or Connect
AppleInsider › Forums › Investors › AAPL Investors › Wall Street excited about China Mobile's iPhone launch, but Apple's margins will be scrutinized
New Posts  All Forums:Forum Nav:

Wall Street excited about China Mobile's iPhone launch, but Apple's margins will be scrutinized

post #1 of 38
Thread Starter 
With the iPhone just days away from arriving on China Mobile, analysts' relief at the long-rumored deal's consummation is paired with curiosity about what concessions Apple may have made to strike an accord with the world's largest wireless carrier.

China Mobile


The "details of the agreement (pricing, margin, etc) are unknown and, thus, we believe gross margin bears watching," Wells Fargo's Maynard Um wrote in a Wednesday morning note to investors that was provided to AppleInsider. Whispers of a pairing between Apple and China Mobile date back to 2008, and Um appears to believe the iPhone maker could have ceded ground on financial terms in order to finally secure the contract.

If Apple's margins --?which the company forecasts to be between 36.5 percent and 37.5 percent for the current fiscal quarter -- do decline as a result of the deal, there could be several possible explanations.

Apple may have simply agreed to discount all or a portion of the handsets sold by China Mobile in order to relieve the high cost of subsidizing the devices, a point of contention with other iPhone carriers in the past. Alternatively, the company could have acquiesced to a revenue sharing arrangement, similar to an agreement reached with Chinese search engine Baidu in 2012.

China Mobile's customer base, which generally skews toward a less-affluent demographic, could also opt for the lower-margin iPhone 5c over the more profitable iPhone 5s. Though the cheaper iPhone 5c retails for $100 less than the 5s, it reportedly costs Apple just $25 less to manufacture.

The margin issue aside, Um reiterated his belief that the China Mobile partnership will drive a significant overall boost in unit sales and may help to alleviate the iPhone's typical post-Christmas slump.

Piper Jaffray's Gene Munster, in a similarly-timed missive, expressed renewed confidence in the bank's own predictions after China Mobile Chairman Xi Guohua's remark that the carrier had received "several million" pre-orders for Apple's handsets. Munster previously forecast sales of 3 million iPhone units through China Mobile for the second quarter of 2014, adding an additional five percent to Apple's revenue for the year.

Overall, investors remain bullish on the pact's potential for Apple. Cantor Fitzgerald's Brian White believes China Mobile was "worth the wait" for investors, anticipating sales of between 20 million and 24 million additional devices in 2014. J.P Morgan's Mark Moskowitz pegs the number at a more conservative 2 million per quarter, while Cowen and Company's Timothy Acuri places his estimate at 20 million to 30 million.
post #2 of 38

Fak....damned if you do...damned if you dont. 

One thought he was invincible... the other thought he could fly.

They were both wrong.

Reply

One thought he was invincible... the other thought he could fly.

They were both wrong.

Reply
post #3 of 38
They can afford to discount it on the basis that the transport costs can't be up to much!
post #4 of 38

Jesus Christ. If there are any more conceivable ways to dump on Apple, I'm not interested.

Proud AAPL stock owner.

 

GOA

Reply

Proud AAPL stock owner.

 

GOA

Reply
post #5 of 38
Perhaps politically incorrect ( something Apple will certainly not admit ), but there is no reason to believe the appearance of iPhones at China Mobile is driven by anything more than what drove Verizon and DoCoMo to eventually support it: customer demand. The Carriers have never liked the iPhone ecosystem package, which interposed the iTunes store between them and their customers. Prior to the iPhone, carriers could mandate what and when their customers would see in cell phone feature/function. Conversely, they can control the Android ecosystem with imbedded apps and wrappers, and decide when upgrades are passed out to their customers (which is one reason only 2% of Android users are on the latest version, vs >80% of iOS users).
post #6 of 38

I'd like to know if any special deal was struck on the iOS App Store. Are apps censored? Are profits split with China Mobile? Are the App Store data centers located in China?

Proud AAPL stock owner.

 

GOA

Reply

Proud AAPL stock owner.

 

GOA

Reply
post #7 of 38

This Azzhole Maynard Um downgraded apple on Jan 2nd

 

http://www.businessinsider.com/apple-downgrade-from-wells-fargo-2014-1

 

He's doing everything he can to push Apple down to make himself look good.

 

FU Maynard you scum

 

Just remeber this asshat had a $730 target just last year

post #8 of 38

Wow, they are really going out of there way to find some kind of negative spin about this.

post #9 of 38
Ok so this week it's worries about margins. Next week it'll be worries about market share (ie need for a low cost/low margin iPhone). Fuk off, you corrupt analysts.
post #10 of 38

See - they have been right all along.  Any number of people over many years have pointed out that "Apple is doomed."

 

This is just another nail in the coffin.  

 

Apple is doomed.

post #11 of 38
Quote:
Originally Posted by SpamSandwich View Post

I'd like to know if any special deal was struck on the iOS App Store. Are apps censored? Are profits split with China Mobile? Are the App Store data centers located in China?
Censored apps are almost a given.
post #12 of 38
Quote:
Originally Posted by Lord Amhran View Post


Censored apps are almost a given.

 

Another question:  Are there China-only apps?

Proud AAPL stock owner.

 

GOA

Reply

Proud AAPL stock owner.

 

GOA

Reply
post #13 of 38
Quote:
Originally Posted by Lord Amhran View Post
 
Quote:
Originally Posted by SpamSandwich View Post

I'd like to know if any special deal was struck on the iOS App Store. Are apps censored? Are profits split with China Mobile? Are the App Store data centers located in China?
Censored apps are almost a given.

Apple censors apps too. No big deal.

post #14 of 38
So this whole "Apple needs a cheaper iPhone" talk was so they then could blast Apple for having lower margins and per-unit profit? Awesome¡

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply
post #15 of 38
Quote:
Originally Posted by SpamSandwich View Post

Another question:  Are there China-only apps?
My guess would be yes. The Weibo blogs probably have apps and Government approved apps almost assuredly.
post #16 of 38

I'm sorry but announcing the start of sales of the iPhone on China Mobile ("uh… but were not going to tell you the price of them") is just a bad move.

No two ways about it.

post #17 of 38
So the analysts range from 8 million iPhones to 30 million. In other words the have no idea what the market is. If I was that far out in my estimates at work I would lose my job very quickly.
post #18 of 38
Quote:
Originally Posted by BobSchlob View Post
 

I'm sorry but announcing the start of sales of the iPhone on China Mobile ("uh… but were not going to tell you the price of them") is just a bad move.

No two ways about it.

Yup, you’re right. It’s that bad move that made the stock go up 11 bucks today.

 

I want more such bad moves….:rolleyes:

post #19 of 38
Quote:
Originally Posted by Crosslad View Post

So the analysts range from 8 million iPhones to 30 million. In other words the have no idea what the market is. If I was that far out in my estimates at work I would lose my job very quickly.

Agreed. I don't see why someone couldn't do a decent consumer survey. The results would surely be worth a lot?

post #20 of 38
Quote:
Originally Posted by herbapou View Post

Wow, they are really going out of there way to find some kind of negative spin about this.

Apple (we don't give in to carriers) giving concessions to a carrier doesn’t seem like a negative to you? Let me guess "they'll make it up in volume".
"Few things are harder to put up with than the annoyance of a good example" Mark Twain
"Just because something is deemed the law doesn't make it just" - SolipsismX
Reply
"Few things are harder to put up with than the annoyance of a good example" Mark Twain
"Just because something is deemed the law doesn't make it just" - SolipsismX
Reply
post #21 of 38

"Munster ... forecast sales of 3 million for the second quarter..."

 

"Mark Moskowitz ... a more conservative 2 million per quarter..."

 
"Brian White ... anticipating sales of between 20 million and 24 million..."

 

"Timothy Acuri ... estimate at 20 million to 30 million."

 

In other words, none of them has a clue and really, they're all just guessing?

 

From 2 million per quarter (8 million for the year) to 30 million (almost 8 million per quarter) for the year.  And pretty much everything in between when you add the rest of the yammering Analyst class.

 

How nice to be paid to guess. Where do I sign up? I'm pretty good at guessing!!

post #22 of 38
Quote:
Originally Posted by dasanman69 View Post


Apple (we don't give in to carriers) giving concessions to a carrier doesn’t seem like a negative to you? Let me guess "they'll make it up in volume".

 

Well, considering that the entire article is predicated on a FUD-based supposition, I wouldn't go off into negative spin-land with it...

 

Where has Apple given concessions exactly? Small details here and there, I'm sure. That's called "negotiating". But they've held the line on what gets preloaded, carrier control of the device behavior, etc. I would absolutely not assume that Apple has "caved" in areas they consider sacrosanct.

 

Yes, Apple throwing in the towel and giving lower margins, more content control, etc. etc. could be negative. Sure. IF...

 

Read the article carefully. You'll see that the words "IF Apple's margins do decline..." are the opening premise. The entire supporting premise is "IF".

 

I don't go negative on "IF" much. I certainly don't sell off my stock because of someone says "IF..." And it's certainly not worth getting one's knickers in a twist over it, considering how all over the map the "analyst" estimates are on every aspect of Apple.

post #23 of 38
Quote:
Originally Posted by dasanman69 View Post


Apple (we don't give in to carriers) giving concessions to a carrier doesn’t seem like a negative to you?

From the article:

Quote:
 The "details of the agreement (pricing, margin, etc) are unknown and, thus, we believe gross margin bears watching,"

Maynard Um doesn't know if there are concessions. Simply conjecture there may have been concessions by Apple given the length of the negotiations.

 

Just as easy to speculate that Apple made no concessions and stuck to its guns until China Mobile finally agreed.

post #24 of 38
Quote:
Originally Posted by fly75 View Post

Just as easy to speculate that Apple made no concessions and stuck to its guns until China Mobile finally agreed.

There's no fun in speculating that. lol.gif I was simply responding to a comment with a generalization.
"Few things are harder to put up with than the annoyance of a good example" Mark Twain
"Just because something is deemed the law doesn't make it just" - SolipsismX
Reply
"Few things are harder to put up with than the annoyance of a good example" Mark Twain
"Just because something is deemed the law doesn't make it just" - SolipsismX
Reply
post #25 of 38
Apple will be scrutinized? This is MAYBE news to someone who has been living in a cave! Maybe! Another brilliant analytic mind! Where have they been hiding this market genie!
post #26 of 38
Quote:
Originally Posted by tribalogical View Post
 

How nice to be paid to guess. Where do I sign up? I'm pretty good at guessing!!

 

But are you skilled at slathering on the B.S.? If not, an analysts position may not be for you.

Proud AAPL stock owner.

 

GOA

Reply

Proud AAPL stock owner.

 

GOA

Reply
post #27 of 38

You're right. It almost seems like these Analysts are playing a game that I used to play with friends and family all the time. Bets and Wagers anyone? Someone reads a clue and you all right down your best guess (number oriented) then everyone has 2 chips they bet on everyones guesses from "least to greatest". 

 

The spread on these "estimates" is so far fetched... you wonder why any investor would even follow these guys. But they do!

post #28 of 38

Let's see, this article speculates that Apple's margins might be doing down because of the China Mobile deal, and then speculates about various terms that Apple might have agreed to that caused the ostensible margin compression...

 

This is a rabbithole of speculation disguised as an article...

 

Please, editors, share facts and information, or at least well-informed rumors, but not layers of guesswork!

post #29 of 38
In fairness, Maynard is likely just saying what all the others on Wall Street are thinking, and it does help the average investor understand why the stock moves after earnings announcements. It is counter-intuitive to most investors that the stock moves down on good earnings. The reality is revenue keeps going up, but profits are growing much more slowly (if at all).

Fortunately for AAPL, they have easy comps for the first two quarters of FY14. Unfortunately, the highest estimates only assume Q1 made 12% EPS growth, with a 2-4% reduction in shares outstanding.

I really hope for $16 EPS for Q1, and forecast of $50B revenue with 37% margins for Q2, but I imagine it is far too optimistic.
post #30 of 38
Quote:
Originally Posted by Bluestone View Post

See - they have been right all along.  Any number of people over many years have pointed out that "Apple is doomed."

This is just another nail in the coffin.  

Apple is doomed.

By now there are far more nails than wood in this coffin.
post #31 of 38
If the software costs are a constant, and you sell twice as many units, does that not reduce your software costs on the previous units? Is it possible that the hardware supplier(Foxconn) could offer a volume discount to Apple?
post #32 of 38
Quote:
Originally Posted by tribalogical View Post
 

"Munster ... forecast sales of 3 million for the second quarter..."

 

"Mark Moskowitz ... a more conservative 2 million per quarter..."

 
"Brian White ... anticipating sales of between 20 million and 24 million..."

 

"Timothy Acuri ... estimate at 20 million to 30 million."

 

In other words, none of them has a clue and really, they're all just guessing?

 

From 2 million per quarter (8 million for the year) to 30 million (almost 8 million per quarter) for the year.  And pretty much everything in between when you add the rest of the yammering Analyst class.

 

How nice to be paid to guess. Where do I sign up? I'm pretty good at guessing!!

 

 

 

Rounding error.

Why does Apple bashing and trolling make people feel so good?

Reply

Why does Apple bashing and trolling make people feel so good?

Reply
post #33 of 38
Apple could have capitulated to CM's terms in 2008. They could've caved when things looked grim last summer. This deal could've been done at any time if Apple had just given in. No. They stood firm for years. It was CM that couldn't hold out and had to concede to Apple's terms. The timeline shows this. CM saw what happened in Japan; Customers want the iPhone and they'll go to, or stay, where it is.
post #34 of 38
Quote:
Originally Posted by anantksundaram View Post
 
Quote:
Originally Posted by BobSchlob View Post
 

I'm sorry but announcing the start of sales of the iPhone on China Mobile ("uh… but were not going to tell you the price of them") is just a bad move.

No two ways about it.

Yup, you’re right. It’s that bad move that made the stock go up 11 bucks today.

 

I want more such bad moves….:rolleyes:

 

You thought Apple announced their China Mobile deal today??  :err: 

 

Besides, I don't care what the stock price did today. I want to know what it does when the Chinese secret iPhone price is revealed. (Don't know why they didn't release that info already (must have had a reason) but it will be released someday, right?


Edited by BobSchlob - 1/15/14 at 8:42pm
post #35 of 38
I do not think it is that simple. The price may not reflect if Foxconn game Apple a volume discount for more units. It does not reflect the fact that they may have no cash required to ship from Foxconn to CHL in a few days. And nobody knows what the customers will buy, the 5s or the 5c. It seems that the difference from the Foxconn bill and the invoice goes directly to Apple's bottom line. At sounds like the CHL deal may change the PE of Apple as a growth company. And India is right around the coner
post #36 of 38
Quote:
Originally Posted by SpamSandwich View Post
 

 

But are you skilled at slathering on the B.S.? If not, an analysts position may not be for you.

 

Damn! I knew I was missing a prerequisite skill set...

post #37 of 38

See it did not take wall street long to find a negative in otherwise positive news.

post #38 of 38
Quote:
Originally Posted by Maestro64 View Post
 

See it did not take wall street long to find a negative in otherwise positive news.

 

Sorry, I'm missing the negative side to this story. Could you point that out for me.

na na na na na...
Reply
na na na na na...
Reply
New Posts  All Forums:Forum Nav:
  Return Home
  Back to Forum: AAPL Investors
AppleInsider › Forums › Investors › AAPL Investors › Wall Street excited about China Mobile's iPhone launch, but Apple's margins will be scrutinized