Apple may blossom into a real winner read..
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Apple may blossom into a real winner
NOW, A kind word about Apple: This column has taken many swipes at Apple over the years. But now, credit where credit's due.
Heard from one of my regular, albeit press-shy, money manager who not long ago gave readers a head's up on the rebound at Qualcomm, and not that long ago he was prescient in his reasons for loving the then-dejected GM, Ford and Chrysler (now DaimlerChrysler).
"Yeah, I may have lost my mind on this, but I am really beginning to believe this company is misunderstood and underappreciated," says the money manager, who asked that his name not be used. "First, the recent improvement at the company is very real. Cash flow from operations has been gigantic for the last seven quarters. As of the numbers announced last week, Apple has $2.92 billion of cash on the balance sheet. They announced that they are calling their $660 million convertible issue in on June 1."
He continued, "When you eliminate the convertible debt and adjust for the new shares, Apple will have over $2.6 billion of net cash on the balance sheet, which is $15.20 a share — net. That is 42 percent of the stock price. Operationally, gross margins have been trending up for the past five quarters, and were just shy of 26 percent in the March quarter. Remember that Apple has a cost advantage of over $100 a box over the Wintel contingent because it doesn't pay Intel for its expensive processors and it doesn't pay Microsoft.
"Although I would not buy an iMac, the fact is they are among the best-selling boxes in the computer world," the money manager acknowledged. "Our contacts continue to tell us that their order rates from Apple are strong and, believe it or not, improving. There are not too many PC companies that I can say that about. They have new products that they will be introducing over the late spring and summer, which could boost the iMac business."
He added, "A number of things are surprising about the company's resurgence, but perhaps most surprising is who is buying it — they claim 13 percent of buyers are Wintel converts and a large percentage are first-time computer buyers. One thing that grabbed me was their claim that the iMac has taken 19 percent of the Japanese desktop market.
"What's more," he continued, "investor psychology is generally very negative. Not many believe that the recovery at this company is for real. (You may recall that not many believed Qualcomm either.)"
This is the same guy who tipped off readers of this column to the company's turnaround.
"Earnings," he continued, "are estimated to be $2.70 for the fiscal year ending in September. Their tax rate is very low, so the real fully taxed number would be more like $2.10 or so.
"One of the things that I keep thinking about is the fact that Apple doesn't have much of an enterprise business. This suggests to me that they have less Y2K push-out risk than other hardware companies have, and that could be the reason that suppliers are telling us that orders from Apple are accelerating," he said.
"The net of all this," he concluded, "is that I could see perception of Apple changing dramatically over the next six months or so. In a world of vast uncertainty in the PC space, Apple should be one of the few companies to grow."
He may have something there. My 14-year-old needs a new computer, and she'd really like a blue iMac! It's the way she says, "They're so cuuuute! Just like a Beetle." And look at the resurgence at VW. (Yep, you know what car is destined for my garage one day!)
N THE LOOKOUT for Lernout: Still haven't heard from anybody at
Lernout & Hauspie, the Belgian voice-recognition software company, with responses to this column's questions. (Heck, even Boston Chicken took my calls when it was being pounded here for plucking its investors). The Lernout affair, and the hostility of its shareholders, is reminiscent of the reaction I used to receive regarding Network Associates. How dare this column question the quality of earnings of such a fine company, whose virus-detection software and technology are, without a doubt, tops? (So what if it was pretty much being given away for free with every PC? That's what some critics think will happen to voice-recognition software.)
What do Network Associates and Lernout have in common? Both are in the software business. And both have unusually high receivables, suggesting too much software is in the pipeline, which is just what Network Associates conceded this week when it reported earnings that were even worse than the company had warned they would be.
Also, both Network Associates and Lernout have grown, largely by acquiring companies. Once the acquisitions stopped for Network Associates, so did its revenue growth. Will the same thing happen at Lernout?
And both got slapped by the Securities and Exchange Commission (SEC) for being way too aggressive with their takeover-related expenses.
One difference between the two: Unlike Network Associates, Lernout has questionable related-party transactions, one of which, involving e-Docs.net, was recently detailed here.
Another difference: The stock of Network Associates has swooned 83 percent from its highs, and now trades at $11.06, for a market value of $1.5 billion. Lernout, meanwhile, is off 38 percent from its highs and still commands a market value of $1.6 billion.
P.S.: This column's new rule of thumb: The more hostile the reaction to items here, the better the story always becomes.
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