Perhaps the bad economy will keep Apple from being acquired

Is Apple a candidate for acquisition?
[Via asymco]

As shown in the Apple growth scorecard, the company’s earnings growth is continuing at 75% with the top line increasing at the annual rate of 70%.

The $59 billion of cash on the balance sheet has reached the equivalent of $64 per share yielding an enterprise value of $263 per share based on closing price of January 21st.

The stock price has been rising but not outside a narrow P/E band. The following chart shows the stock price and the 15 P/E and 25 P/E bands that have bounded it for nearly three years.

As previously observed, this overall share appreciation is not accounting for the growth in earnings.

The trailing twelve months’ earnings were $17.91 per share. Therefore the P/E ratio is now 18.2. Excluding cash, the P/E is at 14.7. However, that’s based on 2010 levels of earnings. Those earnings are increasing very quickly.

[More]

In earlier times, Apple would be worried about being acquired. Their stock price is way too low for the amount of revenues and cash they are expected to get this year.

As this post mentions, the inability to easily raise capital – and a lot of it would be need to buy Apple – helps them right now. In earlier times, a buyer could get their money back in less than 4 years.

Of course, if the economy was better, I would expect Apple’s stock price to be much higher, making it very unlikely of being bought. This is just a nice examination of how cheap Apple really is.

Fair use and excerpts

As anyone who follows this blog knows, my general format is to include a relevant excerpt from the post I am commenting on but not the entire post itself. I do this for a couple of reasons.

One, I want to provide a proper context for my comments. I know how easy it is to take words out of context. I want to include enough of the quoted material so that readers can then follow why I am commenting and understand the basis for any comment.

Second, I want to include enough in the quote to make readers interested in following the original post  I am quoting – to provide enough so that others can see why the original post is interesting, in itself. Many times people just ignore links in a post, never following through to the original. I want my posts to help drive people to the posts and sites I chose to comment on

The web is all about passing people on to other, interesting sites of content.

That is why, for almost every post I use excerpts, I include 3 links to the original site for the material I quote: one based on the original title; one based on the web site itself; and one indicating there is more at the site.

I feel strongly that the original poster needs to get any traffic from the comments I write. Simply cutting and pasting would not accomplish this and would not be fair to the original post.

However, a final reason – less interesting for my purposes but more important legally – to use excerpts is for copyright reasons. It is not legal to simply copy someone else’s work without permission, unless one only uses an excerpt under Fair Use. But what a Fair Use excerpt really is can only be determined by litigation.

So there is a big grey area when it comes to using excerpts. I’ve stated why I use them – with a conscious effort to drive people to the original sites rather than just stay here.

But how long an appropriate excerpt should be is often a matter of opinion.

A recent post raised the attention of the original site, the Big Picture. I love the Big Picture, which has some of the best writing about the financial world on the web. While I did feel my excerpt was proper Fair Use, I know opinions vary. The original copyright holder asked me to alter it. I did not see any reason in this case to put a line in the sand. So I respected their request and updated my post.

The web is changing all sorts of ideas of copyright and Fair Use. A main purpose of copyright is for those who create new works to be fully recognized for what they have done.  I try very hard to provide opportunities in every excerpt for readers to find the original authors.

Some copyright holders are not as reasonable as others, though. Some do not seem to get the Web. I think the Big Picture does and I plan to be excerpting them again in the future.

More Angry Birds coming in February?

by hahatango

Angry Birds Planning Valentine’s Edition, World Domination
[Via Mactropolis.com - Your Friendly Global Mac Community]

Rovio, the developers of the insanely popular Angry Birds game for iOS (and other platforms), are planning another special holiday version of the app, for Valentines Day. This heavily pink-themed version should be out on or before February 14.

9to5Mac has a post with an embedded video where Rovio’s CEO (who doesn’t look angry at all) talks about general plans for world domination as well – including looking at broadcast media like TV ‘and even movies’.

I can tell you that in our household we are not falling prey to any of the Angry Birds hype – I have no idea how those two birds got on my keyboard and we certainly don’t play with these plush toys while making pissed-off bird sounds.

[More]

Angry Birds is a great example of what the app economy looks like. Once hooked they can keep us on the hook by coming out with new versions, either feee or for low cost.

My fear is that Rovio comes out with an Angry Birds construction set (like for $10) and a social network to trade new puzzles. Then I will never get any work done.

Why following Apple requires innovative analysts

by pthread1981

The Bank of Apple: Using capital to ensure additional capacity and supply
[Via asymco]

When I wrote suggesting that the “best use of cash” was not acquisition but integration of manufacturing under the Apple control umbrella, the rumor that set off that discussion was that Apple was financing new facilities for its suppliers.

Those rumors were quashed, but we now know there is something to them.

During the September and December quarters, we executed long-term supply agreements with three vendors through which we expect to spend a total of approximately $3.9 billion in inventory component prepayments and capital expenditures over a two-year period. We made approximately $650 million in payments under these agreements in the December quarter, and anticipate making $1.05 billion in payments in the March quarter.

Apple Management Discusses F1Q11 Results – Earnings Call Transcript – Seeking Alpha [my emphasis]

So Peter Oppenheimer confirmed that Apple is using its cash as a loan facility for its manufacturing partners. It’s not for the first time either. Apple used the same leverage to ensure the supply of flash memory for the iPod line in 2005.

Philip Elmer-DeWitt reminds us Tim Cook confirmed:

The deal, he said, is similar to the one Apple cut five years ago:

“As you probably remember,” he began, “we signed a deal with several flash [memory chip] suppliers back at the end of 2005 that totaled over $1 billion because we anticipated that flash would become increasingly important across our entire product line and increasingly important to the industry. And so we wanted to secure supply for the company.

Partly as a result was a dominant position in the music player market that is still paying off today.

[More]

Apple is doing things here that will probably remain hidden to many old-style analysts.It is acting like a bank, loaning money to vendors but in a way that will not affect the bottom line in easily seen ways.

As asymco states:

In other words, Apple Inc. pre-buys additional capacity by using Bank of Apple capital as a loan facility to bring more capacity online. How to judge this use of capital depends on your perspective:

• From a fiscal perspective, Apple is acting like a trade lender (with moderate to low returns on capital.)
• From the operational perspective Apple is acting as a limited manufacturing partner, just short of an equity holder.
• From a strategic perspective, the Bank of Apple lends only to suppliers that commit to producing for Apple Inc. Thus locking out competitors.

It is the strategic perspective that makes this such an interesting approach. Old style companies would be taking that $60 billion in cash and giving it back to the shareholders. Apple is using that money to not only increase the capacity of its own products – which are still supply constrained – but to also make it much harder for its competitors to create similar devices.

This is where innovation can really pay off. Apple can soak up all the innovative vendors to supply your products, rewarding them  by removing risk from their decisions. They are more likely then to want to be part of any further deals, rather than with untested competitors.

And that is why Apple can not easily be analyzed by standard Wall Street metrics. And why newer outlets, like asymco, will be invaluable in understanding what is going on.

Explain this – Apple’s Mac price premium goes up even as it increases market share

How does the Mac gain share while increasing its price premium over the Windows PC?
[Via asymco]

Apple set a new record for Mac sales in the fourth quarter. This was not a surprise. The growth was perhaps a bit lower than some expected (including me) but it was still a healthy 23% and 8x the PC growth rate. The Mac has outgrown the PC (and hence has gained share) for 19 quarters straight, nearly five years.

What’s more interesting is where the growth came from. Every region outgrew the market. Asia-Pacific led with a 67% year-over-year increase, almost 10x the market. Japan grew at 56%, which is about 6x the market, and Europe and the United States both grew in double-digits despite both markets contracting overall.

Looking over a longer time frame, the Mac has nearly quadrupled in volume in five years. In the last quarter of 2005, Apple sold 1.2 million units. In the latest quarter it sold 4.1 million. So the performance has been relatively good.

One significant reason for the growth has been the shift from desktop to portables. The lines show how the percent of portables went from about 50% to 70% of units and sales in four years.

[More]

Apple continues to increase its share of the computer market. Yet, while the overall cost for PCs continues to go down towards commodity pricing, Apple still maintains a high premium.Apple computers have an average price more than twice what the average PC sells for.

Yet in every market globally, the Mac is growing sales at substantially faster rates than the rest of the industry.

How can it increase market share and increase the premium paid for it when the  overall market is pricing PCs at lower and lower prices?

Asymco’s hypothesis:

…something changed with PCs when the laptop became “good enough”. With portable computing, the job the PC was hired to do evolved. It was more important that the product be well designed (for aesthetic value, usability and reliability) than just fast and spacious. The microprocessors were plenty fast but what mattered more was low power consumption, a low profile and tighter integration with software.

I think this may well be correct. It is interesting that the Macs growth in the market seems to have really taken off once laptops were the major computer it sold. And with the Macbook Airs taking off, it does seem likely that there are other considerations in  a laptop that Apple fulfills that other laptops do not.

I know that weight is a big reason I moved to an iPad. eight and battery life is why my main mobile computer is a Macbook Pro.

And now, with the Mac App Store, I can get programs for my computer so easily. I’ve already updated several apps. Much easier than using Software Update. Also, once I’ve bought one for my Desktop, I can simply download it to my laptop. No hassle at all.

I think that these are reasons to pay more.

What leaders of 21st Century companies look like

Tim Cook – Joining Apple was “the best decision that I ever made”
[Via Edible Apple]

Over the past few years, Apple COO Tim Cook has taken on an increasingly greater public role at Apple, especially in light of the fact that Steve Jobs has consistently handed Cook the reigns when he has to take time away from the company to deal with medical issues.

But who is Tim Cook?

Known as an extremely hardworking, effective, and efficient executive, Cook in many ways embodies the opposite of Jobs’ in-your-face and smooth talking persona. So while we may not know much about Tim Cook, the following speech he gave during Auburn University’s 2010 Spring Commencement includes some interesting details that shed some light on how Cook would up at Apple, why he thinks working at Apple was the most important decision of his life, and why he decided to jump ship for Apple just 5 minutes into his job interview with Steve Jobs. The pertinent portion of the speech begins at the 3:25 mark though we’ve transcribed all of the Apple-centric parts below for your reading enjoyment.

“I stand before you with a deep sense of humility. Both because of how i got here and who is here. I am where I am in life because my parents sacrificed more than they should have, because of teachers, professors, friends and mentors who cared more than they had to, and because of Steve Jobs and Apple who have provided me the opportunity to engage in truly meaningful work every day for over 12 years.

My most significant discovery so far in my life was the result of one single decision, my decision to join Apple. Working at Apple was never in any plan that I outlined for myself, but was without a doubt the best decision that I ever made…

The decision to come to Apple which I made in early 1998 was not so obvious. Since most of you graduates were 10 years old at the time, you may not realize that the Apple in early 1998 was very different than the Apple of today. In 1998 there was no iPad or iMac or iPhone. There wasn’t even an iPod – I know it’s hard to imagine life without iPods!

[More]

Described as “relentless”, the New York Times profiles Tim Cook
[Via Edible Apple]

The New York Times today profiled COO and day-to-day CEO Tim Cook, looking into the executives background and management style, both clear departures from those possessed by Jobs. What the two do share, however, is an exhaustive attention to detail and an uncanny ability to extract the best out of colleagues and business associates.

Described as a relentless worker, the Times relays a story wherein Cook landed in China for a business meeting at 6 a.m and was still operating at a high energy level 12 hours later, long after local executives had already grown tired.

They were absolutely exhausted,” said Michael Janes, the Apple executive who accompanied Mr. Cook. “Tim was not. He was ready to jump to the next slide and the next slide after that. He is absolutely relentless.”

Originally joining Apple in 1998, Cook was tasked with streamlining Apple’s operations, making them efficient, and more importantly, profitable.

Apple was smaller then and largely focused on making PCs. Its operations were a mess.

Apple was still running its own factories in California, Ireland and Singapore. While more profitable and efficient companies like Dell had moved to a just-in-time manufacturing model, Apple still held 90 days of inventory.

Mr. Cook closed Apple’s factories and outsourced all manufacturing to a far-flung network of suppliers in Asia. Inventories decreased to 60 days, then to 30 days, then to the just-in-time model. Mr. Cook virtually lived in airplanes, traveling the world to meet with suppliers and browbeat them into meeting his demands.

[More]

21st Century Companies provide a distinct business model than old style ones. In particular, decisions arise from disbursed leadership rather than strict hierarchical. Independent  adaptability and rapid movement are the paradigms of these sorts of companies. Google may very well be another 21st Century company as it is run by a triumvirate of smart guys, all with the ability to make independent decisions. The CEO is a legal fiction not an operational one.

Apple may have seemed like it was all Jobs, but simply looking at their leaders, one can see the disbursed decision-making needed for an adaptive 21st Century company.

Apple is more than just Steve Jobs. It has a leadership, and an organization, that has internalized all the motifs needed in the corporate narrative to create an extremely adaptive and sustainable company. The Cook Doctrine could just as easily have been articulated by Jobs or by Lassiter at Pixar.

UPDATED:Doing stocks from an iPad

Coming Soon: Full “Bloomberg Anywhere” App on iPad
[Via The Big Picture]

Went out for dinner tonight with some guys from the office and a institutional salesguy we would love to hire (very smart, does good business, a great addition to the office).

After dinner, a Bloomberg Tech guy recognizes me — “Your an equity, dude, right?” — and he sees me playing with the iPad. “Are you a Bloomberg anywhere user? Wait until you see the new app!

He looks too young to be a hippy, but that’s how he speaks. I ask him about the app, and he replies: “Its the full Bloomberg terminal ON YOUR IPAD, MAN FULL BLOOMIE ON THE PAD!”

[More]

The finance guys could really do all their stuff from the comfort of their iPad. I’m not so sure this is good for the US economy but it would probably be good for Apple.

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UPDATE: As you can see below, I received a comment from The Big Picture website feeling I had done a ‘cut and paste’ of the post instead of a Fair Use excerpt. While, in my opinion, I did only excerpt the post and did not simply do a ‘cut and paste’, I do not want to raise the ire of the proprietors of such a great web site.

So, I have removed a few more sentences from my excerpt above. While I believe that my original post was proper Fair Use and that the current excerpt does not do as adequate a job as before providing the information I wished to comment on, I would expect that my post would be closer to what The Big Pictures wants.

For those of you curious to what I removed from the original post, the sentences are::

It turns out he’s on the design or sales team, and is utterly blown away by his employer’s  awesomeness. (Good for him)

Note that this is not merely the current Bloomberg.com app on the iPad, but full blown Bloomberg terminal access.

In my opinion, those two sentences are helpful in a Fair Use excerpt. In the eyes of  The Big Picture they are too much.

That is the problem with Fair Use as currently promulgated. What constitutes Fair Use is really based on people’s opinions. Actual Fair Use can only be determined by litigation, not the best way for the limits of free speech to be determined.

So, often the side with the smaller legal recourse almost always has to back down to the side with greater legal resources, no matter who is really right (Not to imply that is what is happening here. Simply that this is a general problem with Fair Use actions.

In this case, there is, I hope, mutual courtesy and a wish for everyone to be in a protected state, legally speaking. In this case, I have no problem complying with the request to the best of my understanding.