Holway in SamsungLand
I’ve often thought that the best pointer to what is really going on is just to keep your eyes and ears open. The great general public is often a much better guide to what is really going on than a multitude of highly paid analysts.
I’m in Hong Kong with my family. We are riding the superb MTR each day. It has free WiFi. This morning, in a crowded commuter train, I counted devices. No dumbphones. Some iPads and other tablets but almost everyone had and was using a smartphone. They were engrossed in videos and games. For every iPhone there were 50 Samsungs. They all had larger screens than the iPhone – some so big they looked like iPad Minis. So much better to watch videos. Indeed as they were mostly Chinese, so much better at both writing and reading Chinese script. If Hong Kong is ‘SamsungLand’ then that’s what it is like in mainland China too. A country with 1.3b people of which 300m are ‘middle class’ and quite capable of buying a smartphone. That’s more than the population of the US and UK combined and bigger than the ‘middle classes’ of the US and Europe.
ARM
Of course, what is wondrous about ARM is that their chips power Samsungs AND iPhones. If you are betting on MIDs but are unsure of the winning device manufacturer then clearly ARM is your company. No wonder that ARM’s results today just blew everyone away. ARM’s Q1 profits were £89.4m – a 44% increase YOY and nearly 20% better than those analysts had forecast. Revenues were up 28% at £170.3m – a massive 50% margin. All this resulted in a massive 10% increase in ARM’s share price today (26% YTD).
What happens ‘post smartphone’? Well, one of the really interesting things to come out of Warren East’s (last) analyst call as ARM’s CEO was his comments about ‘wearable’ devices where it looks as if ARM (yet again) has the ultra low power consumption chips and components required. He confirmed that Google Glasses contain ARM products as do the Nike Fuel Band and, who knows, probably Apple’s iWatch too. East also mentioned Internet TVs – another ARM market and one that I think will be’hot’ too. So the outlook for ARM is rosy, to say the least ,with FY results ‘at least in line with market expectations’.
Apple
Given that Apple’s share price has fallen from $705 in Sept 13 to under $400 this week, you can understand why their Q2 results were “eagerly anticipated”. They were better than expected.
Revenues grew 11% YOY to $43.6b but profits fell 18% - the first quarterly profits decline in 10 years. As you can quickly infer, profit margins plunged from 47% to 37% as Apple faced increased competition (from that pesky Samsung) and introduced lower margin products like the iPad Mini.
But all this was better than was feared. Indeed, there was a pretty impressive 65% surge in iPad sales YOY to 19.5m (the one Apple product I did see in Hong Kong) and a 6% increase in iPhone sales to 37.4m. But Mac sales declined slightly to <4m.
Perhaps the best news for investors was a 15% dividend hike plus a massively increased share buyback – now c$100b by 2015.
Conversely the outlook for Q3 was of further declines before new product announcements ‘in the fall and throughout 2014’. Tim Cook talked of ‘new product categories’. But the wait for anything new is becoming worryingly long.
Conclusion
My eyes open on the Hong Kong MTR showed me that the world wanted smartphones – but now not necessarily Apple. And they wanted bigger screens. The tablet form factor is a real winner as is the smaller sized iPad Mini. But there are many other, cheaper Android versions. It is difficult to see how Apple can compete on price in these mass markets and the premium end is saturated. ‘New product categories’ are needed and, indeed, are on the way. But the Apple wait is too long and they will not have it all their own way this time.
Apple or ARM? Answer seems only too obvious right now.