Value Investing

jamesmith

About tablet and Intel vs ARM

Tablet Market Share Q2 2012



Rumored Apple TV might be good for headline news, but tablet will be force driving growth in next couple of years. Apple intend to gain as much market as possible and try to do what Microsoft Windows did to PC world with ecosystem lock down. That's why Apple updated every single iOS devices before the holiday season.

This market will get even more interesting with entrant of Microsoft surface. Surface with an Intel chip means you can run any PC applications on it.
Don't underestimate Microsoft and Intel. The main advantage of Arm chips is power, but Intel is closing the gap with die shrink to 22nm. Arm chips might still have an advantage in power consumption, but in terms of processing power, Intel chip is far superior. IF Intel can successfully shrink the die to 14nm in 2014 and drastically improve power consumption..... Arm chips will have even less power advantage and Intel could dominate mobile market of Android. What made mobile chip market less attractive is lower profit margin, mobile chips are simpler and lower priced. However with the shift to mobile, Intel have to compete in this market.
This is not an easy choice to make!
1)Intel's making money in PC market
2)mobile market is taking market share from PC
3)chips in PC have higher profit margin than chips for smartphones

This is why Kodak invented the first digital camera but hesitated to push it. Because Kodak makes money selling films for cameras with high profit margin, pushing digital camera will kill it's old market and digital camera doesn't need films! Where is Kodak now? (bankrupt... -_-!)
This explains why Intel was slow to push it's mobile chip.
OK...Intel's position is similar but not nearly as bad as Kodak because CPU market have a very high entrance barrier and Intel is accelerating mobile development by spending 9.8 billion in R&D in last twelve months.

Intel Atom roadmap
Q2, 2012   Medfield(Saltwell core)  (32nm)
Q4, 2012  Clover Trail (Saltwell core) (32nm)
2013 Silvermont (22nm)
2014 Airmont (14nm)


Apple Ax
2010 Apple A4(using ARM Cortex-A8) (45nm)
2011 Apple A5(using  ARM Cortex-A9) (45nm)
2012 Apple A5X(using  ARM Cortex-A9) (45nm)
2012 new Apple A5(using  ARM Cortex-A9) (32nm) (achieved better power consumption due to die shrink)
2012 Apple A6, custom Apple designed   (32nm)
2012 Apple A6X,  custom Apple designed  (32nm)


There's no question that Apple wants Control. It's clear with their A6, the first fully customized chip by Apple. Here's an interesting story about the decision back in 2005:

Since Apple decided to transit to Intel's x86 chips in 2005, Mr. Jobs planned to use low-power Intel Atom microprocessor inside the iPad initially. However, Tony Fadell, the senior vice president of the iPod division at Apple, insisted that the iPad would be ARM-powered although Mr. Jobs insisted that it was "best to trust Intel to make good mobile chips". The history knows what happened next: Apple bought PA Semi chip designer, which created the A4 system-on-chip for the company. Apparently, Steve Jobs was pretty pleased with the result and even told his biographer that Intel was anyway too slow and not too flexible to offer something comparable.

"At the high-performance end, Intel is the best. They build the fastest chip, if you don't care about the power and cost. But they build just the processor on one chip, so it takes a lot of other parts. Our A4 has the processor and the graphics, mobile operating system, and memory control all in one chip. We tried to help Intel, but they do not listen much. We have been telling them for years that their graphics suck. Every quarter we schedule a meeting with me and our top three guys and Paul Otellini. At the beginning, we were doing wonderful things together. They wanted this big joint project to do chips for future iPhones. There were two reasons we did not go with them. One was that they are just really slow. They are like a steamship, not very flexible. We are used to going pretty fast. Second is that we just did not want to teach them everything, which they could go and sell to our competitors," Steve Jobs told his biographer.

Meanwhile, Intel's chief exec Paul Otellini said that Apple and Intel could not agree on the price and on who would control the development. Apparently, Mr. Jobs demanded too much control over design of the x86 iPad chip.

水明善

jamesmith 发表于 2012-10-25 10:50 AM
About tablet and Intel vs ARM

Tablet Market Share Q2 2012

enjoy reading your posts! The story about INTC is very interesting. I missed the chance to buy ARMH...

hellofriend

jamesmith

I looked at Apple's income statements from 2008 to 2012, and bought more at 597.21 today...

jamesmith

Don’t Confuse Growth With Sustainable Competitive Advantage

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”

–Warren Buffett, Fortune magazine, 11/22/99


When I read this the other way, I was thinking about Apple.

I ask myself, how good is apple's moat compared to Coca Cola, which basically sells the same product for over 100 years. People just keep drinking more. The annual consumption of Coke goes up almost every single year.

Apple's moat is design and ecosystem. Apple has always been growing its moat, and is continuing to fortify it. Computer is known as a commodity, similar to car insurance or gasoline, the main differentiator is price. Apple is able to differentiates itself with other PC makers by it's remarkable design and by controlling both software and hardware for better integration. The result is that Apple is able to charge a higher price than other PC makers and continue to grow its market share when total PC shipment went down. The hd Macbook pro and iMac designs again proved this, they are far superior in terms of design compared to their PC counterparts.

Apple under Steve Job know the importance of ecosystem. It started with iTunes and iPod. Songs bought in iTunes can only be played with Apple products. People invested heavily in iOS ecosystem are unlikely to move out. Then with its superior design, attracted millions of customers to join the Apple ecosystem. The result?  iPod dominated the market. People in Apple ecosystem are getting new Apple products.

Along came the iPhone. Apple is growing its ecosystem to include apps, movies, books. If there's no android, apple might be dominating the smartphone market just like it did with iPod on music player. Android has its own ecosystem, but all the manufactorers of android are competing making it similar to a commodity business (main differentiator is price), until Samsung came out to dominate the android world, for now. Samsung is able to charge for a similar price of the iPhone, I wonder if it can continue doing so, because once you bought an andoird app, you can use it on any device.

Then came the iPad. Apple took its lessons from iPhone and try to slow down android in tablet market with law suits. Android's tablet software was really bad in 2010-2011,this helped Apple to gain market share. Android got much better with 4.0 and Amazon started the trend of low price tablets. This forced apple to create iPad mini.

Apple's moat certainly got stronger. People think of Apple product differently, in some area it became a status symbol to use Apple product (some kid sell organs to buy Apple...) It's ecosystem is growing and people already invested in Apple ecosystem are likely to continue buying Apple products. Its sustainability is no problem in near term.

contr

jamesmith 发表于 2012-10-29 01:23 AM
Don’t Confuse Growth With Sustainable Competitive Advantage

“The key to investing is not assess ...

Good thought

水明善

jamesmith 发表于 2012-10-29 02:23 AM
Don’t Confuse Growth With Sustainable Competitive Advantage

“The key to investing is not assess ...

Just add some comments:

Apple's real strength:
1. the integration of both software and hardware, now Google and MSFT are trying to adapt this model instead of focusing on software only;
2. Application: Surface of MSFT only has very limited application now, but AAPL has thousands of application, a mature application "cluster" will support the business well, even decides the customer choice;
3. Design, in fact, I always feel surprised how a US company can make such nice design which is typical patent of Europe. In fact, in design field, this may be the only US company which leads the fashion.

But Apple also has some realistic or potential challenges:
1. business world: tablet is still treated more as an adult toy or simple work tool which can't replace PCs. At least 3 generations of people grow in the microsoft software environment, so Surface can be a potential choice in business field to replace Ipad if it had more applications. People may like Surface to do their work and have fun.
2. Iphone has no real competiter now, but we don't know when there is a real breakthrough. In fact, current telecommunication business model is not economic for consumers at all. People need to buy machine + monthly pay for ATT/Verizon...Will MSFT consider how to use Skype to occupy this market or any other new technology will come out?
3. leadership: for the next few years, AAPL should be fine, the 2nd generation leaders usually are not too bad, at least, they learn something from Jobs, but the 3rd or 4th generation? In the design world, the face of the winner keeps change.

开小差

like this thread very much.

heheboy

CHRW is very good pick, buffet's style

snowrider

jamesmith

I am very happy that we have our own place. Now we can have individual post for each stock, putting everything in one post is hard to read.

heheboy

Jamesmith,

wanna look at WU : western union? it tumbled a lot after ER, it was buffet's pick 20 years ago.

jamesmith

heheboy 发表于 2012-11-1 04:58 PM
Jamesmith,

wanna look at WU : western union? it tumbled a lot after ER, it was buffet's pick 20 y ...

Thanks for sharing.
I don't see why it would drop so much. It has 4% dividend with relatively stable business.

WU's earning for Q4 2011 went up because of restructuring expenses and the tax benefit. Excluding those, WU's P/E is almost 7, still pretty low.

I am looking at the Earning and the call for more information...

Here's the earning call:
http://78449.choruscall.com/data ... me/4260/indexr.html

Transcript for the call if you prefer reading rather than listening:
http://seekingalpha.com/article/ ... ngs-call-transcript

Earning:
http://ir.westernunion.com/files/doc_news/3Q12ER_FINAL_102912.pdf

heheboy

jamesmith 发表于 2012-11-2 07:30 AM
Thanks for sharing.
I don't see why it would drop so much. It has 4% dividend with relatively  ...

I had the same question also, it seems the ER was not a catalyst for the drop based on my opinion...i am accumulating slowly.

jamesmith

heheboy 发表于 2012-11-2 10:57 AM
I had the same question also, it seems the ER was not a catalyst for the drop based on my opinion. ...

Very busy day, didn't have time to read the earning report yet...
I also like to build positions slowly, I like Merrill Edge's 30 free trade a month.
It gives me a lot of control, I can buy small amount repetitively and not worry about commission :)

jamesmith

visited apple store and target, iPad mini sold out at both store.

Apple store crowded as usual. iPad mini's build quality and design is the best in 7 inch tablets. Macbook pro retina is amazingly thin and light. It's a beautiful device to hold and use. The screen is amazingly clear. I can't wait to see the new iMac. The Time Capsule is $299, which is not that expensive because it is a Wireless Router + 2TB Hardrive that has wireless access for all Apple products. I compared prices on newegg: getting a wireless router with USB3 cost around $110, getting a 2TB hard drive is about $120. But the Time capsule implements two device into one.

Nook HD+ is out, played with it for a while. I am impressed that it's quality is better than Kindle. However software is a little laggy, it needs improvement patches. Not a suprise because B&N is a much smaller player with limited resource and it has to compete with the big players like Google and Amazon. I hope it can survive...if B&N closes, I have less place to hang out...

jamesmith

heheboy 发表于 2012-11-2 10:57 AM
I had the same question also, it seems the ER was not a catalyst for the drop based on my opinion. ...

With the stock dropped so much after ER, I was wondering if there's some problem with WU's short term liquidity problem.
So I checked it's debt outstanding

WU have 3583.2 milionl debt at end of 2011, and at Q3 2012, this changed to 3433 million.
That's a good amount of debt, I would say WU is quite leveraged. Seems like it tries to keep it at this level and lower it gradually.

WU's cashflow

This shows it has no short term liquidity problem with 1433 million cash. So the drop in share price is mainly concerned with growth and profitability.
It did some big acquisition last year, including buying Travelex's Global Business Payments division.
It is spending A LOT of money for stock repurchase and dividend. I don't know if this is such a good idea, because share prices keep falling, that means part of money they use to repurchase are lost, that's shareholder equity wasted...

This is what Buffett said about repurchase:
"Many CEOs never stop believing their stock is cheap. In other instances, a less benign conclusion seems warranted. It doesn't suffice to say that repurchases are being made to offset the dilution from stock issuances or simply because a company has excess cash.
Continuing shareholders are hurt unless shares are purchased below intrinsic value. The first law of capital allocation - whether the money is slated for acquisitions or share repurchases - is that what is smart at one price is dumb at another.
Charlie and I have mixed emotions when Berkshire shares sell well below intrinsic value. We like making money for continuing shareholders, and there is no surer way to do that than by buying an asset - our own stock - that we know to be worth at least x for less than that - for .9x, .8x or even lower. (As one of our directors says, it's like shooting fish in a barrel, after the barrel has been drained and the fish have quit flopping.)"

Buffett announced that Berkshire will repurchase shares whenever it's market cap is within 1.1 times of its shareholder equity. If we put the same standard on WU, it's market cap is currently 7.26 Billion and it's shareholder equity is at 1.15 Billion. I don't see why it is spending so much on repurchase before.
Now it might make more sense, because It's current dividend is 4.12%, and if it can borrow with interest lower than its dividend, it might be a good idea. However, other than share repurchase, it would be even better to roll the debts to lower interest rate ones if possible.

heheboy

jamesmith 发表于 2012-11-5 11:34 AM
With the stock dropped so much after ER, I was wondering if there's some problem with WU's short t ...

you are big cow on FA.

LZ, are you a CPA?

jamesmith

heheboy 发表于 2012-11-5 12:10 PM
you are big cow on FA.

LZ, are you a CPA?

Thanks :)
I am no big cow and I don't have CPA. I studied Computer Science at school. I am a newbie learning/practicing value investing.


Hmm...OK...Berkshire and WU are not the same kind of company. So Buffett's rule of repurchase can't be directly applied to WU.
WU's requires low maintenance, it doesn't need a lot of asset to do business. WU's business is moving money from one place to another, it doesn't require a lot of building, land. that is why it has low asset equity on paper. Most of the value is in its ability to generate money.
In a way, WU's business is similar to Visa/Master or EBAY(Paypal)...they are all moving money. WU is mostly customer to customer (C2C), Visa/Master is all customer to business (C2B). (I am guessing here, because I didn't really look at V or MA's earning report yet...)


In Q3 2012, 83% of WU's revenue is from C2C...



APAC = Asian Pacific, EMEASA = Europe, Middle East, South Asia
The reason for drop?
Most of the value is in its ability to generate money. However revenue from C2C are lowered compared to 2011. This is due to competition, some banks now allow transferring money to another bank, more competition forced WU to lower prices. Another bad news is from South America, some of WU's agents in South America didn't follow compliance regulations and are forced to close.

In Q3 2012 ER, WU said:

Holy Crap! 10% to 15% drop from operating income in 2013?!!!! Investor will start to worry if income really dropped this much, can WU still pay dividend, debt and stock repurchase? I am not sure why they will say this, a 15% drop in income is huge! Are they really predicting income to drop so much in 2013?

Things I like...
-WU increased dividend, together with price drop its at 4.12% now...
-in Q3 2012 ER, it announced another $500 million share repurchase.  -_-! WU's manager really really likes to buy shares back...it could be a good thing with prices so low now...
-WU has 1.4 Billion cash and has no short term liquidity problem...If the next Earning shows problem isn't as bad as they predicted, share price could go back to $16-$17 range.
-WU is working on cutting cost, with a target of 30 million annual cost saving achieved by 2014

I am trying to figure out how bad it is if they are right and income do go down by 10 to 15%...
Looking at the cashflow from the previous post...if they slow down stock repurchase, they will be able to maintain positive cash flow...

heheboy

I think they have about 0.5 mil agents worldwide, their customers are mostly the ones without bank accounts, immigrants. plus their rate is lowered.
moneygram is their competitors, but with less site.