Look around...

Investment Analysis Clubs Saul’s Investing Discussions
1

People: when you are outside, in the mall, in the bus, at the airport, in the restaurant, etc. have a look around. What do you see?

I see most people on their smartphone. It’s everywhere. People probably use their phone more than almost everything. It’s essential, no longer a luxury. It does not more and more stuff to make life convenient. In some places, the model you have is a status symbol, sort of like a nice watch used to be.

2G is no longer good enough. 3G is slow and will soon be such a pain that they will upgrade. 4G/LTE is the top end (in the US market). People will upgrade and more and more people who don’t have a smartphone today will adopt. It’s become our way of life and it’s happening globally. The developing world is quickly catching up. For people who think the smartphone market is stagnating, go outside and look around.

Here are some more interesting bits of info:

  • 58% of people in China have mobile phones.

  • The middle class in China was about 50 million people in 2010. It’s now approaching 500 million.

  • China has more people, who are already mobile phone users who do not yet have a 4G/LTE phone, than the ENTIRE population of the United States.

  • India is behind China, and another huge market that will catch up technology-wise.

  • 40% of existing iPhone customers have upgraded to iPhone 6 or higher. 60% have not yet upgraded.

  • SWKS addressable is $1-2/3G device, $3+/4G device, and >$5/advanced 4G device. 5G will be even higher but will take a few more years to roll out. South Korea and Japan will likely roll it out first.

33 Likes
2

I see most people on their smartphone. It’s everywhere. People probably use their phone more than almost everything. It’s essential, no longer a luxury. It does not more and more stuff to make life convenient. In some places, the model you have is a status symbol, sort of like a nice watch used to be.

You are correct. I see smartphones everywhere. But that’s exactly why there’s increasing concern regarding Apple’s growth prospects and, by extension, the growth prospects of all the participants in Apple’s supply chain.

Apple will go down in history as an amazing company that introduced one of the most disruptive technologies in history: the smartphone. People often don’t realize that Apple introduced the iPhone in 2007. In less than a decade, the whole world embraced smartphones. The adoption cycle was absolutely mind-blowing. But…there are limits to growth. Adoption cycles invariably plateau. And it’s THAT prospect that has cast a pall on Apple and its suppliers.

I’m not saying that Apple is not a fine company that will suffer significant decline. Not at all. It will fare well…but it won’t be the company so beloved by “momo enthusiasts” (i.e., momentum investors). It’s slowly morphing to a mature stalwart. Lotsa folks won’t mind, but it’s a paradigm shift that carries with it implications.

Here’s a Bloomberg article that highlights what’s happening now:

http://tinyurl.com/hrzj65p

Apple Forecasts First Sales Drop Since 2003 on iPhone Slowdown

Apple Inc. is forecasting a sales decline for the first time in more than a decade, adding to evidence that the market for smartphones is becoming saturated and that expansion in China is no longer enough to maintain the company’s unprecedented run of growth.

Revenue in the first three months of the year will be $50 billion to $53 billion, Apple said Tuesday, the first quarterly drop since 2003 and below analysts’ estimates for $55.5 billion. That follows a holiday quarter in which overall sales and iPhone shipments fell short of projections, reinforcing concerns that Apple is reaching the limits of iPhone growth and that a push in China won’t make up for a slowdown in the rest of the world – a sentiment that’s fueled a stock slide of 20 percent in the past six months.

In addition to the iPhone, Apple’s other product lines are also stalling. iPad purchases continued to decline, falling to 16.1 million tablets during the holiday quarter, compared with a projection of 17.3 million. Mac sales fell to 5.31 million, compared with the 5.8 million estimated. IPhone sales rose to 74.8 million units, compared with the average 75 million predicted by analysts.

5 Likes
3

Apple Inc. is forecasting a sales decline for the first time in more than a decade, adding to evidence that the market for smartphones is becoming saturated and that expansion in China is no longer enough to maintain the company’s unprecedented run of growth.

It seems incredible to me that they don’t mention that the comps for next quarter are against one that benefited from massive pent-up demand last year because Apple was supply-constrained in the prior quarter. Cook said it will be the toughest comp of the year for them as a result. I guess that fact wasn’t consistent with the story they’d like to tell.

This is why I don’t like to read traditional financial media.

Neil

17 Likes
4

Apple Inc. is forecasting a sales decline for the first time in more than a decade, adding to evidence that the market for smartphones is becoming saturated and that expansion in China is no longer enough to maintain the company’s unprecedented run of growth.

It seems incredible to me that they don’t mention that the comps for next quarter are against one that benefited from massive pent-up demand last year because Apple was supply-constrained in the prior quarter. Cook said it will be the toughest comp of the year for them as a result. I guess that fact wasn’t consistent with the story they’d like to tell.

This is why I don’t like to read traditional financial media.

Neil

Why do you think Bloomberg knows the situation less than you?
Why are you so easily dismissing them?
What will it take for you and other hardcore Saul/SWKS true believers to acknowledge that there may be at least a short term problem?
On top of that IoT is used a s magic word to dismiss any bad news about SWKS growth.
SWKS position in this segment is far from guaranteed. IoT is still in its infancy and the winners are yet to be determined.

9 Likes
5

It seems incredible to me that they don’t mention that the comps for next quarter are against one that benefited from massive pent-up demand last year because Apple was supply-constrained in the prior quarter. Cook said it will be the toughest comp of the year for them as a result. I guess that fact wasn’t consistent with the story they’d like to tell.

This is why I don’t like to read traditional financial media.

And this is why people should listen to the conference call for themselves. Information can be taken out of context and twisted in many ways.

How will the smart phone market keep growing:

  1. developing countries will adopt. China is 58% penetrated. There’s India and other geographic markets that are behind China.

  2. upgrades will continue as phones get faster, become more powerful, and have new features.

I think it will be a while before the growth ends…

Chris

9 Likes
6

Why do you think Bloomberg knows the situation less than you?

Could it be that Neil listened to the conference call and heard it from the horse’s mouth. I listened and heard what Tim Cook said.

6 Likes
7

What will it take for you and other hardcore Saul/SWKS true believers to acknowledge that there may be at least a short term problem?

Shuki, we haven’t even heard from Skyworks yet. Can’t we at least wait until we get the facts on Thursday before we pass judgement? :wink: There may be a short-term problem: we’ll find out. But I’m not going to sell just because they have a bumpy quarter or two, if it just looks like short-term turbulence (e.g., as a result of the oil/commodity bust) – it happens. If I think there is long-term impairment of the business, that’s a different story.

Regarding IoT, nobody said it was guaranteed. But I think there’s likely to be room for multiple winners, and Skyworks is already successful in IoT, and is continuing to grow that success. It’s a small amount of revenue today, but I expect that growth to continue. The company plays in a unique niche, and we’ve seen the success that has brought to it in mobile. Management says that their experience has been that the same know-how translates well to IoT. Will they be able to turn that into huge success over the long term? I don’t know. But so far they’re doing a good job. That’s not speculation, it’s fact. If the facts change, I’ll reevaluate.

I don’t know if you have any interest in the company or not – you’ve seemed pretty negative on it from the start – but if you do, I would highly recommend taking a few hours to go back and read through their conference call transcripts if you haven’t already. I think it will add a lot of color to the niche they play in, why they have a competitive advantage, how that’s translating into moves into other verticals beyond mobile, and what things generally look like for them moving forward. And then come to your own conclusions.

As for Bloomberg, I didn’t comment on their knowledge, but on what they chose to report. IMHO, they left out some pretty important facts that add a lot of context to the situation, and it so happens that those facts run contrary to the theme of their piece. If you’re looking for honest, well-reasoned analysis, then that should be setting off alarms for you. And it’s not the first time, either: a few years ago, when Mac sales dropped because Apple was supply-constrained after a fresh launch and couldn’t produce them fast enough, Bloomberg made no mention of that, but just trumpeted that Mac sales were in massive decline. Nobody reading their article would ever had known that the problem was literally that demand outstripped supply – a definite problem, but one most businesses would love to have.

Bloomberg (and most other financial media publications – I’m not trying to pick on Bloomberg specifically) isn’t in the business of producing honest, well-reasoned analysis: they sell your eyeballs to advertisers, and dramatic headlines and stories help them do that. It’s called click-bait. There’s nothing evil about it (though it can still be shocking), and I don’t mean it as a slight, it’s just their business. But as an investor, you need to be aware of that, and understand that you’re the product being sold, not the customer, and know that you’re getting a story dressed up to generate clicks and increase ad revenue rather than a well-reasoned, fact-based analysis.

That’s why I don’t like to read traditional financial media, and why I tend to be dismissive of it. But that’s just me.

Neil
Long AAPL, SWKS

52 Likes
8

That’s why I don’t like to read traditional financial media, and why I tend to be dismissive of it.

I don’t read the financial media to become informed. I read it to know what they are reporting.

If they are reporting that Apple is doomed, I want to know that … so that I can profit from it.

3 Likes
9

I think it will be a while before the growth ends…
I absolutely agree that there will be a growth here.
The only question is at what pace and also when.
SWKS is becoming cheaper (and in my opinion will continue to become cheaper).
The only question is what is their value (Is it undervalued now) and if their moat is wide enough.
For me calculating the value range for them is too complicated, I have no idea what the expected growth will be (That absolutely affects their value).
Even if they are under valued the moat is not wide enough to guarantee that there is enough time for the price of the stock to reflect the real value of SWKS.
This is falling under the category of too complex to calculate the intrinsic value and I am passing.
I think any investor in SWKS (unless he/she relying on charts which I believe doesn’t work) should have a good answer for:

  1. Is it undervalue
  2. Do they have a most that is sustainable for the next 10 years.
    If not, this is more hopeful investment than real reasonable investment.
    Sorry to be a party spoiler.
6 Likes
10

What’s at the heart of smart phones, of everything mobile, of everything IoT, of most consumer electronics, disk drives, and disrupting its way into servers?

ARMH: http://invest.kleinnet.com/bmw1/stats16/ARMH.html

Some people worry that Intel will eat their lunch. I’m not in that group. No Fabulous Fabs to eat up the cash flow: ARM is a hardware company with all the benefits and privileges of a software company. :wink:

http://softwaretimes.com/pics/armh-01-27-2016.gif

Denny Schlesinger

2 Likes