Was it a cabal, an orchestrated after-hours production to simply try to make the world's largest and most lucrative company sound like some sort of worn-out, useless has-been? Could it have been a deliberate attempt to paint an unimaginably good quarter as just another ho-hum, lackadaisical set of numbers that seemed like your average miss and guide down? Or was it some sort of weird passive-aggressive game played to denigrate an amazing company with a series of questions that would be better suited for a group of hacks who made good-tasting dog food but nothing fit for human consumption?
I am talking about the bizarre, Kafkaesque Apple (AAPL) analyst conference call last night that left you thinking that this company, which was supposed to disappoint so badly, actually did worse than anyone thought when, if you were to go back three months ago it would have been unimaginable to think that it could have performed this well. The totality of these questions after Apple's opening statement would imply lots of price cutting for future phones because of weaker demand and excess inventory, when the reality is that demand is so strong that this "dud" of a phone is substantially outstripping supply.
Call me stunned. Just stunned at the lack of respect an actual majority of analysts had for Tim Cook in light of a quarter that was substantially better than could have been hoped because of strong demand for a product that many of these same individuals didn't think would sell well at all.
Now, most of the time I read call transcripts because there simply aren't enough hours in the day to listen to them unless they report at an odd cycle -- which, by the way, I wish more companies did because yesterday and today are insanely overloaded.
But this one I read and then read again and then listened to it, because it seemed so bizarrely prosecutorial. I am glad I did, because so many of these analysts sounded like they were dripping with contempt for Apple and, yes, Cook personally after he delivered a quarter that any other company in the world would kill for.
I would love to sentence the more nihilistic of these folks -- and that's a real contest, believe me, -- to covering their own firms' quarters, because not one of their employers' will ever deliver a quarter this unbelievably good. They couldn't deliver a day as good.
But that will never happen, although I am sure their own CEOs and CFOs, if they listened to the call, would ask: "Hey, did you all conspire together to try to make this one sound worse than it looked? Because you sure did a good job of it."
Let me try to frame the narrative though as best as I can for this surreal after-hours experience.
First, we got a standard Apple opening, a positive disposition on trends from Tim Cook as well as a straightforward numbers rap from the straightforward CFO Luca Maestri.
Yes, Cook does talk about the love people have for the product and I guess you could argue that he should cut it out and not mention brand loyalty or the fact that people genuinely can't live without the products. Then again, those are the chief reasons why his company can command a price point that's probably among the most expensive items most people worldwide will ever buy.
Again, if these analysts covered other companies that make consumer products, maybe they would hear that "nobody ain't buying nuthin' anywhere". Daydreaming, I imagined a Whirlpool (WHR) or Stanley Black & Decker (SWK) call where all of these analysts had to ask management what happened to all of their customers. That will never happen, either. Perhaps Cook shouldn't say anything complimentary at all about a company that, through hard work, engineering and know-how has developed the greatest product ever made or loved. But maybe he's got some pride, which is a scintilla more than his interlocutors can imagine. Maybe he should just mumble something positive about his products or just say something like "try it, you'll like it," like the 44-year old Alka Seltzer ad that's still got a good YouTube following.
The Q&A started out pretty much as you would expect, with Apple backer Gene Munster congratulating Cook. But then the darned call seems to go off the rails because Munster, after asking a pedestrian question about phone sales says he wants to know what Action Alerts PLUS portfolio holding Apple could add to the car space, given all the rumors out there about it.
Hello?
Tim Cook does not speak on rumors. Munster knows that. I know that. We all know that. So what's the point of asking about car rumors, other than to irritate? I said to myself, hmm, things can only get better from here.
Then Katy Huberty, who has an overweight on the stock for Morgan Stanley, asks CFO Luca for help in figuring the company's guidance "given all the major projects are running below target."
Huh? What did I miss? The company guided conservatively, but the fact is that it can't make enough phones to meet the demand because it 1) never expected it to sell as well as it did and 2) didn't expect its principal competitors' phone to be something out of the Stephen King novel, Firestarter.
Then Huberty asks, in what sounds like a positively flippant "gotcha" voice, a kind of analyst Mike Wallace from the 60 Minutes of old: "What should we read into the fact that R&D has more than doubled over the past three years while sales growth was sort of a fifth of that? Are R&D investments just less efficient than they were in the country's history or should we think about that as incremental spend for products that haven't yet come to market?"
Translation: what are you chowderheads doing with all that R&D, 'cause you can't seem to come up with something new that anybody wants?
Cook then gives a logical, although somewhat downbeat answer about how a lot of the money has gone to making a services business that had $6.3 billion in revenue with an accelerating 24% growth rate that will soon be, in one year, as large as a Fortune 100 company -- not that any analyst cared about that remarkable business. Ho-hum business with $28 billion in sales and about 50% gross margins. I know, service business, unimportant, hardware company, who cares. Nevertheless, I wonder if her employer Morgan Stanley has anything up its sleeves like that?
It gets worse. After an honest-to-goodness decent logical and necessary question on weaker Chinese demand and the hopes for an improvement, with a pretty eloquent explanation from Cook that made me feel better about what was arguably the only real Achilles heel on the darned quarter, the man who stands behind the weakest buy recommendation is history, Tony Sacconaghi from Sanford Bernstein, pitches a couple of 100-mile fastballs right at a helmetless Cook.
Toni starts the beaning by saying that given that his largest competitor is in disarray and Apple has terrific new products and the company has an extra week, can't Apple do better than "flattish" growth? He then asks: " What does this really say about how investors should think about iPhone on a sustained basis going forward and is it reasonable to think that this is an ongoing growing business for the company?"
Whoa! Apple just posted $46.9 billion in sales and quarterly net income of $9 billion, which his substantially better than was expected 90 days ago when we thought it would be a terrible quarter. It generated $16.1 billion in operating cash flow, a new record for the September quarter. Maybe it should go find another business so it can make real money, instead of that disappointing bag of loot?
You would have thought that Apple had flatlined, as in "do not resuscitate" this company now that Steve Jobs just died, even as he passed away in October 2011 and the success of these phones is legion, especially the ones that these same analysts whispered a few months ago would have no takers.
Once again, the now all-too-patient CFO had to explain that the company is supply-constrained, maybe perhaps because they actually believed these analysts who thought there would be no market for the darned thing at all and didn't order enough of them? Sad.
But that's not the end of the contempt. That came from Steve Milunovich, from UBS, who, may I remind you has a Buy recommendation on the stock -- not a sell recommendation but a rootin'- tootin' buy slapped on it: "Tim, some investors are antsy that Apple has not acquired new profit pools or introduced a financially material new product in recent years."
So he asks on behalf of those "antsy" folk: "The question is a) does Apple today have a grand strategy for what you want to do?" And then: "do you have any sense that we're kind of in a gap period where the technology and arguably what we call the next job to be done haven't yet aligned, so maybe in a couple of years we will see this flurry of new products and it it'll match what people want to do but it's not quite here yet?"
At this point I believe an exasperated Cook has just had it with what at this point does seem to be a genuine Wall Street ambush and answers in a flat and disgusted way: "We have the strongest pipeline that we have ever had and we're really confident about the things in it. But as usual we are not going to talk about what's ahead. "
Steve "buy Apple" Milunovich deserves no more than that and got it.
Now, I am not asking for these analysts -- again, all of whom have Buys on the stock -- to point out, like Salesforce.com's (CRM) Chief Digital Evangelist Vala Afshar tweeted last night, that Apple has enough money to buy all the NFL, NBA, Major League Baseball and NHL hockey teams and still have $85 billion left.
I am not begging them to admit that many of their ilk were telling their clients, when Apple was at $93 that its best days were over, yet the stock failed to comply. I don't want them to say "OK, I screwed up, I never thought you could do this number." I don't think it's ever reasonable they would say "congratulations and sorry I misjudged the power of what you have created here on this, the seventh iteration of a phone I wrote off a year ago."
But this level of contempt and disrespect on this call after the incredibly positive comments you may have heard on a call about Microsoft (MSFT) or Oracle (ORCL) or even IBM (IBM) is just plain ridiculous. Did you know that Microsoft has had the same amount of revenue for the last four years? All you heard on that call was nothing but backslapping and raucous congratulations. That was like watching a home team and a sports bar deliver a beat down of the enemy.
Oracle's had about six years of flat revenues and you hear more than your fair share of congratulations before each totally reverential question. IBM has seen its revenues fall from $104 billion to $80 billion in the last five years, and yet the tenor of the call is far more respectful than Cook got here, even as the CEO doesn't even run the call.
What's really going on here with this beast? I think that there's a toxic interrelation between this group and Cook, and believe me, it ain't Cook's fault. He's delivered some remarkable numbers, of which this one might be one of the most remarkable, given how the vast majority of analysts thought he had a total iPhone 7 bust on his hands. It didn't matter, though. Because of this distinctly suboptimal interplay between the interlocutors and their prey, it seemed, collectively, that he might have been selling Microsoft flip phones from what you could tell from the derisive, snide questioning.
I know I should just let this one go. Who cares? You know my view. You should own it, not trade it. You don't need these people, many of whom would have had you jump ship 20 points ago, when Carl Icahn told you it was all over because of Chinese weakness. Some would have had you short the darned thing for the last 20 points, even as they duplicitously kept Buy recommendations.
Oh, to be sure, Apple's not perfect. I besieged the company to buy Netflix (NFLX) when that entertainment streaming company's shares were more than two thirds below its current price. I urged it to buy Harman (HAR) to own the connected car when it was in the dumps. I wanted it to buy Spotify and Pandora (P) , combine them and then crush the service stream numbers, and recently suggested that it buys Sirius XM (SIRI) to take over the full spectrum of what people like to listen to when they aren't listening to their iPhones in the automobile. That would pump up service to a level that couldn't be ignored as it happened in last night's drive-by Apple shooting.
Management haven't listened.
But you know what? I demur. What I am supposed to do, tell the creators of the greatest amount of private wealth in history that they don't know what they are doing or hold them into the same pedestrian prosaic and yes, loser light, of some of these sunshine patriots and summer soldiers of the faux Buy army?
No, thanks. So I will offer what they deserved last night more than anything else: "Congratulations, gentlemen, on a good quarter."
And leave it at that.
