Tag Archive for 'Apple'

Terrible news from Apple (AAPL)

Apple just reported their profits for 2011Q4.  It turns out that they made rather a lot of money.  So much, in fact, that they blew past/crushed/smashed expectations as their profit more than doubled on the back of tremendous growth in sales of iPhones and iPads.  [snark] I’ll bet nobody’s talking about Tim Cook being gay now. [/snark]

It’s an incredible result; stunning, really. I just wish it didn’t make me so depressed.

I salute the innovation and cheer on the profits. That is capitalism at its finest and we need more of it.

It’s that f***king mountain of cash (now up to $100 billion) that concerns me, because it’s symptomatic of what is holding America (and Britain) in the economic doldrums.

The return Apple will be getting on that cash will be miniscule, if it’s positive at all, and conceivably negative.  Standing next to that, their return on assets excluding cash is phenomenal.

Why aren’t they doing something with the cash? Are they not able to expand profits still further by expanding quantities sold, even in new markets? Are there no new internal projects to fund? No competitors to buy out? Why not return it to shareholders via dividends or share buybacks?

Logically, a company holds cash for some combination of three reasons: (a) they use it to manage cash flow; (b) they can imagine buying an outside asset (a competitor or some other company that might complement them) in the near future and they want to be able to move quickly (and there’s no M&A deal that’s agreed upon faster than an all cash deal); or (c) they want to demonstrate a degree of security to offset any market perceived risk with their debt.

Apple long ago surpassed all of these benefits.  The net marginal value of Apple holding an extra dollar of cash is negative because it returns nothing and incurs a lost opportunity cost.  So why aren’t their shareholders screaming at them for wasting the opportunity?

The answer, so far as I can see, is because a significant majority of AAPL’s shareholders are idiots with a short-term focus. They have no goddamn clue where else the money should be and they’re just happy to see such a bright spot in their portfolio.  Alternatively, maybe the shareholders aren’t complete idiots — Apple’s P/E ratio has been falling for a while now — but the fundamental point is that they have a mountain of cash that they’re not using.

In 2005 that wouldn’t have been as much of a problem because the shadow banking system was in full swing, doing the risk/liquidity/maturity transformation thing that the financial industry is meant to do and so getting that money out to the rest of the economy.[*] Now, the transformation channel is broken, or at least greatly impaired, and so nobody makes any use of Apple’s billions. They just sit there, useless as f***, while profitable SMEs can’t raise funds to expand and 15% of all Americans are on food stamps.

Don’t believe me?  Here’s a graph from the Bank of England showing year-over-year changes in lending to small- and medium-sized enterprises in the UK.  I can’t be bothered looking for the equivalent data for the USA, but you can rest assured it looks similar.  The report it’s from can be found here (it was published only a few days ago).  The Economist’s Free Exchange has some commentary on it here (summary:  we’re still in trouble).

So what is happening to all that money?  Well, Apple can’t exactly stick it in a bank account, so they repo it, which is a fancy way of saying that they lend it to a bank (or somebody else in the financial industry) and temporarily take some high quality asset like a US government bond to hold as collateral.  They repo it because that’s all they can do now — there are no AAA-rated, actually safe, CDO tranches being created by the shadow banking system any more, they’re too big to make use the FDIC’s guarantee (that’s an excellent paper, btw … highly recommended) and so repo is all they have left.

But the financial industry is stuck in a disgusting mess like some kid’s hair with chewing gum rubbed through it. They’re all just as scared as the next guy (especially of the Euro problems) and so they’re parking it in their own accounts at the Fed and the BoE.  As a result, “excess” reserves remain at astronomical levels and the real economy makes no use of Apple’s billions.

That’s a tragedy.




[*] Yes, the shadow banking industry screwed up. They got caught up in real estate fever and sent (relatively) too much money towards property and too little towards more sustainable investments. They structured things in too opaque a manner, failed to have public price discovery and operated under distorted incentives. But they operated. Otherwise useless cash was transformed into real investment and real jobs. Unless that comes back, America and the UK will stay in their slow, painful household deleveraging cycle for another frickin’ decade.

To what extent should the media mention that somebody is from a minority?

It turns out that Tim Cook, the new CEO of Apple, is gay.

Felix Salmon suggests that this makes him the most powerful gay man on earth (an idea of which I am sceptical – surely at least one head of state among all the nations of the world has been queer at some point) and that the media ought to be celebrating this fact, or at least making mention of it:

Personally, I don’t care.  Why should I?  Fundamentally, the only relevant facts are those that inform me about his ability to do his job, and knowing whether he’s a member of ethnic group X, holds religious view Y or is turned on by Z is of no use in that regard.

In a completely post-bigotry world, those things might (or might not!) be included in a puff piece that wanted to tell you about Tim Cook, the man, as a sort of background colour (“raised a Catholic, Mary-Anne’s atheism was a source of family friction in her early adulthood, but …”), but they’d play no part in people’s opinion of him as a manager and so would never appear in a serious article about the future direction of whichever company he works for.

Salmon’s point, I believe, is that (a) we’re not in a post-bigotry world and so there is a lead-by-example case for publicising Cook’s sexuality in the same way that people discussed that Hillary Clinton is female and Barack Obama is black; and (b) even if we were, the media is going out of its way to make no mention of it even in the puff pieces, that it’s going out of its way to self-gag and so, ironically, subtly reinforcing the closet.

I dunno.  I think that stuff like this is only relevant to public discourse — even puff-piece writing — if at some point it helped shape the subject’s motivations in life.  Furthermore, I believe that for at least some queer people now, and eventually for all of them, their sexuality (will have) played absolutely no role in shaping their motivations in anything other than who to look for in a partner.

As such, I’m instinctively sceptical of a need to draw attention to it.  Not even the puffiest of puff pieces would spend time discussing people’s preferences over ice cream flavours unless the subject made a point of bringing up their obsession with chocolate-mint.

When it comes to playing a role as a societal leader, I can’t help but feel that it’s up to Mr. Cook to decide for himself.

Dani and I rewatched “Good Will Hunting” last night.  I think there’s a parallel with the kid who’s a genius.  I always get angry when Ben Affleck’s character (the well-meaning, but idiot friend) tells Matt Damon’s character (the genius) that “you don’t owe it to yourself man, you owe it to me … ‘Cause I’d do fuckin’ anything to have what you got. So would any of these fuckin’ guys. It’d be an insult to us if you’re still here in 20 years” [IMDB].  It’s Rawls’ veil of ignorance turned arse-end backwards.  It’s also complete rubbish.

I can see a moral argument for why Rawls’ veil implies that society at large should help people who drew particularly shitty numbers, but why should any one individual be required to do something just because they drew a particularly awesome number?  The whole goddamn point of Rawls’ veil is that nobody consents to it in the first place and so, as a society, we ought to not force people into the pigeon-hole that the lottery put them in.  Just because you were born into a poor family doesn’t mean you have to stay poor.   Just because you’re black doesn’t mean you have to like basketball.  Just because you have an IQ of 180 doesn’t mean you must do research.  Messers Affleck and Damon need to reread “Brave New World”.

Nobody can deny that Barrack Obama is black, but the extent to which he makes speeches to the black community declaring that they can be black, proud and successful is entirely up to him.  People working to bring about racial equality might feel he has an obligation, but he really doesn’t.

If Tim Cook wants to try to improve the acceptance of gay people in society at large, he can, but the idea of saying that he ought to just because he’s gay himself is illiberal.

Wanted: CTRL-TAB in my browser to work as ALT-TAB does in windows

Hey, Google, Microsoft and multitudinous Firefox geeks!

At the moment, both Chrome and Firefox have the same functionality on this:

  • CTRL-TAB cycles through your tabs in the order that you’ve got them physically arranged
  • CTRL-PGUP/PGDN also does this, although obviously CTRL-PGUP goes in the opposite direction

In Internet Explorer, CTRL-TAB works the same as in Chrome and Firefox, but they don’t have the CTRL-PGUP/PGDN functionality.

I don’t know how Safari or Opera work.

I want CTRL-TAB to work in my browser like ALT-TAB does in Windows and APPLESYMBOL-TAB does on a Mac:  The order in which it cycles through them should be the order in which I last viewed them, not the order in which I opened them.  If possible, like the operating system versions, it should also show small images of each tab as I cycle through them.

That is all.

Gray markets, PPP and the iPhone in China

Via Felix Salmon, I found this fantastic piece by “Bento” on the take-up of the iPhone in China.

Some background:  When Apple launched the iPhone in China, early sales numbers were disappointing.

Some background to the background:  Under Chinese law, WIFI-enabled phones are illegal, so Apple has to cripple the iPhones they sell in China.

From Bento:

The Chinese have long had access to iPhones. They are for sale at stalls in every cybermall and market in every Chinese city, and come in two varieties: The most expensive ones (at around 6000 RMB in Shanghai for a 16GB 3GS, or 880 USD, depending on your haggling skills) come directly from Hong Kong, where the factory-unlocked model is available from the Apple store for around 4800 RMB. That’s a nice arbitrage play by the stall owner, and everyone is happy. The cheaper model, at around 5000 RMB for a 16GB 3GS, was originally bought locked in the US or Europe, and has been unlocked by the stall owner’s hacker-genius cousin using 3rd-party software. This kind of iPhone is cheaper, because you are on your own when it comes to upgrades and iTunes compatibility.

The distribution model is extensive and robust, and in fact most Chinese buy their mobile phones from stalls like this. There are no iPhone shortages, as prices fluctuate to meet demand. The received wisdom is that around 2 million iPhones are in the Chinese wild; I’ve personally seen a good many of them here in Shanghai, where they are much in evidence among the eliterati. Still, this is a minuscule portion of the 700 million odd phones in use in China, of which a small but growing portion is smartphones.

What can Apple do to grow the number of iPhones on mainland China? Short of lowering prices in Hong Kong (not going to happen) it can do two things: Increase awareness of the iPhone via advertising, and bring the benefits of a Chinese-language App Store to Chinese iPhone owners.

To do either of these, you sort of need to sell the product locally first, though. Apple can’t really go round putting up banners in Chinese tier-3 cities urging consumers to head for the local iPhone aftermarket.
Apple … is not revenue-sharing with China Unicom, the local vendor, but selling the iPhones outright to them. It is up to China Unicom to flog them in China.

And that’s what China Unicom is trying to do. China Unicom stores all have iPhone banners up; I’ve passed several China Unicom road shows stopping by Shanghai extolling the iPhone. The iPhone is being talked about widely. But so is the fact that the China Unicom iPhone is crippled — the Chinese are sophisticated consumers; forget this at your own peril.

The upshot: anecdotal reports tell of aftermarket prices increasing for Hong Kong iPhones these past few weeks, as demand increased. Clearly, the advertising is working, even if China Unicom’s sales of wifiless iPhones are anaemic.

Arbitrage is clearly still happening — buy for 4800 RMB in Hong Kong, sell for 6000 RMB in Shanghai; that’s a 25% markup and well above any reasonable estimate of transportation costs — so Purchasing Power Parity (PPP) doesn’t even hold within the “one” country, but this is a great example of gray market imports.

The three best things I’ve read on the US car (auto) bailout …

… are this opinion piece in the FT by Joseph Stiglitz, this brief blog entry by Matthew Yglesis and this blog entry by Robert Cringley.

Stiglitz’s piece makes, to me, a compelling argument for letting the firms go into Chapter 11 bankruptcy, albeit (given the state of the market) with government guarantees for any further financing they may need for restructuring. The following four paragraphs are among the most succinct and clearly written on the US car industry:

 Wall Street’s focus on quarterly returns encouraged the short-sighted behaviour that contributed to their own demise and that of America’s manufacturing, including the automotive industry. Today, they are asking to escape accountability. We should not allow it.
The US car industry will not be shut down, but it does need to be restructured. That is what Chapter 11 of America’s bankruptcy code is supposed to do. A variant of pre-packaged bankruptcy – where all the terms are set before going before the bankruptcy court – can allow them to produce better and more environmentally sound cars. It can also address legacy retiree obligations. The companies may need additional finance. Given the state of financial markets, the US government may have to provide that at terms that give the taxpayers a full return to compensate them for the risk. Government guarantees can provide assurances, as they did two decades ago when Chrysler faced its crisis.

With financial restructuring, the real assets do not disappear. Equity investors (who failed to fulfil their responsibility of oversight) lose everything; bondholders get converted into equity owners and may lose substantial amounts. Freed of the obligation to pay interest, the carmakers will be in a better position. Taxpayer dollars will go far further. Moral hazard – the undermining of incentives – will be averted: a strong message will be sent.

Some will talk of the pension funds and others that will suffer. Yes, but that is true of every investment that has diminished. The government may need to help some pension funds but it is better to do so directly, than via massive bail-outs hoping that a little of the money trickles down to the “widows and orphans”.

I would perhaps suppliment Professor Stiglitz’s words by proposing that government support to workers laid-off as part of the restructuring could be improved dramatically over the provisions currently available. They should not only include lengthening the duration of unemployment payments and paying for retraining programmes, but also payments to help with relocation if anybody is willing to (voluntarily!) move to find work. An Obama administration might also be reasonably expected to look to Michigan for skilled manual labour in it’s push for infrastructure renewal/expansion.

Yglesis’ brief note observes a vital co-ordination problem when it comes to restructuring what is genuinely a global industry:

One thing here is that as best I can tell none of the five countries — US, Japan, Germany, France, Korea — with substantial auto industries are willing to let their national favorites fail. And yet there seems to be substantial global overcapacity in car manufacturing. If a few of the existing firms are allowed to fail, then the survivors will be in good shape. But if nobody fails, then all the firms worldwide will be left suffering because of overcapacity problems, all potentially drawing bailouts and subsidies indefinitely.

Finally, Cringely’s piece investigates how a successful US car firm ought to be run by imagining that Steve Jobs (of Apple) was running it.  The idea is not his.  Thomas Friedman briefly mentioned in early November that …

… somebody ought to call Steve Jobs, who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the G.M. iCar.

It was something of a trite comment, and it was picked up by many people in the IT industry who got a little over-excited when imagining the details of what functionality the iCar should have (for example).  In contrast, Cringely looked at the most important thing that somebody trying to emulate Apple might bring to the car industry:  it’s design and manufacturing process:

… embracing these [new technologies] requires the companies do something else that Jobs came to embrace with Apple’s products – stop building most of their own cars.

There are two aspects to this possible outsourcing issue. First is the whole concept of car companies as manufacturing their own products. There is plenty of outsourcing of car components. Most companies don’t make their own brakes, for example. Yamaha makes whole engines for Ford. Entire model lines are bought and rebadged from one maker to another. But nobody does it for everything, yet that’s what Steve Jobs would do.

All the U.S. car companies are closing plants, for example, and all are doing so because of overcapacity. But what would happen if just one of those companies — say Chrysler — decided that two years from now it would no longer actually assemble ANY of its own vehicles? Instead they’d put out an RFQ to every company in the world for 300,000 Chrysler Town & Country minivans as an example. Now THAT would be a dramatic move.

And a good one, frankly, because with a single pen stroke most of the overcapacity would be removed from the U.S. car market. Chrysler would have to shut down all those plants and lay off all those people, true, but doing it all the way all at once would change the nature of the company’s labor agreements such that there wouldn’t be a whimper. When you are eliminating 8 percent of capacity the tussle is over WHICH 8 percent. When you are eliminating ALL capacity, there is no tussle.

So Chrysler reaches out to contract manufacturers in this scenario and you know those manufacturers would fight for the work and probably give Chrysler a heck of a deal. For current models, for example, Chrysler could probably sell the tooling and maybe even the entire assembly plant for a lot more than they’d get from the real estate alone. But that particular advantage, I’d say, would be unique to the first big player to throw in the production towel.

In this scenario, Chrysler becomes a design, marketing, sales, and service organization. What’s wrong with that? They can change products more often and more completely because of their dramatically lower investment in production capital. They can pit their various suppliers against each other more effectively than could a surviving car manufacturer. It’s what Steve would do.

This is brilliant stuff.