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Author: Horace Dediu

Why Apple's cash is worth more than Microsoft's cash

My recent exposé of Apple’s cash (and cash equivalents and long-term securities and short-term securities) drew quite a bit of attention, which is good. Because it needs to be demystified. However, the story does not end there. Part of the problem of cash is that the liquid stuff can often itself change in perceived value due to mis-management.

Cash has to be valued on the basis of what’s to become of it. So what can become of it?

The value in liquid assets can be returned to shareholders in the form of a dividend, which means double taxation on profits; not the best idea usually. Or it can be returned in the form of share re-purchase which tends to have only a temporary effect on share prices, again not a great return. The value can also be increased by means of investment in projects that return higher than what investors expect their cost of capital to be. This is the best option but investment is difficult when the amount involved is so big that no project or set of projects could possibly cost enough to employ the capital. Finally, the value can be completely destroyed through large acquisitions.

I say destroyed because the history of large acquisitions is almost universally known to be value destructive (1). The urge to M&A is why cash on the balance sheet for large companies is usually discounted and share prices “get no credit for it.” This is plaguing Apple with a P/E ex-cash in the teens.

Is this fair?

Continue reading “Why Apple's cash is worth more than Microsoft's cash”

T-Mobile US celebrates nearly 20 percent smartphone users

T-Mobile loses 93,000 customers but triples smartphone base | Electronista.

Thanks to Android, T-Mobile tripled its smartphone user base in one year. Evidence again of a secular shift to smartphones and the value of Android as gap-filler for Apple’s inability/unwillingness to satisfy demand.

70 percent of college freshmen are entering school with Macs [Updated 2]

Increasingly, companies are giving their employees a choice to either use Microsoft Windows PCs or Apple Inc.’s Macs, the analyst said. And, increasingly, employees are choosing Mac over Windows. To boot, Chowdhry said 70 percent of college freshman are entering school with Macs, up about 10 percent to 15 percent from a year ago.

via Microsoft shares retreat after downgrade.

Remarkable indeed.  I remember when in 2007 40% Macs was headline news at Princeton, having quadrupled from 10% in 2003.

[Update] Chowdry’s estimate seems an exaggeration but Mac share on campus seems to be growing. The most current data shows a probable 50% penetration in private colleges (my estimation is 70% is accurate for Ivy League schools) but a probable 20% penetration at public schools.  Still way above retail share in the US (10%) and way above corporate share of practically naught.

[Update 2] According to survey data from Student Monitor, among those who planned to purchase a new computer, 87% planned to buy a laptop. And among those students 47% planned to buy a Mac.
47 percent of 87 percent is a lot more believable. The chart from Fortune Tech shows that intent to buy for Apple went from 14% to 47% since 2005.

More data, some courtesy of Macobserver readers: Continue reading “70 percent of college freshmen are entering school with Macs [Updated 2]”

RIM's decomposing innovation

It’s hard to get excited about the new RIM Blackberry Torch.  It’s not exciting in a positive way and not exciting in a negative way. It’s just more of the same and the same is not all that bad. Then again, the same is not all that good either. Every piece of the Torch product is playing catch-up with others’ innovations without enhancing the core innovation RIM itself brought into the market years ago.

RIM has a significant but deteriorating share and is a company that has done very well as an entrant in a space dominated by larger incumbents.  But there is a strong smell of Palm about it.  The musty smell of decomposing innovation. Wall Street seems to smell it too (two year stock price chart relative to AAPL below)

The problem seems to be that, like in Palm’s case, mobile computing is a game for big companies.  If you ask why Palm and RIM became uncompetitive you get two different reasons. Palm could not do hardware and distribution well and RIM can’t do software well. But these reasons have remedies which neither company can bring to bear: resources and processes. Palm did not have the resources for distribution and production and RIM did not have the processes to be a software platform company.

Their values and priorities are adequate but competitiveness today, in this market, requires projecting market and development power.

I can only conclude that RIM is simply too weak to make it in the long run.

An apology

This site is fairly new. It has been around for only about 6 months. In that time there have been 393 postings and 586 comments. It has been read 100k times and I’ve moved it three times to accommodate this growth. Lately, thanks to links from John Gruber’s Daring Fireball, views have increased dramatically (to over 10k/day). This has been a blessing but also a dilemma because the traffic is overwhelming for the humble hosting setup I have. So much so that the site was down due to overload much of yesterday.

I apologize for this downtime.

I am trying to find a solution and have implemented a few optimizations (thanks to my lovely wife’s suggestions).  I also turned on full text RSS feeds so readers don’t need to hit the site for full articles.  In the mean time I hope readers will be forgiving and return even if the site is overwhelmed.

Additional suggestions on how to maintain a high quality of service are welcome.

Global mobile phone sales, the full picture

After piecing together the global smartphone shares, it’s time to take a look at global mobile phone shares. That’s all phones from all vendors that matter.

Unfortunately, just like there are only fragments available from Canalys about smartphones, there are only partial lists from IDC (IDC – Press Release – prUS22441510).  Missing are numbers from Apple, Motorola and HTC.  But fear not, those can be obtained from company earnings reports.

So here is the full picture for 2Q10 vs. 2Q09

The year-on-year growth for the vendors above is:

The source data is:

Observations:

  • The pure play smartphone vendors (HTC, Apple and RIM) are growing rapidly and capturing most of the profits.
  • LG and Samsung are taking share from Nokia but losing margins.
  • “others” are doing well at the low end.
  • Sony Ericsson and Motorola are transitioning from mass market vendors of commodity voice products to niche vendors of Android commodity data products.

The deterioration of Nokia's core business

The saga of Nokia’s challenges has been well documented in this weblog.

For this quarter, we take a look at the sequential deterioration in Nokia’s bottom line and draw causal inferences to its lack of competitiveness in mobile operating systems.

First, the bottom and top lines are shown below (in blue) and compared with Apple (in orange):

The charts show how Nokia’s bottom line (left) collapsed while the top line (right) remained relatively solid. By comparison, Apple remained consistent in revenue with slight dip in profit as it transitioned to a new model.

The top line (sales) is the product of units sold and their average selling price (ASP). Here are these two quantities side-by-side:

Note how Apple’s units are hard to discern relative to Nokia’s volume and how the opposite is true for the selling price. These values include all phones sold by the companies.

The story is a bit more clear when comparing the smartphone part of Nokia’s business, again with units and ASP:

The story here is telling: even in smartphones, Apple’s ASP is dramatically higher and much more resilient.

The question has to be why: Why can Apple retain not only higher prices (and hence margins)? The answer is competitiveness. Margin is an indication of value created and value differential is competitive differentiation. All the user satisfaction surveys, the reviews and tests boil down to these hard numbers above. The deterioration of Nokia’s business is directly traceable to its historic failure to embrace mobile software as a disruptive force and instead using it to sustain a hardware business.

Canalys: Android global share rises to 16% of smartphones in Q1 [Updated]

According to Canalys:

Usual disclaimers apply:

  • Only sell-through (i.e. not exact numbers that companies report as sold, i.e. excluding inventory in the channel)
  • Other includes Symbian devices not sold by Nokia, Microsoft Windows Mobile and various Linux, WebOS
  • iOS includes only phones, no iPads, no iPod touch, similarly Android includes only phones
  • Some of these numbers are approximate as they are based on partial data (Canalys does not publish complete share data and some must be interpolated)

Data used to build charts: Continue reading “Canalys: Android global share rises to 16% of smartphones in Q1 [Updated]”