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Apple's Strategic Balance Sheet: A live presentation

My talk from the 2012 Apple Investor Summit is available on Vimeo. The password is h42Rtz8HJ.

Check out the cool iPad app used for presenting interactively and wirelessly–a foreshadowing of Asymconf.

  • http://www.informationworkshop.org Mark Hernandez

    A fascinating and insightful story, adeptly told, while pushing the “presentation envelope.” It’s great to see you speak Horace.

    As you well know, there’s so much farther we can go with the visuals and the visualizations. I’m about to go see the new Avengers movie, which visualizes so effortlessly, but last week I gave a talk and was constrained to 1024×768 projection on a pulldown screen at a new innovation center. Think about the fact that iOS development is currently 99.99% word-based, with the occasional 2D block diagrams, (all of Apple’s “videos” are videos of words) in spite of the fact that all adept developers have a working 3D model constructed in their heads, and the new student is forced to learn and build their own working 3D model from multiple out-of-sync word streams. We have a long way to go, and it’s exciting, yet the extreme disparity still goes unnoticed by most.

  • SFO

    As a long time partner at a boutique trading firm focused mainly on interest rate products, Apple was our first and last foray into stock equities back in late 90’s and early 2000. We applied algorithms based on money movement, time and volume of orders, who are the buyers and sellers etc…. We normally avoid stocks due to the heavy influence of fundamental analysis and it’s random lagging effects.

    However, Apple became an exception for us due to the early disruption of cutting out certain businesses, or maybe better stated products and the reliance on a smaller, more consumer influential product the iPod. The behavior was not a divesture brought on by an outside group, but internally and we felt that a new business was to emerge better than the original. We, for the first time analyzed not so much the financials, since it was not our specialty, but focused on the operations of how the business was going to be built.

    Much like your analysis, we saw a longevity model being cultivated to not meet quarterly results and be suspect to short-term fundamental analysis but to build a new “business model” not yet envisioned by other companies. Apple was a compelling investment for us, not so much a tradable product. Again, a first for our firm.

    We made some small trades to test order executions such as OCO, Contingent Orders, LIT, MIT… for not only liquidity but also best fulfillment. Our positions started small and I personally purchased over 10,000 shares at the time. We are no longer in accumulation mode, but we are into holding and options writing mode of the equities. However, your presentation has us looking into Apple with a different perspective and a renewed interest.

    While this response is not a “challenge” to your post and possibly offers little to no value for learning, I just wanted to say, in a verbose style, I appreciate your work.

  • guest

    Check out the cool iPad app used for presenting interactively and wirelessly–a foreshadowing of Asymconf.
    Can you post a link?

  • barryotoole

    “Check out the cool iPad app used for presenting interactively and wirelessly–a foreshadowing of Asymconf.”

    Please post a link or tell us the name of the app. Thx.

  • Alexvia

    To hear the talk, click on the not so obvious “my talk” link above in the message, then enter the password.

  • http://twitter.com/williamthirteen William Thirteen

    Very nice and much appreciated. Not being a business/investment/financials guy, my ability to understand the business processes from only the numbers themselves is limited. Your work converting these numbers into viewable, manipuable objects has accelerated my understanding of the underlying dynamics.

    Also, as a training and presenter, I would love to know what hardware/software you used for the presentation – besides the iPad obviously.

    greetings from Berlin!

  • Timo Ruppell

    This may be arguing semantics over what you mean by sanity check but you show in your talk a good linear fit between CapEx and iOS device shipments. Then you check the depreciation per device and find again a linear dependence and I understood you to see this as another data point for proving the CapEx — iOS device relation.

    I think it only proves that CapEx and depreciation are linearly linked, in the sense that this is the only new bit of information you get out. A linear relation between CapEx and depreciation is what you would expect in a normal business.

    Another way to think about it is that if depreciation vs iOS shipments were not (roughly) constant this would not lead you to deduce that he CapEx — iOS device shipment correlation is any different from what you have observed it to be, rather it would point you to the fact that there is something funny going on with how CapEx and depreciation are related.

    • Chandra

      That is the definition of a sanity check. it is not supposed to reveal any new information.

      • http://pulse.yahoo.com/_RKS56BXI5SF2II2YTQD6MBE54A Hosni

        No, a sanity check is a look at the same issue from a different perspective to determine whether your original analysis is yielding ‘reasonable’ conclusions.

        Timo Ruppell said that the two analytical approaches — one based on CapEx, the other on depreciation — do not provide different perspectives. When depreciation is a constant fraction of CapEx, he said, then *mathematics* forces the two approaches to agree.

        Therefore, no real cross-check has been performed; the conclusions of the original analysis have not gained credence by the new ‘finding.’

  • bbcbbm

    Great presentation Horace. March Q earnings are out, did they say what capex spend was? Or do we have to wait for the 10Q? At the high level, we suspect capex is huge in 2012 because of all three factors: iPhone, iPad, iCloud. iCloud is a very important part of the ecosystem going forward.

    The scale of production is amazing (one day a billion iOS devices per year?) How would Apple (Foxconn) make all this stuff without all the young hard working Chinese (mostly girls age 18 to 28)?

  • Patrice

    What’s password ?

    • Patrice

      oups its ok.

  • mieswall

    Great speech, thanks a lot!. A lot of comments/ questions:
    1. Too much of a coincidence on linear patterns to be that, a coincidence. So, do you see any relationship between the linear pattern of Capex–>IOS production and the also linear pattern of cash & eq. increase->stock price?
    2. Another derivative could be: why, is IOS sales are supply-driven, and AAPL having so much cash available, are not investing harder on production? Maybe the are also managing the rate of market share, in order to be sustainable in a really long term? If so, all this android/samsung noise jeopardizing AAPL future would be answered by default. Samsung and android are perhaps capturing just what Apple wants them to. (78% AT&T iPhone share on their smartphones last Q could be an indicator of this potential monopoly of IOS).
    3. Huge capex investment this year is not related with the big demand on Siri and ICloud? Wouldn’t that be an indicator of how disruptive an AppleTV integrated on the IOS ecosystem could possibly be?

  • kgbraund

    Brilliant heuristic talk Horace! Your ability to extract data and squeeze out its importance/interplay(s) with other parameters is extraordinary. Thank you for doing what you do!

  • Chandra

    Great talk, Horace. The cliffhanger on the spending on equipment is killing me! Would this quarter be when they spend, and if so on what?

    On a lighter note, I worry about your own business model ( how you make a living ). You impart great wisdom for free for which we are all thankful. I see you in a jacket, so I know you at least have made a few hundred dollars ;)

  • ADVILL

    My only critic is that you liberated now, not before the Apple´s quarter report, you were predicting clearly the results in the CAPEX graphs……some could get something if….

  • http://www.facebook.com/vonwunschheim Alfonso Wunschheim

    Hi horace, could you publish the details about the presentation app you’re using? thx

  • http://www.facebook.com/vonwunschheim Alfonso Wunschheim

    Hi horace, could you publish the details about the presentation app you’re using? thx

  • JLG

    Thank you for this wonderful presentation. As far as the missing cap ex so far this year, is it possible that Apple is anticipating large up front payments for content rights associated with a TV related launch?

    • http://www.asymco.com Horace Dediu

      I don’t think content rights are capital expenses. I think they are costs of sales for the content itself so they come out on the income statement. Capital expenses are depreciable assets.

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