Is Amvona a pulpit or something?
The story really wasn't about the pope or the iPad as such, it was about a few prominent stories appearing in the mainstream media on the same day, and apparently unrelated. Nonetheless, it gave rise to the opportunity to pose the question which became the title of the article, but also to examine a few topics that we thought were important, namely:
a) The concept of suffering, discipline and sacrifice as it is understood in the Catholic Church
b) Our behavior in western consumer societies as it relates to our understanding of discomfort and our desire to consume in order to offset these feelings.
The article was also an opportunity for our own open confession that we thought the iPad was a “visionary" product and that we in fact “wanted one”. It may seem odd now to think about it, but at the time, the iPad was actually widely criticized as a “big iPhone”, and most analysts believed the product would flop (like Apple TV), and criticized it’s launch; everybody dismissed it. We were having none of that, even if it meant being all alone in our proclamation of it’s revolutionary appeal (check out Best Buy sometime and see how many isles are dedicated to tablets vs. traditional PC’s now)
Most analysts predicted that a “few million” units would be sold. But in fact this is what happened:
1. Apple released the first iPad in April 2010, and sold 3 million of the devices in 80 days. During 2010, Apple sold 14.8 million iPads worldwide, representing 75 percent of tablet PC sales at the end of 2010.
2. By the release of the iPad 2 in March 2011, more than 15 million iPads had been sold – selling more than all other tablet PCs combined since the iPads release. In 2011, it is expected to take 83 percent of the tablet computing market share in the United States.
3. As of June 25th, 2011 28.73 million units have been sold.
Now some 17 months after the publication of the original article, we think it is safe to say the iPad is responsible for the rise of the tablet phenomenon and all but ushered in the death nail of the conventional desktop and laptop PC. If you’re unconvinced of this paradigm shift, it might be a good idea to check the performance of Dell and Hewlett –Packard stock (the number 1 and number 2 PC makers), as well as their margins since May 2010, not to mention their subsequent scramble to develop tablets, and HP’s ultimate jettisoning of their own PC business last week, (a thought that would have been unimaginable 17 months ago).
Does the punishment fit the crime?
Even if it was unimaginable, we did specifically reference the idea that we thought HPQ was behind the curve in reference to their peers in our May 17th, 2011 article entitled “Lions and Tigers and Cisco Bears! Oh My!” (which was also published on seekingalpha.com here) under the section “Does the punishment fit the crime? The case of HPQ and WMT.” We wrote the following:
"...It Depends. Two other American bellwethers - HPQ and WMT (just as CSCO) topped estimates recently but had weak outlooks. Are these two companies not also a reflection of our economy? CSCO, unlike HPQ and WMT has a plan in place to restructure that apparently will be finalized within a blazing 120 days – dead weight like “flip” has already been jettisoned, will HPQ and WMT move as quickly?
If the ancillary thesis in the Feb. 12 article was right, and CSCO is a reflection of our economic dynamism in America, than our choices are limited in how we react to the news today from these two companies who just pulled “a Cisco”, accordingly we can:
1. Draw and Quarter the CEO’s of WMT and HPQ as has been done to Mr. Chambers
2. Forgive CSCO Management for the premium paid by CSCO investors out of the speculative fervor of years past and recognize the superior value in the share price today, particularly on a relative basis.
Neither WMT nor HPQ boasts the earnings power or relative financial strength of CSCO, and yet oddly, both sell at a premium to CSCO? Such discrepancies in price and value confound the value oriented investor, leaving them to believe that in the short term, popularity matters more than the financial score..."
So how did HPQ fair on a “relative basis”? Here are the figures (prices are as of the writing of this article):
Just a week before on August 11th, 2011 Cisco affirmed our thesis (first made six months earlier) in their fourth quarter conference call - the shares surged 16% (the most in 9 years). Of course the analysts fell in line (with multiple upgrades). The result was that in the 3.3 months since our article was published pointing out the nonsensical value disparity between the two issues, HPQ underperformed one of it's closest peers by 25.0%. Apparently the market, in the spirit of "Braveheart", chose option 1 above for HPQ.
Getting back to the Ipad, this new concept in gadgetry is built on a foundation of improvements in solid state memory. Once analysts understood their err with regard to the future of devices which we use (namely the rise of the tablet and its related dependence on SSD, they promptly over corrected in their usual fashion, which then gave rise to pricing errors in the storage industry, that we covered in our articles “640K ought to be enough for anybody…” WDC vs. STX” and the related update, published here. This time we helped investors profit from those errors. Maybe somebody will dream up a hybrid and the traditional storage concerns won't go out of business afterall.
Seeing things before they happen looks easy in retrospect, but when it is attempted prospectively, it is a whole other story. That having been said, we realize that we will probably not be remembered for our humility.
That’s OK, because we've still got a smile on our face. Not because the articles have been correct, but because on June 23rd, 2011 bloomberg reported that at the age of 84, the first Bishop of Rome (aka the Pope), in what appears to be a rather complicated operation involving at least two cardinals, was sending his first twitter message on an Ipad.
About the author:
The Finding Alpha category of Amvona profiles investments made, including case studies, economic discussion and explanations of the investment rationales.
more at: http://www.amvona.com/about-us