carnegie

melgross said:

carnegie said:

melgross said:

SpamSandwich said:

eightzero said:

SpamSandwich said:

k2kw said:

sirlance99 said:

Great freaking quarter. Although, Apples inventory soared a whopping 164% Y/Y. 

Isn't 164% growth good?

I'd say "yes".

Why is it good? 

You have a problem with 164% growth? Are you kidding?

This isn’t growth. It’s the amount of product in the channel waiting to be delivered to distributors, retailers, and customers. It’s, to an extent, yet unsold inventory. When it grows too much, it means that production is exceeding demand. Companies want a certain amount of channel supply to account for fluctuations in demand. But if that increases too much, it can mean that either demand is too low, or production is too high. For many products, Apple looks for 4-6 weeks of inventory in the channel.

To be clear, the inventories number we're referring to (i.e. that which is accounted for as an asset on Apple's balance sheet) is not the same as the channel inventory that Apple tells us about. It is the latter which Apple looks to keep in the range of 5-7 weeks worth. The value of inventories from Apple's balance sheet is considerably smaller than the the value of Apple's channel inventory. iPhone channel inventory, e.g., is now something like 20 million units likely worth considerably more than $10 billion. That channel inventory was reduced by 1.8 million units this past quarter and is something like a half million units larger than it was a year ago.

Inventories can fluctuate from quarter to quarter for a number or reasons. Apple might, e.g., decide that it makes sense to buy an excess of certain components in a given quarter because of current (and expected future) pricing. Apple could also, of course, overproduce products in a given quarter. But that isn't necessarily what the reported inventories number comes from. In this case, Apple has suggested that the large increase in inventories was caused by the former.

Anyway, I just wanted to be clear that channel inventory as Apple reports on it is not the same as the inventories number we're talking about here. Channel inventory represents products sold by Apple and accounted for in current revenues. Inventories can be unsold Apple products or, e.g., unused purchased components or third-party products (stocked in Apple stores).

Actually, it’s channel inventory That they were talking about, and when questioned about it at the conference, Apple stated that they intended to draw it down. All inventories, including those in the channel, unless marked as sold, are listed as an asset.

inventores are draw down as a matter of course. There is little inventory other than what’s in the channel. Companies attempt to keep a certain amount of product there so that inflow mostly matches outflow. At way they ca poor pull inventory as needed as a result of an unexpected momentary jump in demand, or a slowdown. If a com-any has massive amounts of finished product in inventory, then it’s doing a very bad job in managing that, and likely doesn’t know much about its own sales.

The inventories which sirlance99 referred to as increasing 164% YoY (and which was the subject of this string of quotes) is the inventories listed under assets on the balance sheet. That is not the channel inventory which Apple refers to regularly and which Apple states it wants to keep in a 5 to 7 week range. Channel inventory wouldn't be counted as part of that inventories number or as an asset. Channel inventory is, from Apple's perspective, sold. It isn't sold to the end user, but it's sold by Apple and revenue from it is counted in current reporting.

That inventories number was discussed during the conference call by Mr. Maestri in response to a question. He indicated that the large increase was a temporary event, that Apple had made purchasing decisions based on market conditions, and that it would unwind over time. He confirmed, in response to a follow up question, that it was about component purchases.

AppleInsider said:

...

Apple is still not the company's largest holding. Wells Fargo slightly edges out Apple, with the firm holding $29.3 billion in the bank's stock. Apple is second with $28.2 billion. There are no other tech companies in Berkshire Hathaway's top 15 holdings by value.

...

That was the case as of the end of (calendar year) 2017. But it isn't the case now, assuming Berkshire hasn't (net) bought more WFC (which Berkshire hasn't done in recent years) or (net) sold AAPL this year. With the reported share holdings, Berkshire now owns about $29.6 billion worth of AAPL and about $28.6 billion worth of WFC.

anantksundaram said:

I am guessing this could mean a real earnings hit for Apple. Under the prior system of worldwide taxation of US corporations, Apple would have simply transferred the $16B from what it would owe the US Treasury for $$ repatriated from abroad*, in the process of paying Ireland. In other words, it could have led to a fight between the the two Treasuries over who should get the $$.

Under the new, post-Trump, territorial taxation system -- wherein any tax paid abroad is considered "fully paid" -- the US Treasury doesn't care any more.

*...if/when repatriated from abroad.

This payment (if it ever happens, rather than just going into escrow) would represent (foreign) income taxes paid for prior tax years. So it would affect what Apple pays the U.S. in accordance with the new deemed-repatriated rules. Those rules require Apple to pay U.S. income taxes on as-yet unremitted foreign earnings (whether those earnings are repatriated or not), but allow Apple a prorated credit for foreign income taxes paid on those earnings. An additional payment of $10 billion in foreign income taxes (on prior foreign earnings) wouldn't result in Apple paying $10 billion less to the U.S., but it would result in Apple paying substantially less to the U.S. - maybe $4 billion or so.

Even going forward foreign income taxes paid can affect what U.S. companies pay in U.S. income taxes. We aren't going to a strict territorial taxation system. We're going to a territorial-ish taxation system. For instance, there's a new GILTI (global intangible low-taxed income) tax which in effect sets a minimum taxation level for a lot of the foreign earnings of U.S. companies. If they pay very little in foreign income taxes on those earnings, they have to pay some U.S. income taxes on them. 

cropr said:

zimmie said:

Uh ... is this somehow different from their acquisition of Motorola Mobility for $12.5 billion? They later sold it to Lenovo for $2.9 billion, taking a $9.6 billion loss.

Definitely different.  Google bought Motorola Mobility for its patents.  Of course one may wonder if the patents were worth $9.6B

The $9.6 billion figure doesn't take into account the nearly $3 billion in cash that Google got when it bought Motorola. It also doesn't take into account what Google got when it sold Motorola Home (which was sold separately from Motorola Mobility). On the other side, there are operational losses (while Google still owned the assets) to account for. Accounting for those things the real figure is more like $5 billion to $6 billion, which is more or less in line with how Google had originally valued the IP as part of the price it paid for Motorola. Google also had unrealized tax benefits associated with the Motorola Home transactions, but I won't try to figure their value.

Over the last 5 fiscal years, Apple has returned more capital to shareholders ($231 billion) than it has made in after-tax profits ($224 billion). Its cash net-of-debt has still grown a little over that time (from $121 billion to $153 billion) because net cash flows and net profits aren't the same. They differ for a number of reasons, e.g. amortization and deferred tax accounting. The latter has represented a large part of the difference in Apple's case. But going forward deferred tax accounting shouldn't cause as much of a difference. And Apple has a large tax bill it now has to pay, either out of its cash pile or out of ongoing income.

So even though Apple's after-tax profits are likely to increase meaningfully as a result of the recent tax law changes, I don't expect Apple to increase the pace at which it returns capital to shareholders dramatically. It will, I assume, continue to expand its capital return program - i.e. the total amount available for that purpose - to more or less keep pace with the after-tax profits it generates. But I don't expect it to expand the program enough to greatly reduce its cash net-of-debt. That cash pile will already, effectively, be reduced a fair bit over time by Apple's new $40-ish billion tax bill - whether we consider that bill being paid out of the cash pile or out of the ongoing cash flow which would otherwise, other things being equal, be going into the cash pile.

A fairly small special dividend wouldn't shock me, nor would a somewhat larger than normal increase to its regular dividend. It will, after all, likely be making more after-tax profit as a result of the recent tax law changes. But I wouldn't expect a combination of dividend increases and share buyback spending which would reduce its cash net-of-debt below something like $100 billion.