Mad Hedge Technology Letter
January 22, 2019
Fiat Lux
Featured Trade:
(HOW TO PLAY TECHNOLOGY STOCKS IN 2019),
(NFLX), (AAPL), (TSLA), (STT), (BLK)
Tag Archive for: (AAPL)
In the past week, the tech sector has received information allowing investors to sketch a concise roadmap of what to expect in the tech sector for the rest of 2019.
One – the bull story in technology isn’t dead and the December sell-off in tech growth stocks was overdone.
Two – the path to tech profits is filled with more booby traps than in year’s past.
Three – the migration to digital is becoming more pronounced by the millisecond.
If you go back about a month ago when tech stocks were at their trough, traders were pricing in about a 60% chance of a recession in 2019 or early 2020 and the data didn’t support it.
What people were confusing themselves with was slowing growth instead of a lack of growth.
Then we got the disastrous news from Apple (AAPL) indicating business in China was petering out forcing them to change tactics cutting iPhone prices.
The tech market went into full-on panic mode and the revelation of weak China data did not help either.
Netflix (NFLX) reported and the online streaming app offered some respite with outperforming growth numbers.
Netflix has been a favorite of the Mad Hedge Technology Letter since its inception but the caveat with Founder and CEO of Netflix Reed Hastings brainchild is that the extreme volatility makes it difficult to trade around on a short-term basis.
The stock is up 50% from its nadir and its growth story is solid and will perpetuate.
The next bastion of juiced-up growth for Netflix is the international audience and these numbers are examined closely with a fine-tooth comb by investors attempting to understand the direction of the company.
The company audaciously added 8.8 million in new international subscribers last quarter which handily beat the 7.6 million estimates by 1.2 million.
Netflix also announced a few days earlier that it would raise the price of a monthly subscription between 13%-18%, and investors treated the news with celebratory shots of tequila.
It has been consensus for years that Netflix was severely underpricing their premium content, and analysts have been screaming and kicking trying to get Hastings to push up their monthly prices.
The price hike coincides with a year where I believe Netflix can grow revenue over 30%.
The mix of these two developments illuminate a few things about Netflix.
Netflix has the content that consumers want and even if competition rears its ugly head, they aren’t even in the same ballpark in terms of breadth and potency of content.
They are the king of contents and I don’t see anyone knocking them off their elevated perch in 2019.
In many ways, the Netflix long-term thesis mirrors the tech industry’s long-term thesis emphasizing supercharged growth by any means possible.
Even though this strategy is risky, it is working for Netflix and the capital isn’t drying up to go after the best content producers money can buy.
This earnings report should put to rest the growth warning sirens for now, tech will grow this year, but earnings results will be more of a mixed bag with the occasional miss.
This is in stark comparison to early 2018 where every tech company and their mother were scorching earnings forecasts by a magnitude of two or three.
Last September, the tech market looked above its head and saw a few boulders about to crush the herd, but investors shrugged it off.
As we move forward, the tech sector and the overall market is inching closer to a recession.
The low-hanging fruit has been pocketed and incremental gains aren’t no-brainers anymore – this can be gleaned from Tesla (TSLA) curtailing their workforce by 7%.
This news was delivered by a letter from CEO of Tesla Elon Musk noting that these decisions have been made with the goal of “increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months.”
Basically, Musk has telegraphed that staff needs to perform better, identify efficiencies that will save costs which in turn will boost profit margins.
This doesn’t mean that the era of tech growth is over, but this signals that tech companies are becoming more fidgety about loss-making operations and have ultimately targeted profits which shout at investors' late-cycle economics.
Musk needs to turn Tesla into a perennial profit machine to prove naysayers wrong, and now is the time to turn the page and max out his rocket fuel.
If the recession hits, investors could turn against Tesla and capital could dry up.
This newfound modesty towards the e-car business model is, in no doubt, exacerbated by the ratcheting up of fierce competition from the traditional automobile makers.
Tesla is in the e-car lead for battery technology, revolutionary production processes, and have a treasure trove of data that German companies would do anything to get their hands on.
Musk knows Tesla has fought this hard to get to this point, and he'd rather have the ball in his hands with 10 seconds left and a tie game just like Michael Jordan of the Chicago Bulls did.
Shaving off the excess has meant removing the customer referral program that was too costly that included benefits like half a year of free charging.
Part of this also has to do with Tesla losing their tax credit at the end of the year as well as giving more impetus to trimming costs.
Becoming a mass-market car manufacturer means it is important to price the car at affordable price points and that will be extremely difficult.
The goal is to deliver a $35,000 e-car that performs comparably to the rest of the fleet but produced with 7% less hands.
Can Musk do it?
I wouldn’t bet against him.
Musk means business and is hellbent for revenge against his arch enemies – the Tesla short community who he has habitually dragged under the bus through the media.
Piggybacking on this tougher profit-making climate is Boston-based finance company State Street Corporation’s (STT) announcement reducing headcount by 1,500 amounting to 6% of the global workforce.
The firm cited the urgent need to automate processes that will give the company a bigger foothold into the digital sphere.
The same theme was echoed at BlackRock Inc. (BLK), the world’s largest asset manager, who will eliminate 3% of its global workforce, or 500 people, amid an existential threat from the temporary ineffectiveness of passive investing.
In a rising market, it is guaranteed that assets at these types of funds almost always go up.
However, with an injection of recent volatility, passive investors have seen their balances dwindle with the market spawning abrupt outflows.
The need to zig and zag with the market is now painfully obvious and using technology to plug in the gaps will be cheaper and more appropriate for late cycle price action.
This is a suitable segue way into the third point – the fluid follow-through of the digital migration and the debacle of Sears prove my point.
Hedge fund manager Eddie Lampert and his firm ESL have navigated this famous American retailer into the ground.
This is what happens when the entire retail industry goes online when you don’t.
To make matters worse, Lampert has probably never set foot into his own investment.
Each time I roam the aisles of Sears, it’s about as crowded as a mortuary at midnight – an elementary story of a mismanaged enterprise.
Sears is an example of digital ignorance and it’s not the only one.
Gymboree Group, the baby clothing company, is another one to put on the list – the firm filed for Chapter 11 bankruptcy protection.
The company will close more than 800 Gymboree and Crazy 8 stores, this is the second time they have filed for bankruptcy protection in the past two years.
Unsurprisingly, the firm cited a sudden decrease in mall traffic and a surge in online alternatives as the reason for the economic softness.
The economy does not operate in a vacuum and any analog company who voluntarily misses the pivot to digital is voluntarily digging their own grave.
These three trends will only become more exaggerated moving forward threatening companies like Apple who fail to innovate after more than a decade of selling the same product, other companies don’t have the balance sheets to handle the same weakness.
Mad Hedge Technology Letter
January 15, 2019
Fiat Lux
Featured Trade:
(THE BALKANIZATION OF THE INTERNET),
(AAPL), (FB), (CTRP), (PDD), (BABA), (JD), (TME)
The Mad Hedge Technology Letter has a front-line seat to the carnage wrought by the balkanization of technology that is swiftly descending across all corners of the tech universe.
In technology terms, this is frequently referred to as “splinternet.”
A quick explanation for the novices can be summed up by saying splinternet is the fragmenting of the Internet causing it to divide due to powerful forces such as technology, commerce, politics, nationalism, religion, and interests.
The rapid rise of global splinternet news stories will have an immediate ramification on your tech portfolio and it’s my job to untangle the knots.
What investors are seeing is the bifurcation of the global tech game into a binary world of Chinese and American tech.
Most recently, Central European country Poland, who was thought to be siding with the Chinese because of the growing presence by large-cap Chinese tech in Warsaw, announced government security had arrested a Huawei employee, Chinese national Wang Weijing, for allegedly spying on behalf of the Chinese state.
For all the naysayers that believe the administration’s hope of curtailing the theft of western technology was a bogus endeavor, this recent event buttresses the notion that Chinese state-funded tech companies are truly running nefariously throughout the world.
In fact, Poland has little to gain from this maneuver if you take the current status quo as your guidebook, and I would argue it is a net negative for Poland because Chinese tech is deeply embedded inside of the Poland tech structure bestowing profits and internet capabilities on multiple parties.
Making the case stronger against China, Poland has no flagship tech communications company that would serve as competition to the Chinese or could directly gain from this breach of trust.
The fringe of the Eurozone Central European nations and Eastern European countries bordering Russia running developing economies rely on Huawei and other low-cost Chinese tech suppliers like ZTE to offer value for money for a populace who cannot afford $1000 Apple (AAPL) iPhones and exorbitant western European telecommunications infrastructure equipment.
The Chinese beelining to this burgeoning area in Europe has given these less developed countries high-speed broadband internet for $10-$15 per month and 4G mobile service for $7 per month, a smidgeon of what westerners fork out for the same monthly service.
Poland rebuffing Huawei is an ominous sign for Chinese tech doing business in the Czech Republic and Hungary as European countries are moving towards denying Huawei in unison.
The last few years saw China create the same recipe of success for fueling economic expansion mimicking the American economy.
The tech sector led the way with outsized gains boosting productivity while analog companies transformed into digital companies to take advantage of the efficiencies high-tech provides.
At the same time, Beijing has initiated a muscular response to the accelerated growth of local tech companies.
The foul play of American tech in Europe has given impetus to Beijing to launch a power grab on local tech structures such as Baidu, Alibaba, and Tencent.
This couldn’t be more evident at Tencent who has failed to secure any new gaming licenses for their best gaming titles.
PlayerUnknown’s Battlegrounds (PUBG), a battle royale multiplayer, has been deprived of massive revenue because of Tencent’s inability to win a proper gaming license from the Chinese authorities to sell in-game add-ons.
In total, lost revenue has already cost Chinese video game companies over $2 billion in revenue since May 2017.
Beijing wants to temper the growing clout of private tech companies who were the recipient of the Chinese consumer’s gorge on technology in the last 20 years.
These companies have never been more infiltrated by the communist party and this can be mainly attributed to the acknowledgment by Beijing that Chinese tech companies are too powerful for their own good now and are a legitimate threat to the powers above.
That is what the sudden retirement of Founder of Alibaba Jack Ma told us who infuriated Chairman Xi because Ma was the first Chinese of note to meet American President Donald Trump at Trump Towers pledging to create a million jobs in America.
Ma later rescinded that statement and was put out to pasture by Beijing.
What does this all mean?
As the broad-based balkanization spreads like wildfire, Chinese and American tech companies’ addressable markets will shrink hamstringing the drive to accelerate revenue.
The potential loss of Europe for the Chinese could give way to Nokia, Siemens, and other western telecommunication companies to move in hijacking a bright spot for Huawei.
If Apple isn’t punching above their weight in China, well that almost certainly means that local tech companies aren’t having a cake walk in the park as well.
The winter sell-off turned the screws on tech first and then the rest of equities obediently, Chinese tech could have a similar domino effect to the Chinese economy boding badly for Chinese ADRs listed on the New York Stock Exchange (NYSE).
Last year, the Shanghai index was one of the worst performing stock markets in the world.
And if the trade wars are really ravaging a few key limbs from local Chinese tech firms, then companies exposed to the Chinese consumer such as Alibaba (BABA), JD.com (JD), Pinduoduo (PDD), Ctrip.com International (CTRP) and Tencent Music Entertainment (TME) could fall off a cliff.
This has already been in the works.
These companies are a good barometer of the health of the Chinese consumer and have had an abysmal last six months of price action.
The vicious cycle will repeat itself with worsening Chinese data drying up the demand for Chinese tech services and the Chinese consumer tightening their purse strings as they try to save money from a cratering economy.
It could become a self-fulfilling prophecy and that is what other indicators such as negative automobile sales and a rapidly failing real estate market are telling us.
The 65 million ghost apartments dotted around China don't help.
This could be the perfect opportunity to instigate wide-ranging reforms to open up the financial, insurance, a tech market to the west, something many analysts thought China would do after joining the World Trade Organization (WTO).
However, Beijing’s retrenchment preferring to pedal mercantilism and cold-blooded power grabs could offer Chairman Xi the prospect of further consolidating his authority by sticking his fingers deeper into the local tech structures giving the state even more control.
I would guess this is a false dawn.
American tech will confront balkanization headwinds of its own evidence in Vietnam as the government blamed Zuckerberg’s Facebook (FB) for failing to root out anti-government rhetoric which is illegal in the communist-based country.
If you haven’t figured it out yet – there is an underlying suitability issue with western tech services that tie up with authoritarian governments.
It many times leads the western tech companies to be a pawn in a political game that later turns into a bloody mess.
The weak rule of law has spawned a convenient practice of blaming western tech to distract from internal disputes strengthening the nationalist case of a purported western tech firm gone rogue.
This could lead Facebook to be removed in Vietnam, and the $238 million in ad revenue that will vanish.
Headaches are sprouting up across Europe with Facebook clashing with more stringent data privacy rules through General Data Protection Regulation (GDPR).
German’s largest national Sunday newspaper Bild am Sonntag claimed from sources that the Federal Cartel Office will summon Facebook to halt collecting some user data.
This could take a machete to ad revenue in a critical lucrative market for Facebook, and this experience is being echoed by other American tech companies who are running full speed into complicated regulatory quagmires outside of America.
Adding benzine to the flames, Deputy Attorney General Rod Rosenstein speaking at a cybercrime symposium at Georgetown University’s Law Center in Washington added to the tech misery explaining that to “secure devices requires additional testing and validation—which slows production times — and costs more money.”
This is not bullish to the overall tech picture at all.
Hamstringing tech is not ideal to promoting economic growth, but the decades of unchecked growth is finally reverting back to the mean with regulation rearing its unpretty head and the balkanization of tech forcing countries to pick between China or America.
The silver lining is that the American economy remains resilient taking the body blows of a government shutdown, interest rate drama, and trade war uncertainty in full stride.
The net-net is that American and Chinese tech firms could experience decelerating revenue growth far dire than any worst-case scenario forecasted by industry analysts.
Therefore, I forecast that American tech shares have limited upside for the next 6-10 weeks and Chinese tech is dead money in that same time span.
Any rally is ripe for another sell-off if there are no meaningful breakthroughs in the trade war and if China’s economic data continues to falter.
The global growth scare could actually come home to roost.
The supposed narrowing of trade differences has been nothing more than tactical, and procuring any fundamental victories is a hard ask in the short term.
In an ideal world, China would open the floodgates and allow the world to join them in an economic détente, however, based on Chairman Xi’s record of purging his mainland enemies and the military, slamming the gates shut and padlocking them seems more likely at this point.
Seizing the rights to an untimed Chairmanship term has its perks – this is one of them and he is using the entire assortment of options available to him.
Traders should look at deep in-the-money vertical bear put spreads on any sharp rally to specific out-of-fashion tech names saddled with regulatory and data balkanization headwinds, or tech firms with a large footprint in mainland China.
IN DIRE NEED OF A LICENSE TO MONETIZE THIS GEM
Global Market Comments
January 14, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or IS THE BULL MARKET BACK?),
(SPY), (TLT), (MSFT), (AMZN), (CRM), (AAPL), (FXE),
(TESTIMONIAL)
During the Christmas Eve Massacre, a close friend sent me a research report he had just received entitled “30 Reasons Equities Will Fall in 2019.” It was laughable in its extreme negativity.
I thought this is it. This is the bottom. ALL of the bad news was there in the market. Stocks could only go up from here.
If I’d had WIFI at 12,000 feet on the ski slopes and if I’d thought you would be there to read them, I would have started shooting out Trade Alerts to followers right then and there. As it turned out, I had to wait a couple of days.
Two weeks later, and here I am basking in the glow of the hottest start to a new year in a decade, up 6.45%. So far in 2019, I am running a success rate of 100% ON MY TRADE ALERTS!
Don’t expect that to continue, but it is nice while it lasts.
I can clearly see how the year is going to play out from here. First of all, my Five Surprises of 2019 will play out during the first half of the year. In case you missed them, here they are.
*The government shutdown ends quickly
*The Chinese trade war ends
*The House makes no moves to impeach the president, focusing on domestic issues instead
*Britain votes to rejoin Europe
*The Mueller investigation concludes that Trump has an unpaid parking ticket in Queens from 1974 and that’s it.
*All of the above are HUGELY risk-positive and will trigger a MONSTER STOCK RALLY.
After that, the Fed will regain its confidence, raise interest rates two more times, and trigger a crash even worse than the one we just saw. We end up down on the year.
My long-held forecast that the bear market will start on May 10, 2019 at 4:00 PM EST is looking better than ever. However, I might be off by an hour. Those last hour algo-driven selloffs can be pretty vicious.
I make all of these predictions firmly with the knowledge that the biggest factors affecting stock prices and the economy are totally unpredictable, random, and could change at any time.
It was certainly an eventful week.
Fed governor Jay Powell essentially flipped from hawk to dove in a heartbeat, prompting a frenetic rally that spilled over into last week.
On the same day, China cut bank reserve requirements, instantly injecting $200 billion worth of stimulus into the economy. That’s the equivalent of spending $400 billion in the US. The last time they did this we saw a huge rally in stocks. It turns out that the Middle Kingdom has a far healthier balance sheet than the US.
Saudi Arabia chopped oil production by 500,000 barrels a day, sending prices soaring. It's not too late to get into what could be a 40% bottom to top rally to $62 (USO).
Macy's (M) disappointed, crushing all of retail with it, and taking down an overbought main market as well. It highlights an accelerating shift from brick and mortar to online, from analog to digital, and from old to new. Online sales in December grew 20% YOY. Will Amazon sponsor those wonderful Thanksgiving Day parades?
Home mortgage rates hit a nine-month low with the conventional 30-year fixed rate loan now wholesaling at an eye-popping 4.4%. Will it be enough to reignite the real estate market? It is actually a pretty decent time to start picking up investment properties with a long view.
My 2019 year to date return recovered to +6.45%, boosting my trailing one-year return back up to 31.68%. 2018 closed out at a respectable +23.67%.
My nine-year return nudged up to +307.35, just short of a new all-time high. The average annualized return revived to +33.90.
I analyzed my Q4 performance on the chart below. While the (SPY) cratered -19.5% in three short months, my Trade Alert Service hung in with only a -4.9% loss. The quarter was all about defense, defense, defense. It was the hardest quarter I ever worked.
While everything failed last year, everything has proven a success this year. I came back from vacation a week early to pile everyone into big tech longs in Salesforce (CRM), Microsoft (MSFT), and Amazon (AMZN). I doubled up my short position in the bond market.
I even added a long position in the Euro (FXE) for the first time in years. If Britain votes to stay in Europe, it is going to go ballistic.
I also top ticketed a near-record rally by laying out a few short positions in Apple (AAPL) and the S&P 500 (SPY). I am now neutral, with “RISK ON” positions “RISK OFF” ones.
The upcoming week is very iffy on the data front because of the government shutdown. Some data may be delayed and other completely missing. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.
On Monday, January 14 Citigroup (C) announces earnings.
On Tuesday, January 15, 8:30 AM EST, the December Producer Price Index is out. Delta Airlines (DAL), JP Morgan Chase (JPM), and Wells Fargo (WFC) announce earnings.
On Wednesday, January 16 at 8:30 AM EST, we learn December Retail Sales. Alcoa (AA) and Goldman Sachs (GS) announce earnings.
At 10:30 AM EST the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.
Thursday, January 17 at 8:30 AM EST, we get the usual Weekly Jobless Claims. At the same time, December Housing Starts are published. Netflix (NFLX) announces earnings.
On Friday, January 18, at 9:15 AM EST, December Industrial Production is out. The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings.
As for me, my girls have joined the Boy Scouts which has been renamed “Scouts.” Their goal is to become the first female Eagle Scouts.
So, I will retrieve my worn and dog-eared 1962 Boy Scout Manual and refresh myself with the ins and outs of square knots, taut line hitches, sheepshanks, and bowlines. Some pages are missing as they were used to start fires 55 years ago. I am already signed up to lead a 50-mile hike at Philmont in New Mexico next summer.
As for the Girl Scouts, they are suing the Boy Scouts to get the girls back, claiming that the BSA is infringing on its trademark, engaging in unfair competition, and causing “an extraordinary level of confusion among the public.”
Is there a merit badge for “Frivolous Lawsuits”?
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
January 14, 2019
Fiat Lux
Featured Trade:
(THE TECH DARLING OF 2019),
(TWLO), (MSFT)
Mad Hedge Technology Letter
January 10, 2019
Fiat Lux
Featured Trade:
(HERE’S THE CANARY IN THE COAL MINE FOR APPLE),
(AAPL), (SWKS), (AMZN), (TSLA)
A tech company in the jaws of the trade war dilemma is one to keep tabs on because this company leads Apple’s stock price.
Many industry analysts say that the market cannot recover unless Apple participates.
Paying homage to the sheer size of Apple is one thing, and the gargantuan size means that many other companies are positioned to feed off of Apple revenue model and rely on the iPhone maker for the bulk of their contracts.
Is this a dangerous game to play?
Yes.
But its better than having no business at all.
No stock epitomizes this strategic position better than niche chip stock Skyworks Solutions (SKWS) who extract 83% of total revenue from China.
Apple announced slashing production to its latest iPhone model by 10% in the first quarter due to weak sales.
Apple has also trimmed forecast for total iPhone production from about 48 million to between 40 and 43 million.
The company also failed to meet its latest projected forecast selling a disappointing 46.9 million in the fourth quarter of fiscal 2018, significantly lower than analysts’ expectation of 47.5 million units.
Then when you thought the bottom was in, President of the United States Donald Trump announced an escalation of tariffs from 10% to 25% on Chinese goods that could siphon off 10% of Apple’s revenue from China-produced iPhones.
All this means is that Skyworks Solutions (SWKS) is now the most oversold stock in the tech sector going from $123 about a year ago to about $63.
The avalanche of grumpy news has halted Apple in its track, but Skyworks Solutions is truly ground zero, the metaphorical canary in the coal mine.
The uncertainty that pervades this part of tech does what tech stocks abhor - puts a cap on Skyworks Solutions ceiling and the whole industry which peaked last year.
Containment is the absolute worst description of a tech because it tears apart any remnant of a growth narrative which tech firms need to justify the accelerating investment.
This is evident in how CEO of Tesla (TSLA) Elon Musk ran his business. If he didn’t convince and mesmerize the public with his antics and chutzpah, he might not have cultivated the star power to have pushed through a loss-making enterprise for so long.
Now the loss-making enterprise is history and Musk is finally turning a profit.
Now let’s turn to the chip sector – sling and arrows have been fired with some direct hits.
Samsung reported earnings and scared off investors with a dud.
Management presides over a huge drop in earnings making China and weak sales as the scapegoats.
Samsung’s first profits decline for 2 years could be a sign of things to come.
Chip momentum and earnings are decelerating. There is no getting around that.
Investors will need management to flush out the chip glut and need confirmation that prices have bottomed to really flesh out a legitimate turnaround later this fiscal year.
Samsung curtailed sales estimates by 10% and expect operating profits to sink 28.7% in 2019.
The walking wounded Korean chaebol has also been the recipient of a massive price war against Chinese smartphones, the end result being that consumers are favoring lower-priced Chinese substitutes that match Samsung’s Galaxy 80% of the way.
Remember that when you battle China tech companies – it’s a fight against the Chinese state who subsidizes these behemoths and have access to unlimited loans at favorable interest rates.
Apple has had the same problem, as well as Huawei and Xiaomi, have started producing premium smartphones. Second tier Chinese smartphone makers Oppo and Vivo have also picked up market share at the marginal buyer level.
Semiconductor annual growth in 2018 held up quite well even though a far cry from 2017 when the semiconductor industry expanded 21.6%.
However, this year forecasts to only eke out 6.8% growth and then 2020 will turn negative with growth contracting 1.9%.
These dismal numbers could signal total revenue downshifting below total revenue numbers not seen since 2016.
In short, the chip industry is going backwards and backwards quickly.
I wouldn’t want to bet the ranch on any chip names now because the short-term prospects are grim.
The perfect storm of market saturation, overproduction, facetious geopolitics, weak demand, and unparallel competition is not a good cocktail of drivers towards accelerating earnings growth.
This is, in fact, a recipe for disaster.
And when you look at mobile, the phenomenon has been a true gamechanger and success but let’s face the facts, its already onto its 15th year and petering out.
There is only so much juice you can squeeze from a lemon.
Mobile will last for the time being until something better comes along which is absolutely what the tech markets are screaming for.
Tech companies have monetarily benefitted from this massive migration to mobile and there are still some hot croissants to take home from the bakery but I would estimate that 80% of the low-hanging fruit is off the tree.
That leads me to double down on my recent rant of a lack of innovation.
Google is still making most of its revenue from ad search and going 18 years strong, there will be no plans to stop even in year 30 and beyond.
Apple has been making iPhones for over 12 years.
Oracle is still selling the same dinosaur database software that has barely changed for a generation, except for the prettified front end.
Amazon is the only company that is brimming with innovation and that is the very reason why all companies must react to the Amazon threat because they set the terms of engagement.
The pipeline is fertile to the point its hard to keep track of all the new products coming out of the company.
Bezos has stayed head and shoulders ahead of the competition because the competition has gotten comfortable, content with above average market positioning, and gobbling up the profits.
Once companies start behaving this way, it is the beginning of the end.
Then there is Skyworks Solution.
Can you imagine if Apple ever announced a ground-breaking new product that would see them stop making iPhones?
Skyworks Solution would go out of business.
This elevated existential risk has nudged up the beta on this stock and it trades accordingly.
Apple’s price action lags Skyworks Solution’s, but the chip companies' booms and busts are more exaggerated.
On cue, Skyworks Solutions announced a cut in guidance from $1 billion in revenue to $970 million in 2019.
EPS would drop from an estimated $1.91 to $1.81-$1.84.
Skyworks president and CEO Liam Griffin said they were “impacted by unit weakness across our largest smartphone customers.”
A bottom looks to be forming unless the trade war turns for the worse again.
The silver lining is that Skyworks Solutions is in queue for some hefty 5G contracts for the upcoming network upgrade.
This would be Skyworks Solutions' chance to jump out of the ring of fire and attach themselves to alternative revenue that doesn’t shred their share price in a growing piece of the tech industry.
If Skyworks Solutions manages to successfully pivot to 5G and specifically IoT products, management will finally be able to wipe away the sweat bullets because welding yourself to Apple’s story hasn’t been heavenly as the global smartphone market has calcified.
Global Market Comments
January 10, 2019
Fiat Lux
Featured Trade:
(JANUARY 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (UUP), (FXE), (FXY), (FXA), (AAPL), (GLD), (SLV), (FCX), (SOYB), (USO), (MU), (NVDA), (AMD), (TLT), (TBT), (BIIB), (TSLA)
(TESTIMONIAL)