Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All Time High

Listen up you Muppets!!!!! I'm rehearsing from my Goldman Interview, applying for retail stock broker, pushing Apple inventory :-) The update to our Apple analysis is now available to subscribers Apple Margin & Valuation Note. This is a more comprehensive, more "scientific" update and approach to our piece from last year Apple - Competition and Cost Structure. Next week, pro subscribers will see a downloadable version of the model behind this that will deliver more Apple stuff than you can ever digest in one sitting. In review, it is interesting to note certain viewpoints in the previous Apple research note, particularly considering Apple's stratospheric rise in price, ex: "At current price of $347 Apple trades at 2011 calanderised PE of 12x on our estimates and 14x on consensus estimates. Yes, we are more optimistic than consensus, but more realistic concerning future prospects as well." We were considerably more bullish on Apple's fundamentals than the consensus, but alas we were off the mark, and Apple's share price has went stratospheric - stratospheric to the point that it deserves its own conversation (more on that later). But (yes, there always is a but), the hypothesis behind the afore-linked note still holds. As a matter of fact, not only is it as strong now as it ever was, it is actually playing out now as I type this. I will delve into this, but before I go on I must acknowledge that the mere topic of Apple seems to bring out the immature and impolite in the blogoshpere. So much so, many are literally afraid to mention anything that is no "Pro Apple". That's right, literally "AFRAID", as was pointed out in this recent WSJ article "Apple: Deutsche Dares to Doubt". The subscriber document is evident on its face with a variety of valuation scenarios, an indepth that the original research document didn't have - an error in execution. So, for those that don't subscribe, let me toss out food for thought, and even more telling, proof that clearly proves the premise behind articles such as:

How Google is Looking to Cut Apples Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investors Having a Clue Sliced Apple Margins For Dinner? Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet Including The Pretty iPad, With Proof!

What many fail to understand is that what Google as released with its reincarnation of Android is not a new mobile OS, or a flexible handheld technology, but an innovative business model that harnesses to open source software to profitability turn the suppliers and vendors of fat margined leaders against it - literally ingenious and very, very difficult to counter without compressing your own margins. Those interested in reading more can reference Looking at the Results of Google's "Negative Cost" Business Model Employed Through Android. So, let's get started by reviewing portions of my hypothesis from last year... Did Android overtake iOS in marketshare and growth Yes, Even With Apples Successful Launch On Verizon, Google Continues To Increase Its Lead In The Smarthphone Space

Did Apple miss in 4 to 8 quarters Yes, as a matter of fact, they missed exactly 4 quarters later. The Only, and I Mean the Only, Investment/Research House To Warn Of An Apple Miss Is Vindicated!!! I've had many commenters say things such as "You've been crowing about Apple crashing for two years!" The fact of the matter is simply "no", I have never said such a thing. What I did say was that Apple will deliver an unpopular and unforeseen miss and margin compression due to competition. I said this in Oct. of 10 live on CNBC, and I also said on BoomBustBlog that miss will occur 4 to 6 quarters. It is telling that they couldn't get anyone else to say what should be obvious (reference the fear and loathing surrounding the Deustch Bank analyst note, Deutsche Dares to Doubt). Well, they did miss and they are starting to feel the effects of margin compression from competition. this effect on margins is well hidden due to management's excellent execution (Kudos to you guys, btw) combined with the fact that the mobile market is growing so wide, fast and deep that it easily conceals margin compression behind massive unit sales. Although I did start to issue warnings in 2010 about Apple margins, but I made it very, very clear that this will occur over many quarters. I also made it clear I was not short at the time of the declaration. Short term traders were able to profit from my initial short notes with tight stops that I suggested...

.. but alas, the time to short was premature for a strategy guy (as opposed to a trader), and obviously so. That does not obviate the validity of the compression theory though. Im a fundamental and forensic strategist, not a short term trader. In addition, I run a subscription site, hence This morning we spot surveyed 20 people at I do not and will not give valuation locations in Connecticut New York and found bands or price targets to the public for shorter lines than for the iPhone 4s or the iPad 2. free plain and simple. As a strategist, We counted roughly 550 people on line at 5 I make medium term projections, and locations combined, vs. the 2,300 people we they have been on balance rather counted in our iPad 2 survey last year. accurate. This article started out with For some absurd reason, the mere topic All but three of the people we spoke with of Apple brings up the most immature already owned an iPad. During our iPad 2 in the blogosphere. For instance, I survey last year we found 69% of our 80 started saying Greece would respondents did not already have the iPad1. default considerably before I warned of Half of the current iPad owners we spoke Apple margin compression both with this morning had the iPad1 and the stances indicated that this would be a other half the iPad2. medium term occurrence. Well, exactly two years (8 quarters) later Greece defaulted, see Greece Is Trying To Convince Portugal To Make F.I.R.E. Hot!!! For some reason, that is a lot easier to swallow than waiting even less time for Apple margins to shudder, even though the miss that I called for came at the first month of the window that I anticipated and market share and margins are exhibiting behavior congruent to what I anticipated. Of course I know what the issue is, the share price has spiked. Alas so did Greek bonds at a point, and so did the shares of RIM, who faced the same margin compression scenario that Apple faces, see RIM Gets RAMMED! Again... Remember That Contrarian Call 1st Quarter of 2010. Apple's management is head From Hudson Square research:

and shoulders over that of RIMM's (who should have been replace two years ago, alas it's too late now), but compression is still compression. Now, I hear many saying, "... but Apple's margins are at all time highs!!!" Really? Did iPad margins shrink due to competition Yes. Okay - This is the part that the immature are bound to ignore, so I can save some of you some time and you can stop reading now. Those who are actually curious about how I come up with margin compression while others state record margins... As it stands now, Apple is rapidly (much more so than can be gleaned from sell side analyst reports and the media) losing market share in both tablets and smartphones! As Apple loses market share, its costs to manufacture are actually increasing due to massive competition Apple's losing tablet market share faster than it lost smartphone market share Android has moved to over 44% market share in tablets from less than 3% in less than a year and a half. That's amazing and much faster growth than it exhibited in smartphones a category in which Android literally dominated in worldwide and US smartphone growth (as well as installed base re: US) in just a few short years. Apple dropped from just over 96% to just under 55% in the same time frame. Again, as with the smartphones, the Android tablet tech is superior to that of iOS products and as iOS normalizes the difference, margins will suffer. Margins will drop (is dropping) faster for tablets because prices are coming down as fast as tech is increasing.