#apple

Apple to buy Tesla? Is Tim Cook on autopilot?

If Apple truly stumped up for Tesla that would make two companies that are complete novices at auto manufacturing. It would be the Apple Lisa of the auto world.

Worse for Apple it would signal that the world’s largest company is completely out of creative ideas and its existing product line up was truly approaching stall speed. It already is but and the lack of transparency only adds to doubts.

Rumours circulated that Apple considered a $240/share purchase back in 2013. 6 years ago Tesla was full of hope. Now the stock is full of hype. It has been a litany of disasters from fatal crashes, production hell all the way to complete wishful thinking on Level 5 autonomous driving which Israeli company Mobileye, a leader in the field, believes is decades off.

Let’s assume a $240 per share deal was done. Apple would pay around $40bn and assume another $12bn or so in debt.

The most dangerous strategy for highly successful companies is to throw spaghetti at a wall and hope some sticks. Tesla is by no means an overnight repair job. It needs the skills of Toyota to turn it around. Don’t forget Apple has no manufacturing expertise as its products are all built by 3rd parties. Toyota rescued Porsche several decades back and Lockheed Martin called in the production efficiency king to help build the F-35 Joint Strike Fighter better.

It reminds CM of the time Hoya bought Pentax back in 2007. Such was the earnings dilution against the incumbent high margin business, hunting for growth sent Hoya shares down 50% soon after the deal. Hoya was completely dominant in glass photomasks. Yet the $1bn merger of a 2’d tier camera/optics maker was thought of by the founder’s grandson as a total failure and divested many divisions.

Losses continue to mount at Tesla, senior management departures are a revolving door and demand is slowing. The recent cap raise sees investors well under water. The Maxwell Tech deal looks a dud for the management to accept an all share rather than an all share deal (if the tech is so leading edge).

If Apple truly wanted a car deal, it could buy an established maker like Fiat Chrysler with decades of production expertise and global reach for half the price. Not to mention a wide choice of vehicle styles to broaden the appeal to customers.

Although the history of car mergers, even between industry players, has led to some pretty disastrous outcomes. Daimler overpaid for Chrysler so badly that its shares cratered 80%. BMW bought Rover from Honda. Fail. Even Land Rover had to be sold by the Bavarians. Ford ended up selling most of its Premier Automotive Group stable – Aston, Lincoln, Jaguar, Land Rover and Volvo. Just Lincoln remains.

Tech companies meddling in the automobile sector reveals a graveyard of sad stories. Korean analysts jumped for joy when Bosch sold out its stake in the Li-ion batteries JV SB Li-motive. How could a Korean tech company proclaim to have a better read on the global auto industry than Bosch, a supplier to the major auto makers for over 100 years? Panasonic is already kicking itself hrs over the Tesla deal and management is highly unimpressed with Musk after his disparaging remarks made about production.

Have investors ever wondered why Tesla has no mainstream suppliers? Many are obscure parts companies from Taiwan. More established auto suppliers have been burnt by experiments before and they’ll only sign up for makers who have much better prospects and track records.

If anyone thinks Apple buying Tesla makes sense they need their heads read. The last 6 years have detracted value. Pre-pubescent fund managers who have never seen a cycle might see the value of millennial nirvana but the damage to Apple would be considerable. Just because Apple has been so successful doesn’t mean it won’t make mistakes. Tesla would be a disaster. It is in the product creativity blackhole of following the path of Hoya. It would be better to flutter at a casino.

A worm has turned on Apple

Apple guided Q1 revenue around $84bn vs earlier guidance of $89-93bn. Consensus unsurprisingly pegged itself to the middle of the initial estimate. How original and staying ahead of the curve? It doesn’t take a rocket scientist to work out that pulling disclosure of handset sales was the precursor. It wasn’t so long ago that the US Federal Reserve ended disclosure of its balance sheet movements. Ahead of the GFC, Ben Bernanke pulled reporting of M3 money supply right before the GFC.

Apple has lost the entire GDP of Singapore in market cap terms since last September. How many funds are up to the eyeballs in this stock that they believed had endless growth. How soon before it loses another Singapore?

No doubt the iPhone 14S XR limited edition run of 100 million units won’t turn this around.

It is usually around this time in a decayed product cycle that companies launch into random areas they have no expertise in. Watch for M&A deals at silly prices to buy bolt on businesses that bring hopes of growth in a global economy that has maxed out! Cue the goodwill write downs in year 1.

Perspective

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What have both these stocks have in common? Apple & GE have both held the title for world’s largest stock by market capitalisation at one point in time. GE was worth $594bn at its peak during the tech bubble. Apple has been valued at over $1 trillion this year but is at $921bn as of today. The irony of over the last 7 days Apple has lost more market cap than GE is worth, two times over. How the mighty have fallen.

When Japan ruled the world

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30 years ago 32 of the 50 largest corporations by market cap were Japanese. Telco NTT was #1 followed by 4 megabanks. Scroll forward to today and there is only one Japanese corporation that makes the Top 50 cut – Toyota Motor (#35). Now, the top 33 of 50 companies are American – Apple, Amazon, Google, Microsoft and Facebook.

 

Israel – myths and realities

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You’ll never understand Israel until you visit it. Almost everything you read in the media is a falsehood. Nadav Tamir, former advisor to the late Prime Minister Shimon Peres, sarcastically quipped this week, “if Moses had possessed GPS there is no way he would have picked Israel as it is the only place in the Middle East without oil.” It might explain why this nation has had to work so hard to be innovative in order to survive. It has no natural resources. It had to invent drip irrigation so it could turn the arid chalky soil into fertile green pastures. Much of the technology inside your smart phone was designed in Israel. Household names Intel, Microsoft and Apple have all established their core R&D centers in the tiny nation state. Israelis are pragmatic and know too well that necessity is the mother of invention. Perhaps the great grandmother might be more apt.

It is perhaps one of the best kept secrets in the world. Sadly also one of the most misreported countries on the planet. Make that the most. Israel wants peace with its neighbors. Yet the mainstream media will not report the fact that Israeli hospitals are treating wounded Syrian troops of Assad as CM writes, The media won’t report that the local Druze population is livid that their fellow Israelis are doing this. Where are the media reporting the fact that hospitals not far from the Gaza Strip are caring for children who can’t get proper access to medical attention because Hamas is only concerned with spending on more rockets and building tunnels using the supplies given to it by the people supposedly oppressing it? Unfortunately the press seem to be stuck in the “if it bleeds, it leads” narrative.

The Israeli Foreign Ministry has launched a program of soft force. PM Benjamin Netanyahu launched a website in Farsi with full details of how to overcome drought gripping Iran through drip irrigation for free. While Iran shouts “Death to Israel”, Israelis shout, “we want to give life to the Iranian people.” Who is the aggressor? The Foreign Ministry is also gaining huge traction with Iraqis with an Arabic Facebook page discussing Iraqi-Jewish history. It launched in May 2018 and has 34,000 followers. Israel believes that the ‘digital embassy’ is an impactful way to get around the hatred often espoused by the regimes.

Then people miss out on news of amazing people like Tanya Oziel,  CEO of the Trans Tasman Business Circle who led a delegation from Australia & NZ to investigate tech fusion in Israel. Tanya, a Sydney based Jew of Iraqi origin, is someone of such passion and foresight that she arranged for AFL legends like Ron Barrassi to come to Israel to train local and Palestinian kids to play a game with a ball they’d never seen in mixed teams. All of a sudden the noise of the two peoples supposedly at each other’s throats was replaced by a sense of common purpose. While some of the Palestinian kids have been pilloried by some quarters in their community they still remain actively engaged with Tanya. They look beyond the hateful rhetoric so often fueled by the media. She has every right to be proud. The idea that this is some sort of jackbooted police state is engaged in apartheid and genocide is patently untrue.

Apartheid is a strange word to be used in an Israeli context. In a tiny country of just under 8 million citizens, the country’s 1.5 million Arabs, whatever challenges they may face enjoy full freedoms, voting rights and serve in the Knesset and the Supreme Court. Ask yourself how many Jews serve in any capacity (much less live) in Egypt, Morocco, Syria, Iraq, Algeria or many other countries? Egypt had 75,000 Jews once upon a time. Algeria 140,000, Iraq 135,000 Jews. Syria 30,000 Jews. Next to none now. Where is the apatheid? Where are their Jews?

Palestine is often a point of deep criticism. At the time of the State of Israel in 1948, 90% of Palestinian Arabs lived in Transjordan. A movement to create a Palestinian state never existed at the time. In fact it wasn’t until 1964 that the PLO was first established at a time the West Bank belonged to Jordan.

What is conveniently forgotten is that of the c.4mn refugees scattered across 60-odd refugee camps, the Palestinians have automatic rights to Jordanian citizenship yet they only covet Israel. Even though 21 Arab nations share a common language, they won’t offer asylum to Palestinian refugees which seems rather calculated. It provides a convenient excuse to maintain hostilities to Israel using the suffering of Palestinians as the bait.

Jordan doesn’t actively push Palestinians to take up citizenship which is their right to do so. While Israel remains an open, democratic and multi-ethnic society the PA has proven itself to be an intolerant, corrupt and self-serving dictatorship which has little interest in serving its constituents as the comptroller of its first ever audit revealed. International aid money lined the pockets of the leaders of the PLO. The French money laundering authorities discovered that Arafat’s wife’s bank account had amassed $3bn over 20 years. It is ironic that most of the original founders of the PLO didn’t live in the Palestinian Mandate when Israel was created. Arafat was born in Egypt. 

How is it that the army of Jordan’s King Hussein murdered thousands of PLO militants in 1970 yet the PLO has never called for the overthrow of the Hashemite monarchy? How is that even with the Oslo peace process coming into effect in 1993 that the PLO carried out 4,000 attacks till 1999. The Israelis so desperate (under Ehud Barak of all people) for peace gave the PLO 95% of their territorial demands yet they still kept up the attacks killing more than 1,000 Israelis, a total exceeding the previous 25 years combined. 

Arafat was presented with an outcome he did not want – peace with the State of Israel. Despite this serious peace offering Arafat accelerated the intifada. These are sad truths.

We need only look at the siege of Masada, the tale of the final revolt of the Jews against the Romans in 73CE. It truly points to the stoic nature we see today. Despite burning the citadel atop Masada and the killing of their families to evade capture, the Jews left the grain and food stores untouched as a way to tell the invaders that they were never at risk of starving but preferred death to being bonded in slavery. It typifies their pride and refusal to submit to persecution.

Jerusalem, the nation’s capitol, holds deep significance as it has been for millennia. CM’s grandfather stood by the Western Wall in 1940. The Jewish people who saw his picture felt a sense of deep gratitude that he helped defend her. The walls were built around the summit of Mount Moriah, where biblically, Abraham offered his son, Isaac, as a sacrifice. In 1948, the Jordanians took control of the wall and it was only in 1967 that Jews were able to pray at the foot of the Temple Mount again. To witness prayers on the Sabbath is something powerful. There is not one whiff of hatred. The chants, songs and prayers resonate throughout the walls. There is nothing but love in what they do. There is no extrapolation of the ancient texts to take extreme measures to murder in the name of their religion.

To witness Judaism, Christianity and Islam in the one city, one can honestly sense and feel similarities than differences. Think of the prophets. Abraham to the Jews was known as Ibrahim to the Muslims. Same for David/Daoud, Mary/Miriam and so on. Indeed if the Jews were as intolerant, racist and deranged as made out surely they would use the pretext to flatten the Al Aqsa mosque built over the Temple Mount ruins and restore it to its former glory.

Modern day history has been tough for Jews. The horrors of the Holocaust are documented at Yad Vashem. Trans Tasman Business Circle leader Johnny Weiss told the tale of how one of the guides showed a series of pictures of supposedly murdered Jews. One of them was his mother who is still alive at the ripe age of 94. What is more amazing is that she cut the guide off to say that “You are wrong. I know that girl is still alive. She is me!” After revealing her tattoo the entire tour group were floored by the revelation. Powerful beyond words. Living history as it were.

So when people wonder why the Jewish state take such measures against those that threaten to “drive them all into the sea” forgive them for doing their best to protect themselves. The last time they did not push back, 6 million died. It has taken 70 years to replenish those stocks. 70 years!

CM could go through the depths of innovation that was the key tenet of this tour. The sheer intelligence of those kids who learn advanced computer coding from age 7. We could discuss a 35 year old university doctor who has over 20 patents to his name but there is so much more to Israel. Its history has forced it to be the most advanced nation on earth. The start up nation is exactly that. When PM Benjamin Netanyahu says “we want your business” at a cyber conference speaking of the $50bn sunk cost in critical cyber infrastructure in the Negev Desert, he means it!

To sum up two weeks in Israel with this simplistic blog doesn’t do it justice. Israel is a proud country. Often brutally direct. Israelis will argue that if you think you’re the smartest in the room then it is time to change rooms. They are confident in their future because they back themselves explicitly. Failure is a good thing. Failing big is even better. Israelis think that experience is a hard teacher: they get the test first and the lesson afterwards. They believe that hard work, persistence and thinking outside the box is what counts. The education ecosystem breeds brilliance. There is no other word for it. This is deeply cultural and exceptionally hard to master.

Perhaps the highlight (there were too many to count) from the trip came on the final day. A photographer at a Tel Aviv flea market showed a picture (above) he took which chronicled a security checkpoint in 1990. The Israeli soldier and Palestinian female look tired of the situation. Things are not like that today. It feels no different to Japan. Not for one second has there been a nervous feeling about personal safety and security. Everyone who visits Israel for the first time will leave with the opposite preconceptions that they came with. It is by no means perfect but name a country that is.

It is with deep regret CM must board a flight tomorrow and leave a country that surprised on pretty much every level. It really is that amazing. Forget what you read in the papers. It is seriously fake news. See it with your own eyes and be prepared to blow your mind. Do it,

Girther movement outweighs 38bn Apples adding to his bottom line

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Oh how the liberal feeds have lit up about Trump’s health diagnosis. The girther movement. No noise about Apple’s 22,000 new jobs plan and repatriation of $38 billion of oveseas cash to hand to the US Treasury. Virtue signaling works both ways. Just like the tax cuts had corporations promoting that they were rolling out their $1,000 bonuses for 200,000 staff etc one after another expect a conga line of tax dollars rolling into the coffers.

That’s right, US corporates will be eager to show their good citizenship status to get great publicity for doing so. Don’t wanna miss that train. Not even billions of advertising dollars would get the same reach. None of it would have happened without tax incentives to do it. What shareholder wants his/her company fritting away tax dollars to the tax man if it can be avoided? Yet the liberal media will whine about Trump pandering to evil corporates. Well evil corporates have even more sinister tax accountants who find “legal” loopholes. This time paying tax has strangely positive outcomes. Obama could have done it but he was too busy doubling debt and the numbers on food stamps!

Apple will certainly not be the last company to do it. Still better to focus on a septuagenerian’s waistline than the country’s bottom line. In typical liberal logic fashion they should be encouraging his poor dietary habits to hopefully force a medical issue  which sees him out of office earlier. Roll on the 8 year term…

NB Estimates Show 70% of Americans have less than $1,000 in savings. A $1,000 bonus is not trivial in the slightest. For so many Americans that have been destitute since Lehman Brothers folded, don’t underestimate the power of improved economic fortunes to push partisan politics to the back of the bus. Why would people seek risking their wallets thinning just so they can feel morally good about themselves on Facebook?