Notes of interest from the FY05 Q3 Apple conference call - Page 2

The points brought up about Apple's decrease in Japan are extremely true. It seems that Apple's price drops in the region may not have sold any extra products for them at the same time. On the music front, Panasonic and various other Japanese companies have released mp3 players over the last year, and iRiver has been promoting their music players there too. Additionally, PSP sells on average of 20,000 units a week, which has to put a dent in the iPod's potential there. 20-some million GameBoy Advance and DS systems can also be made into mp3 players with an inexpensive Nintendo accessory (Nintendo sells on average 40,000 handhelds a week there), so I think Apple really has a hurdle to overcome if they're to make headway into the second largest market in terms of music and economy.

I also think the Apple cinema displays are a little too pricey for them for something without a TV Tuner. And I think the Mac mini would be a hit over there, if it were a little more powerful (if it's not already a hit).

Without the iTunes music store, what can be expected? That was the start of the growth here and elsewhere. It equals more iPods sold, which then leads to more cpu's being sold, etc.

Actually, for those quarters, profits generally came from the sale of ARM stock. But generally stuff like that isn't too big a deal, because investors and analysts look more at the data prior to 'one time' events (like stock sales/buy backs, severance packages, reorginazation charges, etc).

I just wanted to add in short, check out the "Statement of Cash Flows" to see where the money really goes. This statement is required for any public company and the cash flow statement would show you how their cash & liquid assets increased more when compared to net income.

Noncash expenses (as mentioned above amort/depr) are the love of income statement reporters because it reduces taxable income without any cash outlay. So again, it's money in the bank (check out that cash flow statement) but none of that money has to go back to Uncle Sam. Of course there's the reconciliation of different types of depreciation; for example, AAPL could be using straight line depreciation on their statements but everyone has to use the MACRS tables (double declining balance) depreciation when filing taxes. So you really need to dig into the SEC filings to see what the differences are in order to try and reconcile this stuff.

Isn't accounting/finance/reporting fun?

I disagree with the lack of the iTunes Music Store responses. Japan will embrace any cool new technology. You can argue that the music store is a huge part of getting people in some countries to use Apple, however Japan is the exception to this rule. Japan likes cool looking designs. I honestly think it's Apple's inability to make laptops with better screens (Been a complaint of mine for a long time, my co-worker's 800 dollar Compaq laptop has a much better screen then my other Coworkers brand new PBook)

Apple needs a subnotebook I think or nicer laptops to compete in Japan...

Also, accounting is fun. I just finished my intro Financial Accounting class at my university. It's fun.

I agree about a sub notebook, but disagree about iTunes. There's far more more to consider than that. Japanese and Korean's watch Tv through their computers because they don't have room for both devices. A sub notebook isn't ideal for that purpose.

iTunes has made more non Apple using people more aware of Apple's other products. Japan is no different in that. If anything, they are even more faddish than we are. If using iTunes is cool, then you just know that they are going to do it. also, the keeping up with the uh, Jones' is even stronger there.

I don't think that Apple needs a subnotebook in Japan.

I'm not a market analyst but common sense tells me that Apple needs to stop thinking different for a short while.

Here are the facts that I base my opinion on:

1. The computer sales has been growing yearly here in Japan. I don't remember the exact numbers but I heard it on the news the other day. OTOH, Apples sales are apparently going down. So obviously, Apple is doing something wrong while others are doing something right. Apple needs to learn from the others.

2. There are very few subnotebooks on the market. Probably because few people actually carry them around. As I mentioned in a previous post, notebooks sell because they are the new desktop. The only movement they see is when the Japanese take the notebook off the shelf to put it on the living room table and vice versa. People want a desktop quality notebook that they can put away when not in use. Screen quality is more important than battery consumption. BTW, in any computer shop approximately 60-70% of floor space is occupied by laptops.

3. People watch TV on their computers. Do you enjoy watching TV regularly on 10" screens? Didn't think so. Which is why 15"-17" screens are the most popular size. Subnotebooks are too small.

4. ITMS is important. But Japan might be one of the few markets where people will prefer to subscribe to a music service rather than buy music online. Japan already has several successful music subscription services which has been in business since the early 80s. It's not internet-based but a company called Yuusen seems to have a huge marketshare. Japanese are notoriously trend-driven and they are not very likely to listen to last years music very frequently. Which is probably why people prefer to rent music rather than buy. (Yes, you can rent CDs in Japan. The same store will even sell you a blank CD or MD to copy the music illegally.)

5. The Japanese are very, very design-conscious. Personally, I think Japanese lean toward cute looking designs rather than cool-looking designs but it's hard for me judge. Either way, the simple and clean lines of Apples products seem to be doing very good in this regard.

Actually, I just read that the 2400 Japanese subnote book was designed by IBM! And was promptly killed by the returning Jobs...

So we can forget that idea!

for all of the "interesting accountants" out ther I wish congratulations - the world is just set-up nicely for you!

interesting idea re: Japan becomes their "advanced r+d" market testing playground.

oh, and maybe its just me but i think scavenger was referring to a specific body part being small

............................

Yes, I've noticed that Japanses forefingers are small.

Good point. I think that it is critical to gain at least a basic knowledge of how key financial statements (balance sheet, income statement, cashflow statement) work if one is going to invest in publicly traded companies.

Oh, no! The sky is falling!

http://news.zdnet.co.uk/software/mac...9209221,00.htm

I was waiting for the first "analyst" to declare that no matter how great Apple is doing, fear-uncertainty-doubt should be first and foremost in the headline.

The byline is misleading. If you read the article, analysts actually believe AAPL will do better then what Oppenheimer suggested during the meeting.

The analysts believe AAPL will do better, but I do think Oppenheimer's guidance is prudent, as the Intel switch was announced only 3 weeks before quarter end. I would figure preordered stuff was being built in those 3 weeks, so any hesitation to buy Mac CPUs won't show up until the Q4 results are announced.

Absolutely. If you can't be bothered to wade through the financial statements or don't understand what is being reported, you might as well hang up Section C of the WSJ on the wall and throw darts at it. Whatever the darts hit are your investment decisions. It's just as reliable if you aren't checking out the statements, value line for co. & industry, etc.

On the other hand it is too easy to get hung up on those statements as well. My broker is always talking about the "technicals". I've yet, in over 40 years of investing, to see a stock go up because the technicals looked good. There is more to investing successfully than churning through the balance sheets.

It's far more important to know the industry, and the relations between the companies in it, as well as the industries around them, than it is to know detailed financial statements.

One reason that analysts are usually off in their understanding of what's going on (other than the illegal building up of stocks that their companies hope to do business with), is that they truly do NOT know the industries as well as they should. They depend too much on those financial reports which, after all, are giving a history, but not telling us much about future performance.

Take Gateway, for example. No one could have predicted this new $250 million deal which drove their price up. Is Gateway now a good investment? If other organizations now look at them differently because of this.

It's complex, but investing involves a "feel" as much as anything else.

I'm part of an NAIC stock club and we have a simple motto; we don't invest in stocks, we invest in companies. The numbers help with analysis but more of it is like you said, reading about what the company is doing, where it wants to go, how effective the management is, etc. and see how their products are perceived in the marketplace.

The point is, you need to invest in good companies that have a future, not the 'insider's tip of the day'.

I agree, analysts generally speaking suck, and one should never, ever base buy/sell decisions on what an analyst is telling you to do (and no, I'm not being sarcastic either hehe).

I'm currently at the "learning about the markets stage", been trading with a very small account thus far, since like many other uni students, I don't have a lot of extra money. I tend to look at technical analysis first and foremost, but I also always review fundamentals on the companies I'm looking at.

The amusing thing it that finance theory basically tells you that technical analysis is some sort of voodoo magic, that nobody can predict the future movements of a stock, and that it's therefore impossible to make money in the markets (efficient market hypothesis). The best explanations relating to how the markets move have been Schiller's, we wrote quite a bit about the stock market bubble that took place about 5-6 years ago.

Based on past performance and the balance sheets, would you have quessed that Apple would be a good investment around three years ago? I think not. Yet I invested in them when their stock fell to $16.90. It hasn't done too badly since then.

I put together an SSG when AAPL was $14 and change (pre-split don't forget). The SSG said that AAPL was overvalued (?) which is weird since at the time their bank account was worth about $12/share. Anyway I couldn't get my stock club on board (mostly IT peeps) at the time. Talk about silly mistakes. I wish I had just gone ahead and personally invested in AAPL at that time.

Where did the money go?

Here: Book Value Per Share (mrq)t7.758

The Book value of Apple went up. The price of the stock includes all, the valus of the buildings and holdings. In this case the book value or cash holdings went up by $450 mil. That figure os of course diluted by the amount of stock on the market, since each share is actually just components of all things AAPL. In this case there are 813mil shares floating on the market, so the intrest income added about $0.50 to each share of AAPL of book value. What you are really buying in a stock to forward earnings, a large book value means nothing if Wall Street does not believe that you have a forward earnings plan that you can execute. Witness Apple when Steve took over. The stock was traiding at $15 of which $12.50 was cash holdings, so that means that the rest of the business buildings, inventory, ect, was valued at $2.50 and no forward earnings reflected in the stock.

edit: deleted my ramblings, thanks Brendon

Sorry I missed your ramblings, I'm a fan of ramblings. Some ramblings can be very enlightening, they are a form of free thought. 95% worthless, but 5% real gems, the problem is having the fortitude to pay attention to all in order to sift out the gems. Sorry for the bad spelling in my first post.

In technology companies, stock options are often preferred to salary as a way to compensate directors, managers and key employees. There is no immediate cash payment for companies which, as a result, tend to be more generous. Recipients benefit from the future growth of companies and, for tax purposes, stock options are considered as an immediate expense for companies serving to reduce their income tax. The cost of stock options is equal to their market value at the time they are issued, not the time they are converted to stocks.

Stock options are often equal to 25% of the number of issued, publicly traded stocks. As stock options are converted to stocks, they are either bought back by companies at market value or a pre-determined value, or added to the number of issued, publicly traded stocks. Most companies create a cash reserve to cover the cost of buying back stock options, for otherwise they would reduce the value of existing stocks by increasing the number of stocks entitled to receive dividends and share profits.

For accounting purposes, and stock exchange requirements, stock options used to be considered as deferred, future compensation to be declared if and when stock options are converted to stocks. Stock options would have a negative impact on company results only when converted to stocks.

Steve Jobs was the highest paid CEO in America through his stock options. Steve Jobs and the Apple Board of directors opposed at first the new rules of accounting that will require stock options to be declared as expenses in the financial quarter they are granted, thereby reducing to zero the quarterly profits of many companies listed on the NASDQ stock exchange.

What are the profits of Apple, once stock options are listed as expenses? What part of the cash reserve is available to finance expansion and distribute among stockholders?



Pierre

Stock options as used by tech companies is pretty much over. With the extremely fast stock price increases seen in the late '90's over, stock options being used in liu of proper saleries is a thing of the past. Even MS no longer uses them as a lure, with their stock price down.

Apple already expenses these .