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Archive for April, 2009

Apple (AAPL) Beats Q2, iPhone on Fire +123% y/y, Internet Tablet in September?, Jobs Coming Back

April 22nd, 2009 No comments

Apple reported $8.16 billion in revenue vs. $7.96 billion estimate and $1.33 EPS vs. $1.09 estimate. Gross margin was 36.4% and international sales were 46% of revenue. Non-GAAP adjusted numbers were $9.06 billion in revenue and $1.84 in EPS. Q3 guidance, June quarter, $7.7-7.9 billion in revenue vs. $8.28 billion estimate and 95c-$1.00 EPS vs. $1.12 estimate

Apple sold 2.22 million (-3% y/y units) Macs, 11.01 million (+3% y/y units) iPods, and 3.79 million (+123% y/y units) iPhones. (On March 17th, I twittered my iPhone estimate of 124% unit growth) The company has $28.9 billion in cash which comes out to about $31.98 net cash/share.

The iPhone is now available in 81 countries. Gross margin was 290bps better than expected due to commodity prices being significantly lower than expected, better sales of higher margin products like software and accessories, and lower freight costs. The component environment is still expected to be favorable in the June quarter with the only exception being NAND flash, which will be up sequentially due to lower supplies. (Sandisk said same thing)

iPod linearity was similar to last year. iPhone was reasonably linear after the first week or two. Desktop PCs accelerated on the launch of their new line-up. U.S. education market is weak at -11% y/y due to the fact states are feeling the pinch from lower tax revenue. Generally consumer is holding up better than the professional and education markets. Professionals are cutting back and delaying spending.

Regarding net-books, if they “find a way to deliver an innovative product, we’ll do that.” They gave gross margin guidance of 33% for June quarter and 30% for September quarter. If I had to read between the lines, I’d say the internet tablet is coming in the September quarter as he said they are “very focused on delivering extraordinary product and value” when pressed on why September was lower.

ATT&T is a “very good partner” and they are “very happy” with the relationship. They “do not plan to change it.” Apple even talked about Verizon un-asked saying CDMA is a long-term dead-end technology. They wanted one phone to work in the whole word, which leaves only GSM. They are in 3 out of 4 of the BRIC countries (Brazil, Russia, India). They would like to be in China within the next year.

Regarding Steve Jobs, they look forward to his return to Apple at the end of June. Macs were -3% units y/y, but flat in terms of sell-through. U.S. education market is the big negative driver. They are hours away from the 1 billionth iPhone app download. iPhone has now sold 21 million units.

Net-net: Killer iPhone number at +123% y/y unit growth, still the best growth product cycle in technology. Steve Jobs is still slated to be back at the end of June. If I read between the lines with gross margin guidance and wink-wink about new products, I’d say the internet tablet is coming in the September quarter.

Categories: News

Capital One (COF) Expects Charge-Off Rates Higher than 10%

April 21st, 2009 2 comments

The situation for Capital One customers keeps getting worse and worse. What’s in your wallet? The stock actually rallied last week off American Express up-tick in March credit card data, even though Capital One filed a down-tick for March the day before. Go figure. Source

Economic deterioration continued at a rapid pace during the first quarter driving increasing delinquency and charge off rates across most of our lending businesses. U.S. card charge off rate increased to 8.4% for the first quarter, above the 8.1% charge off rate expectation we articulated a quarter ago. Expected seasonal increases in bankruptcies and declining loan balances resulted in higher charge off rates compared to the fourth quarter of 2008. The increase in charge off rates beyond our expectations resulted from several factors related to the pace of economic deterioration in the quarter. Bankruptcies were higher than expected, increasing charge-offs directly without impacting delinquency rates. Recoveries on already charged off debt were lower than expected. We also observed an acceleration of later stage delinquency balances slowing to charge off in the quarter. For context recall that when we articulated our expectations last January the unemployment rate was 7.2% and we assumed it would increase to about 8.7% by the ends of 2009. The unemployment rate has already deteriorated to 8.5% and is expected to move beyond 8.7% well before year end. Even though our U.S. card charge off rate was higher than the expectation we had last quarter delinquencies and charge-offs were a bit better than we would have expected given the actual economic worsening we’ve seen in the quarter. …

Credit Loss outlook

We expect further increases in U.S. card charge off rate through 2009 as the economy continues to weaken. It is likely that will our U.S. card charge off rate will increase at a faster pace than the broader economy as a result of the denominator effect and our implementation of OCC minimum payment requirements … We expect monthly U.S. card charge off rates to cross 10% in the next couple of months.

Economic Outlook

I’ll update our economic outlook. Unemployment and home prices have been and continue to be the economic variables with the greatest impact on our credit results. We now expect unemployment rate to increase to around 9.6% by the ends of 2009. Our prior assumption for home prices was for the Case Shiller 20 city index to fall by around 37% peak to trough. We now expect a modestly worse peak to trough decline of around 39%. …

Categories: News

Sandisk (SNDK) Beats Q1 and Raises Q2 Guidance

April 21st, 2009 No comments

Sandisk reported a loss of -48c and revenue of $659 million vs. estimates of -76c and $537 million. The company also raised guidance for next quarter to $650-$725 million vs. $570 million estimate.

CEO Eli Harari was much more positive on the call than last quarter. He said demand was stronger than expected and that it is holding up in April. They plan to even raise prices in Q2. The CFO remarked this is the first time in her five years at the company that there will be an uptick in prices per gigabyte this quarter. The key driver is the higher flash content in smart-phones like Apple’s iPhone.

When asked about a potential equity offering, she said they can move fast as they have filed the shelf. However there are “no definitive plans” on a capital raise at the moment.

Categories: News

Jim Rogers on Glenn Beck

April 7th, 2009 No comments

-Things are going to get worse
-2 years from now: lot more unemployment, more bankruptcies, civil unrest
-Main problem is Greenspan and Federal government would not let the market work. If he let Long-Term Capital Management go under, we would not have the problems now. Instead we have massive bailouts over and over again
-U.S. dollar will collapse and interest rates will go higher
-It would be better if we took the pain now and take 2-3 bad years, then 12-13 years of trouble like Japan
-Sell rallies. Put money into natural resources, mining, agriculture, energy, and foreign currencies. I am world’s worst short-term market timer
-Cut taxes, cut spending. Going deeper into debt to solve a big debt and borrowing problem is lunacy
-Treasury auction or two sometime in next year or so where people only bid for 82 billion out of 100 billion auction, when that happens you better run for the hills

Categories: News

Meredith Whitney on CNBC Notes

April 7th, 2009 No comments

-Tangible ratios could actually be better. Avoid putting up shorts here
-“Be careful pressing shorts here” into Q1 earnings reports
-We don’t get out of woods fundamentally till mid-2010, but that doesn’t mean you don’t get 90 degree trading opportunities
-This quarter is going to look stronger, perhaps private money comes in on additional capital raises
-“So if you got, you know, real steel type.. uhhh personality” [LOL]
-Headfake of all headfakes on home prices
-Directional turn where banks will by in large make a little bit of money due to mark-ups
-They may write-up valuations
-After stress test results come out, a lot of assets may be put up for sale. Be careful at end of the month when results come out, it will be a grim time for banks
-She likes State-Street relatively as they benefit from market-to-markup. Also Bank of New York
-Capital markets had a good January and February due to pent-up demand as companies had to roll over debt
-Goldman Sachs benefited as 70% of their competition has gone away
-55% of credit card lines will be cut out of the system
-Put out financial shorts out again after earnings reports

Net-net: She definitely seems short-term bullish into Q1 earnings reports and long-term bearish. Her key inflection point for banks stocks to turn down is when the bank stress test results come out at the end of this month. She explicitly says put out your shorts again after earnings. Source

Categories: News

John Paulson Keeps Killing it. Up in March, Up 10%+ YTD

April 7th, 2009 No comments

John Paulson keeps killing it. He nailed 2007, nailed 2008 +37.6% net, and it looks like he’s nailed the reversal in 2009. You would think with the massive short squeeze in March where banks up 16% and his huge battleship sized AUM of $29 billion, Paulson would get hit. Nope. It’s obvious he was able to cover his financial short exposure almost perfectly. He’s on fire. I’m speechless how good this guy is.

Advantage Plus LP March +2.15%, +10.33% YTD. Source

Be sure to read my notes on John Paulson’s 2008 Year End Report, where he outlines his 2009 outlook.

Categories: News

Meredith Whitney Interview by Forbes

April 6th, 2009 No comments

What a shocker, she’s still negative on financials. However she does say on a pull-back, you can buy some of the smaller non-TARP banks. Interestingly this is the first time I heard her touch on the impending implosion of state and municipal budgets. Source

So, one key variable in evaluating your mortgage, what your mortgage portfolio is worth is, No. 1, what employment is. But No. 2, where you think home prices are going to go

I am staying away from bank stocks still.

Two-thirds of the lending market for both mortgages, and then for credit cards, is dominated by the top five banks. So, you’ve really got to dislodge that to make any material improvement in the system. And I don’t think the government is prepared yet to dislodge that because it’s too disruptive and too uncertain of an economy.

You know, I bet most people couldn’t even name some of the smaller ones. I think that on pullbacks, you can buy a basket of small stocks that are clean, obviously non-TARP-based stocks.

12% of the U.S. GDP comes from state and local spending. And the states and the local municipalities are just as guilty as the over-levered consumer.

Categories: News

Poker Player Andy Beal is Loading up on Bad Debt

April 5th, 2009 2 comments

Great piece in Forbes about a banker, Andy Beal, who has been playing his cards right. I actually saw him in the back part of the Bellagio poker room a few years back, when he was killing professional poker players at their own game. Now his opponents are the FDIC and large dumb banks. Source

For three long years, from 2004 to 2007, he virtually stopped making or buying loans. While the credit markets were roaring and lenders were raking in billions, Beal shrank his bank’s assets because he thought the loans were going to blow up.

“Every deal done since 2004 is just stupid,” Beal says.

He thinks the government is going to be “disappointed” by its various programs to revive lending. He says Treasury Secretary Timothy Geithner’s new plan to guarantee loans to buyers of toxic assets won’t lead to many sales because the problem isn’t liquidity but price. They are not low enough. Half the country’s banks–4,000 in all–would be bust, he says, if they marked their loans to what the loans would fetch in an auction. He says banks are fooling themselves by refusing to mark busted assets down.

“Banks are on a prayer mission that somehow prices will come back and they won’t have to face reality,” Beal says. And that reality, according to Beal, is going to get a lot worse. “Unemployment is going over 10%, commercial real estate hasn’t even begun collapsing and corporate credit defaults are just getting started,” he says. His prediction: depression, without bread lines this time, thanks to the government safety net, but with equal cost to society

Next, a guy in charge of bidding for failed bank assets pops his head in the door to update Beal on loans he’s recently bought for as low as four cents on the dollar. “[FDIC Chairman] Sheila Bair doesn’t like the prices,” says Beal, but “you need a margin of error.”

“All these guys were stumbling over each other 18 months ago to pay over par,” he says. “Now they can’t sell fast enough at a discount. Why do people not do the great deals and do all the stupid ones? It’s crazy.”

Categories: News

J.P Morgan (JPM) 2008 Annual Shareholder Letter Notes

April 5th, 2009 No comments

-“Financial results were weak in absolute terms (but fairly good in relative terms), reflection terrible market conditions, I believe – and I hope you agree – that this year may have been one of our finest”
-“As we prepare for a very tough 2009, with most signs pointing to continued deterioration of the economy”
-Earned $6 billion in 2008, down 64% from $15 billion in previous year. In a normal credit cycle environment, they should earn over $15 billion
-Two issues: 1) increasing credit costs in consumer and mortgage loans 2) investment bank write-downs of over $10 billion due to leveraged lending and mortgage exposures
-Rates and Currencies, Commodities, Emerging Markets and Credit Trading reported record results
-Credit losses from the mortgage broker-originated business are 2-3 times worse than that of their directly originated business
-They are the largest credit card issuer in the nation with 168 million cards in circulation and $190 billion of managed loans
-Expect losses on credit cards to increase from 5% to 9% tracking unemployment rate
-AUM $1.13 trillion vs. $1.19 trillion mainly due to increase in cash balances growing by $210 billion to $613 billion
-Private equity business reported $700 million loss in 2008 vs. $4 billion profit in 2007
-“Simply put, we still follow the financial commandment: Do not borrow short to invest long”

Bear Stearns
-Bear Stearns had $400 billion of assets that needed to cut to $200 billion quickly to consolidate into their financial and risk systems
-Government took the loss risk of $30 billion of the “less risky” mortgage assets
-Paid $1.5 billion for the equity, all of which was lost and several billion more ran through their income statement in the second half of 2008

Jamie also spends many pages on what he believes are the essential regulatory changes needed to prevent future crises. President Obama needs to read this. Overall I think Jamie nails it as an insider who knows what needs to be done in a measured way. It’s truly unfortunate that Obama didn’t choose him as Secretary of Treasury. Source

Categories: News

President Theodore Roosevelt Quoted by Jamie Dimon of J.P. Morgan

April 5th, 2009 No comments

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

Categories: News