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The Entrant’s Guide to The Automobile Industry

Like a siren, it calls.

The Auto Industry is significant. With gross revenues of over $2 trillion, production of over 66 million vehicles and growing[1] it seems to be a big, juicy target. It employs 9 million people directly and 50 million indirectly and politically it must rank among the top three industries worthy of government subsidy (or interference). Indeed, in many countries–the US included–government interference makes it practically impossible for a producer to go out of business, no matter how poorly it’s managed or how untenable the market conditions.

But this might be the tell-tale sign that danger lurks. Theory suggests that incumbents going out of business is an essential indicator of industry health. Without their exit, entrants are never allowed to bring disruptive ideas to bear and innovation simply stops. Is this interference with mortality the only indication of entrant obstacles? Are things about to change? Is there pressure for innovation? Can we spot other indications of a crisis in this industry?

Taking the US as a proxy, here is a graph of the number of new car firm entries (and exits):

Screen Shot 2015-02-23 at 6.58.54 AM

The total number of firms[2] that entered the US market is 1,556. The blue line graph shows the entries and the orange line shows the exits. This sounds impressive, but note that the year when the peak of entries took place was 1914, exactly 100 years ago.

Notes:
  1. The industry continues to grow, registering a 30 percent increase over the past decade, mainly due to Asia and China in particular []
  2. counted as brands []

The Critical Path #141: Old Dogs

Horace presents the next class in The Critical MBA. Having too much of a fundamental footing could be a disadvantage when evaluating what theory might apply to a given situation. Could this be why so many fail to understand Apple? In the second half of the show, Horace and Anders discuss Amazon as retail goes online.

via 5by5 | The Critical Path #141: Old Dogs.

The Critical Path #140: Apple Earnings Call

In this special “live” version of The Critical Path, Horace gets the numbers just minutes before Apples January 27th, 2015 earnings call and dissects them live. The show picks up just after the call finishes with a quick recap and discussion of yet another record quarter.

via 5by5 | The Critical Path #140: Apple Earnings Call.

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This post is sponsored via Syndicate

 

The S&P 499

Thomson Reuters reported that excluding Apple, the entire S&P 500 grew profits at a rate of 4.4%. Including Apple the figure is 6.4%.

Using one weird trick[1] I calculated the value of profits generated by the S&P 499 (i.e.the largest public companies excluding Apple) in Q4 2013 and Q4 2014.

Apple therefore accounted for nearly 8% of the S&P 500 in the last quarter. A year earlier Apple was a mere 6%.

Screen Shot 2015-02-08 at 8.43.53 PM

 

It should therefore be obvious why Apple’s P/E ratio is 16.1 while the S&P 499 P/E ratio is 19.8.

Notes:
  1. Algebra []

How many iOS devices did/will Apple ship?

Last August I wrote:

It’s therefore reasonable to assume that calendar 2014 will see at least 250 million iOS devices sold

The actual figure was 259.5 million.

Looking ahead, the capital spending pattern so far shows a distinct rise heading into Q1.

Screen Shot 2015-02-08 at 7.33.14 PM

This could be partly due to the new campus, the new Watch production ramp and perhaps new iPad models.

Screen Shot 2015-02-08 at 7.33.27 PMNevertheless, I think it’s safe to predict that the company is on track to ship 310 to 320 million iOS devices in 2015.

Screen Shot 2015-02-08 at 7.35.30 PM

 

Apple’s Growth Scorecard

Apple’s Net Sales grew at the rate of 30% in the last quarter. Earnings per share grew at 47%. Both of these figures are the highest since 2012.

Screen Shot 2015-02-08 at 5.27.47 PM

It should be noted that although the rate of growth is extraordinarily high, the company never actually stopped growing in the past three years. As the table above shows, net sales has always had positive growth.

Compared with the fourth calendar quarter of 2011, Apple’s sales are 61% higher and earnings per share are 54% share.[1]

This degree of growth at this stage in the history of the markets it participates in is a revelation.

Consider:

  • The PC market is more than 30 years old. In this mature market the Mac has been outgrowing the Windows platform for 34 out of the last 35 quarters.

Screen Shot 2015-02-08 at 5.35.43 PM

 

  • The iPhone was announced eight years ago and it still managed to grow at the rate of 57%.

Screen Shot 2015-02-08 at 5.47.11 PM

  • The market shares of its Mac, iPhone and iPad products are all remarkable only for their paucity.
  • The pricing of all their products is more than double the median for their categories.
  • Regardless of extreme growth, pricing power, headroom and, most importantly, customer loyalty, the company’s prospects are seen as dismal in contrast to its underperforming peers.[2]
  • Such is the plight of the anomalous.
Notes:
  1. Some of the expansion in earnings per share is due to the willingness of shareholders to sell their shares to Apple. 10% of the shares around in 2011 have thus disappeared. []
  2. As measured by P/E or FCF/EV ratios vs. direct rivals, technology companies or the S&P 500. []

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This post is sponsored via Syndicate.

Asymcar 21: Where we’re going, we don’t need roads

Gartner asserts that “connected cars or smart cars are poised to play a pivotal role in the Internet of Things (IoT)”. We say “Hah!”

Also,

  • Who levies automotive platform taxes?
  • What in the world could “over serving” transportation mean?
  • Using the Automatic app in a Porsche.
  • BMW’s  “sounding the alarm” over tech companies efforts to collect auto data.
  • China’s car industry and other unimportant details relative to declining interest in driving among young people.

via Asymcar 21: Where we’re going, we don’t need roads | Asymcar.

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