtra - 19 October 2011 01:12 AM

    I am not judging.

    I am raising questions and hypothesizing.

    I think the independent analyst community adds great value to the conversation and is very often very right.  Many of you are very, very smart, and articulate, and very generous with your advice and assistance.  I’ve valued the give and take with all.

    That said, this earnings season was a glaring exception to the “rule” as promulgated by P E Dewitt.

    The Independents were wrong in their conclusions, much wronger than the reviled WS crowd. They were tossing around numbers of $8 and $9 and #10 as if it were a fait accompli. 

    Group think?  Irrational exuberance?  Incorrect assumptions about ecosystems, or consumer behavior? 

    This is an important conversation.

    I agree it is important, and also believe we can be victims of group think and the pro analysts can suffer from the same fate.  One of the things I watch is the delta between the pro’s and my estimate.  As far as the stock the market relies on the real numbers and the estimates of the pro’s. 

    The big question mark IMO this qtr was the iPhone number, Blackberry and Nokia had market share ripe for the picking and Apple failed to get the iPhone 4S to market in time, giving the market to Android.  In this qtr we will need to decide if folks delayed purchase or are locked away for another 18 months.  In the prepaid market, Apple’s price points are a bit high IMO and the recent price changes should help.  A positive was TC talking about gaining some traction in Brazil & Russia.  he talked about local content/production to get the local price down.

         
  • Posted: 18 October 2011 10:43 PM #34

    Gregg Thurman - 19 October 2011 01:32 AM
    Hamourabi - 19 October 2011 01:01 AM

    It is not really an Apple failure but rather irrational expectations of analysts and investors

    I don’t buy that.  Apple guided $5.03 for FQ3 then reported $7.79.
    It is reasonable to expect that a 10% increase in guidance will result in at least a 10% increase in earnings.  Ergo $7.79 becomes $8.56, which is just pennies short of the AFB consensus.

    I don’t understand why some members insist on beating themselves (or others) up for Apple’s failure to meet expectations.

    This wasn’t about faulty models, it was about a worldwide economic condition that prevented Apple from selling as much as they thought themselves.  It was also about the timing of an important product launch.  Apple may not have had much of a choice, given how much they were trying to accomplish (iCloud, iOS5, SIRI).

    But Apple’s performance certainly was not the analyst’s (amateur and pro alike) fault.

    OK I agree with you that Apple expected about $8.5 EPS.. may be in July Apple thought they could launch the iPhone 4S early in september. And the iPad number could be linked to subpar economic conditions

         
  • Posted: 18 October 2011 10:44 PM #35

    pats - 19 October 2011 01:18 AM
    Brad Hutchings (Bosco) - 19 October 2011 12:53 AM
    DawnTreader - 18 October 2011 11:17 PM

    Clearly, the underlying eco-system is not as developed as I expected and product demand remains heavily dependent on new product introductions.

    Follow that logic to understand how Google continues to positively surprise and Apple couldn’t meet consensus numbers. An open ecosystem with multiple competing players offers choices, spurs innovation, and institutionalizes churn. 16 months for a speed bump iPhone? Cracks easily if you drop it on its face? Seriously????

    Brad
    I’m humored by your reading of the facts.  Google increase revenue by 33% and it’s a positive and Apple increases revenue 39% and it is a failure.  Wether DT examines his numbers and his analysis for changes does not change the fact that Apple outgrew Google this qtr.  People cam be disappointed that the numbers are not larger or that they didn’t exceed analyst expectations, but the reality is Apple is still growing at an unreal rate for a large company.

    Pats, why do you bother?

    Isn?t this rich?
    Are we unfair?
    Me here taking the bait
    Is it a snare?
    Send in the trolls

    What?s their new pitch?
    Does it ring a bell?
    One keeps getting it wrong
    Another can?t spell
    Where are the trolls?
    Send in the trolls

    Just when I stopped feeding the trolls
    Finally knowing the thread would be nuked
    Defending facts with my usual flair
    I call out a troll
    no one is there

    Do you love flames?
    I don?t my dear
    I hoped they would stop when we stopped but
    No dice I fear
    Where are the trolls?
    Quick, send in the trolls?
    There ought to be trolls
    Don?t bother ... they?re already here

    Signature

    You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.

         
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    Posted: 18 October 2011 10:48 PM #36

    It does seem likely that Apple could not meet the traditional September announcement for iPhone / iOS 5.    Which is more likely ?  That the iPhone 4S was not ready in sufficient quantity and/or that iOS (cough: Siri) was not ready.  Given the rumored dial-back of iPhone 5 to iPhone 4S, then its hardware.  But Siri is quite the accomplishment.  Any delay would likely benefit the Siri software group.  Anyway, 4S and iOS 5 are here.

         
  • Posted: 18 October 2011 10:50 PM #37

    Gtrplyr - 19 October 2011 01:39 AM
    Brad Hutchings (Bosco) - 19 October 2011 12:53 AM

    Follow that logic to understand how Google continues to positively surprise and Apple couldn’t meet consensus numbers. An open ecosystem with multiple competing players offers choices, spurs innovation, and institutionalizes churn. 16 months for a speed bump iPhone? Cracks easily if you drop it on its face? Seriously????

    I’m so tired of hearing your crap. 

    Speed bump ??  It’s 7 times as fast , the camera is much better and Siri is getting rave reviews not to mention they sold over 4 million in a weekend.

    A product so well designed in the first place is not easy to upgrade .... not like the crap that people pass of as innovation ... read ANDROID.

    From the bottom of my heart .... FUCK YOU.

    Isn?t this rich?
    Are we unfair?
    Me here taking the bait
    Is it a snare?
    Send in the trolls

    What?s their new pitch?
    Does it ring a bell?
    One keeps getting it wrong
    Another can?t spell
    Where are the trolls?
    Send in the trolls

    Just when I stopped feeding the trolls
    Finally knowing the thread would be nuked
    Defending facts with my usual flair
    I call out a troll
    no one is there

    Do you love flames?
    I don?t my dear
    I hoped they would stop when we stopped but
    No dice I fear
    Where are the trolls?
    Quick, send for the trolls
    There ought to be trolls
    Don?t bother ... they?re already here

    [ Edited: 18 October 2011 10:55 PM by Gregg Thurman ]

    Signature

    You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.

         
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    Posted: 18 October 2011 10:59 PM #38

    Look now we know why analysts can be conservative at times.

    No one expected the blow out in the 3rd quarter last time.  Everyone then re did their numbers and came up with much bigger projections for 4th.  No need to apologize .  I think we were a little lucky with such great projections in the past the same way even Apple is amazed with the popularity of their own products.

    Lets not throw out the baby with the bathwater.  It is clear that for the ultra bulls a difference of 9 million iPHones and 3 million iPads will significantly change the numbers.

    I totally understand how as the iPHone became more popular, a larger pool of consumers are getting smarter and deciding to wait that extra two months if they are sure they can get the latest iPhone.  Not sure there are 9 million of those, but this quarter if Apple announces 35 million iPhones then we will know why.

    The iPad miss is a little harder to figure out.  I think that we need stronger international expansion and we are more impacted by weaker then expected European and US economies. 

    Overall being off one time in 5 years is not bad and we will make up for it in the next 12 months.

         
  • Posted: 18 October 2011 11:03 PM #39

    Brad Hutchings (Bosco) - 19 October 2011 01:39 AM
    DawnTreader - 19 October 2011 01:10 AM

    Brad:

    I don’t usually agree with what you say, but I appreciate your putting your name on your comments. I’m not really happy with Google’s performance at the moment (remember, I’m long GOOG too).

    Overall, the lack of growth in the underlying eco-system is what concerns me. If you take out of the equation the growth in Mac sales, iOS devices had a languid quarter.

    This morning in the Android ecosystem, we had a MOTO event that Schmidt showed up to where the super thin and super tough (Kevlar, Gorilla Glass) Droid RAZR was introduced—it was a Verizon event too.

    This evening, in about 35 minutes, we’ll see the Samsung Galaxy Nexus and Ice Cream Sandwich unveiled. It’s a bigger phone.

    It’s just more exciting in Android space. No matter who you are, there’s someone trying to make the perfect phone for you.

    I think you are on the wrong board.  This is a finance board and GOOG ain’t making any money from android. Look at the last page of their earnings summary: Revenue from advertising 96%.  Other revenue 4%.  Adsense is making all their revenue and profit.  By all means grab a bottle of Jergens hand cream, a roll of paper towels and head over to the technology blog and rave about features.

         
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    Posted: 18 October 2011 11:06 PM #40

    I wasn’t too far over with iPad myself (about 700,000 units/6% off).  Let’s not get too enthusiastic about the tablet market yet until we have a chance to let it develop.

    iPad is still doing very well and if there’s a little iPod-like seasonality baked in (I think there is), you’ll get a really nice number for the holidays (13-15 million would be a reasonable range to start off the conversation).

    iPhone 4S, combined with the $99 iPhone 4 and $0 3GS, will acquit themselves just fine for fiscal Q1.  It’s gonna be a monster any way you look at it.  I can’t remember the last time Oppenheimer guided over consensus.

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  • Posted: 18 October 2011 11:08 PM #41

    @dawntrader

    >>It?s just more exciting in Android space.

    Oh boy.  Just like that?

         
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    Posted: 18 October 2011 11:21 PM #42

    <sticking head out of my cave>

    Yes, it is an extremely important topic. Why? Because “we” (collective “we” for independent analysts, non-participating AFBers like me, individual investors reading AFB, or even those casually glancing at PED’s blog) base our investment decisions on the collective analysis and conviction of participating members. In the case of AAPL, this analysis (until now) has topped the available analyst research. (Institutional research, of which Gregg talks about, is a different story). I continue to believe that we have the best collective understanding of the trend, by combining financial, technological and strategic analysis, but we can be wrong.

    It’s not a case of finger-pointing at all, at least in my case, but rather an attempt to hear as many opinions as possible of where people went astray, and why the had such a strong conviction. I think in the past month AFB had an incorrect consensus on two major-major threads:
    1) introduction of “iPhone 5”
    2) Q4 results

    Full disclosure—because I haven’t been active on AFB lately—I shared the consensus AFB opinion on both counts. I positioned my portfolio accordingly. That also means I will pay for my conviction with the rest (majority here, anyway).

    The loss may be minor and temporary, but unless you’re a true buy-and-hold investor like Mace, timing these big events such as product introductions and transitions is important to your success. (For me, it’s a 390/420 spread bought this morning, some Nov+Dec calls, and a boatload of Jan 12’s I was ready to offload in the next 2 weeks. For Gregg, it’s his Oct 440/445. Gregg, thanks for being transparent by the way).

    ***


    One more hope I harbor is that AFB tones down the hubris regarding analysts (“we know better than them”) and Apple’s management (“we know better than them”), especially the latter. On the analyst side, Gene Munster (“Giant Moron” anyone?) and Katy Huberty look like geniuses all of a sudden. I don’t think it’s an accident. Fact is, they have clients that would chop their head off if the analysts had just one such miss as the independents had this quarter. GM called for 45M iphones in 2008 and only got 25, it immediately made this former uber-bull much more conservative.

    As for Apple management? I’ve long misunderstood the near visceral hate the Peter Oppenheimer gets on these boards. Well, today I’m happy that one of “us” is not Apple’s CFO. Imagine: “Yesss, we have a big product transition that should be obvious, but we’ll still sell like hotcakes, expect EPS of 8, which you all know realistically means 11” - and then we get $7EPS. I cannot begin to imagine the incredible loss of value that would happen. Thank goodness for the clearly positive Q1 guidance. Ditto for issues of cash management (incessant calls for dividends and the like).

    The point is, Apple knows its business best, and they can’t always disclose the future because (1) they can only estimate demand, not predict it decisively (2m, 3m, 4m or 5m iPhone 4Ss at launch?) (2) part of its competitive strategy is keeping future products secret, so they can’t “warn” us of exactly what “product transitions” may mean, and (3) they’re in uncharted waters in terms of supply chain.

    I will continue reading others’ analysis with interest. Good luck to everyone this week recovering / repositioning.

    <back to my cave>

         
  • Posted: 18 October 2011 11:31 PM #43

    ChasMac77 - 19 October 2011 12:32 AM

    Let’s not forget that last quarter iPhone numbers were better than expected because of new carriers. They didn’t add ANY new carriers this quarter in order to help manage supplies of the 4S. There’s no way anyone outside of Apple would know that. Lesson learned, I was badly off thanks to the iPhone numbers and will be keeping my numbers to myself from now on (unless Mav asks me grin). Lesson learned.

    Hi Chas,

    I’m gonna challenge ourselves a bit here. There really isn’t much we actually KNOW, but we do intelligently speculate based on our watching of trends and knowledge of Apple and it’s product cycles, as well as the industry as a whole.

    It does make sense that Apple would be adding very few (if any) carriers this quarter. Last quarter’s number were definitely boosted by the new carrier additions, and it really does make sense that the quarter before a new iPhone release that carriers would tend to wait to receive the latest version before announcing an initial iPhone launch.

    I joined the group publishing their numbers and putting their names out in public beside them. Each of them, should be congratulated for doing so. Okay, the record was blemished, but unbeaten records are rare and I truly expect the independents to be a bit more conservative go forward and to beat the Wall Street gang handily next quarter.

    Do we suffer from ‘group think’. I’d conclude that is a weakness of which we need to be wary, In fact I do think it’s tough to offer a downside opinion at times because it’s quite possible to get jumped on so quickly that you might think keeping it to yourself would be easier. Apple’s results also have a distinct tendency to make a downside prediction look awfully foolish at results time. I’d like to suggest we have a ‘What could go wrong’ thread each quarter. I like to keep a ‘upside/downside’ list associated with any major holding I have and it’s always useful to think about pictures that may not be perfectly rosy.

    I am willing to stand behind my numbers and say I got this quarter wrong. I especially blew the iPad numbers in a big way. Getting supply in line with demand was not enough in retrospect. I will take some credit for being worried about iPhone numbers (but not so worried to get them correct). I do kick myself for revising them upward a couple of times when I felt ‘too out of place’, but hindsight is 20/20. I wrote the following as part of a response to DT’s insightful The Apple Analyst Sandbag Factor earlier today:

    There is a wide variance in expectation for the iPhone to iPad ratio this quarter. Some see lower iPhone sales than others based on the fact that Apple could be drawing down inventory of the iPhone 4 to drain the channel as well as make an earlier switchover to production of the iPhone 4S. This could be an attempt to ease the magnitude of the tradition shortage in new product that has left customers waiting weeks to get a new device in past years. While this possibility leads to more muted iPhone estimates this quarter, this would also mean iPhone 4S numbers that are beyond expectation next quarter as Apple might actually keep a hot product less supply constrained than has traditionally been the case.

    Other factors here include YOY growth rates needing to be adjusted by the fact that 2010 CQ3 included the iPhone 4 will 2011 CQ3 didn’t have a new phone. Customer purchase deferral as well as potential for fewer new carriers and countries in CQ3 could be factors here as well.

    Concerns were not unrealistic , but we need to ensure we grant enough space for those venting legitimate downside ideas. I became especially worried about the stock with the great run into earnings when it seemed even a group of the Wall Street analysts had iPhone numbers above mine. 

    My biggest concern tonight are those who may have been too aggressive playing close dated out-of-the-money options into earnings. There have been a couple of times when new investors came to AFB asking about this “easy method” to immediate riches.  I worry that for the few that asked and heard our warnings,  there are too many others that played too aggressively and are now in great pain. For any of those folks, please hang in there and join the discussion. There are many sympathetic friends here.

    While I’m not sure if we’re yet at the point where the share price has bottomed (downgrades and panicky investors may still be ahead), I do still believe the fundamental picture has not changed. As I said above, the potential (now reality) for a shortfall in Q4 iPhone sales is something I do see pulling back the elastic and powering upside to Q1 sales. The 37 billion dollar guidance, extra week or not, leads me to think we will leap over the 30 billion dollar quarter straight to the 40 billion dollar quarter. However, let’s get there while still having challenging discussions about future margin concerns, potential sales lost to the Kindle Fire, the always updating Android roster of phones, or whatever potential threat exists to our expectations.

    [ Edited: 18 October 2011 11:49 PM by cranium ]      
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    Posted: 18 October 2011 11:51 PM #44

    Roman, come out of your cave more often. I miss your balanced and well-reasoned perspective. Your post here places events in wise perspective.

    Cranium, another great post.

         
  • Posted: 18 October 2011 11:55 PM #45

    Let me digress a little and exercise another thought. How does it matter to Apple management whether 5 millions iPhones are sold in September or December quarter? It only matters to the investors who want to make a quick buck on the gyrations of the stock market.

    As long as Apple keeps its customers happy with new versions of the product and customer loyalty is blemish less, then Apple management should only worry about keeping the stock price steady and growing at their internal models.

    The execution failure that I had pointed out earlier, namely synchronizing the release of iPhone 4S and IOS 5 to generate revenues for FQ 4, may be irrelevant from the management’s strategy. It is extremely difficult to modulate product introductions and sales funnel in the consumer sector.

    Given this, should we not really take the analysts, including the independent ones, to task for jumping ahead of management defined models? In fact, the guidance given for fourth quarter brought the stock down. But the analyst community do not seem to dissect the reasons for leading quarter projections in the earnings call. Had they done so, they may not have set earnings expectations so high.