Apple: Keep the Faith

NASDAQ is up 23% year-to-date, while AAPL has gained 8%. Still, it's 101 points higher than April.

As an Apple investor and fan of its products, I've been rushed (panicked?) into doing things too soon. Last April, worried about tariffs and a trade war with China, I mothballed my 6½-year-old XS Max and bought an iPhone 16 Pro Max. (Halfway through the product year I would have normally waited to order the new iPhone models in September.) Two months ago, pleased that the stock had recovered from the April tariff scare when it had hit a low of $169.21, I sold some AAPL at $241.50.

Tim Cook (Morris/Bloomberg/WSJ)

I should have had faith that the new iPhone 17 would be a hit, the problems with China would lessen, the stock would rise even more, and that CEO Tim Cook knew what he was doing.

It took two quarters for Tim Cook to save Apple from what was almost a disastrous year.

President Trump’s on-again, off-again tariffs risked massively increasing the company’s costs. A pending court ruling imperiled Apple’s lucrative Google contract. Plus, the company was seen as lagging on artificial intelligence.

Facing so much uncertainty, Apple tumbled to a market capitalization of $2.6 trillion in April and lost its title as the world’s most valuable company.

Six months later, Cook pushed Apple’s market value above $4 trillion for the first time. That’s more than 10 times what the company was worth when Cook took over as chief executive from Steve Jobs 14 years ago.

I am pleased with the iPhone 16 purchase and that I took some profits in the stock. However, if I had not let emotions cloud my judgment, it would have been even better.

London: What's Going On?

The news feed is filled with stories about the decline of London and the UK in general. If reports are to be believed, hordes of unassimilated migrants go unpunished for rape, murder, and other mayhem while armed police arrest comedians for tweets and residents for waving the Union Jack. Violence against Jews is causing Jewish citizens to emigrate from the U.K. If Britain is collapsing, what are we to make of this?

London: new towers springing next to the old (Zuma/WSJ)

Apple and Citadel Fuel London Office Boom

The office market in London’s ancient commercial quarter—known simply as the City—is booming, fueled by an influx of American law and finance firms, a growing tech scene and demand for the swankiest spaces to lure workers back to their desks.

The boom shows Britain’s finance industry has defied fears of a post-Brexit exodus. Despite losing some business and financiers after the U.K. left the European Union, London still hosts by far the biggest banking and capital markets in Europe.

The buoyant market also reflects the district’s broadening appeal. For decades the area was a bastion of finance and insurance. Now tech companies—including Apple, TikTok and several thousand smaller firms—vie for space, drawn in part by the prospect of easy access to potential investors.

“London, as a location for international businesses, seems to have really proven its resilience,” said Martin Towns, who runs M&G’s $43 billion real-estate business. “The City has a renewed level of vibrancy.”

Finance companies and Big Tech are not known for taking extraordinary risks, so what's going on with the $billions pouring into London? As an Anglophile, I hope that fears of its death have been greatly exaggerated.

Apple Cinemas vs. Apple Inc.

Apple Cinemas theater on Van Ness Ave. (Jessica Christian/Chronicle)

Apple has sued a theater company over copyright infringement:

Cupertino-based Apple Inc. has filed suit against Apple Cinemas a month after the small and relatively new East Coast movie theater chain expanded to San Francisco.

The Cupertino-based tech giant has filed suit against the movie exhibitor in federal court for copyright infringement, alleging that the brand is trying to trick ticket buyers into thinking that the two companies are affiliated.

Apple Inc.'s protectiveness of its entertainment brand is understandable, given that the iPhone company has expanded into movie production. Moreover, Apple Cinemas' case is not being helped if, as Apple Inc. alleges, the quality of the theater experience is poor and could harm the latter's reputation among confused movie-goers. [bold added]

A notable part of the lawsuit is that Apple Inc. contends its brand could be damaged by being associated with Apple Cinemas’ alleged lack of quality control. The suit highlights comments on social media that its theaters are “greasy,” “dirty” and “grungy,” with some complaining of tech issues, including the projection system and online purchase portal.

Normally I would be inclined to support the scrappy underdog, but if Apple's claims about Apple Cinemas' products are valid, then the tech giant will win not only legally but in the court of public opinion.

Note: The irony abounds. When Steve Jobs and Steve Wozniak started Apple Computer in 1976, the Beatles' Apple Corps, founded in 1968, sued over trademark infringement. During the subsequent 30+ years Apple Computer broke agreements that it would stay away from the music business and paid the Beatles' company hundreds of millions of dollars until the dispute was finally settled in 2007.

You Have My Full Attention...Really

The case easily fits in the palm of your hand

I received a pair of AirPods Pro 2 for Father's Day. They emit good-to-great sound, have noise cancellation features, and function well as an accessory for hands-free telephone calls. But their greatest utility to me is as backup hearing aids. The AirPods amplify all sounds and serve adequately for those who, like me. have moderate hearing loss. Were it not for social offensiveness, I would feel comfortable wearing them all the time.

Hi. Excuse me. Hey. Do I have your attention?

I can’t tell because your AirPods are in.

Human communication was awkward enough before AirPods and their non-Apple brethren became so ubiquitous, but at least some pockets of life seemed off-limits. Not anymore...

Joseph Montes, a 55-year-old information-security manager who lives near Boca Raton, Fla., keeps his AirPods in all day. “They’re always off, but if someone calls, I can answer,” he said.

The devices are such a constant that when he visited the doctor recently, Montes didn’t understand why the nurse was giving him “dagger eyes.” He finally got the hint when the doctor came in. Montes sheepishly pulled one AirPod out of his ear. “I’m a man, I’m stupid,” he said.

IMHO, there are easy solutions for users to defuse disapproval. For example, a blinking LED could signal that the AirPods wearer is listening to a signal from his iPhone, and if the light is off he can give you his full attention. Or he could wear his hair long to cover the offending ear buds.

Finally, retirees like myself can accentuate our age. People give us a lot more leeway because elders are not expected to observe niceties; younger folk are just grateful that we appear to understand what they are saying and can carry on a conversation. To my fellow boomers, just practice giving others a blank look and wear those AirPods proudly.

Still Appreciated by Termites, Though

Your humble blogger went to school before mobile phones, before the Internet, even before there were personal computers (I received my MBA in 1975, one year before Apple was incorporated).

Mine was a generation that did all its research in libraries, and index cards were the pathway to getting information. Today most index card drawers are empty--if they haven't been tossed out--but at Yale they have been repurposed:

If you open one of the hundreds of card catalog drawers that line the south side of the Sterling Memorial Library nave, you won’t find any cards; online catalogs have rendered them obsolete.

But you might find a surprise. Over the past few years, students and other visitors to the library have created a tradition of leaving notes in the drawers to be found by others. Some are inspirational (“keep chasing your dreams, but don’t be afraid if the path to your dream changes”) and some are aspirational (“2016. In eight years, I’ll return as a Yale student”), and they are written in many languages. It’s a delightful adaptive reuse: hardware that was once used to organize the search for knowledge now holds the promise of serendipity.

Now if I can just find a use for my slide rule....

No Fine-Tuning This

iPhone: it's all tariff-able.

Last September I was certain I was going to buy a new iPhone. However, two developments have upended that Apple cart: 1) the delay in rolling out Apple Intelligence; 2) the newly-announced tariff on goods from China, where most iPhones are made.

The WSJ shows how the 54% tariff on Chinese imports raises the cost of the materials that go into the iPhone by 54% (from $549.73 to $846.59). If Apple wants to maintain the same profit margin of 50% on materials, the price of the 256GB iPhone 16 would have to rise by 54% (from $1,100 to $1,694). Such an increase in price will cause some customers to choose the iPhone's competitors who are not experiencing similar price hikes, or at least hold off purchasing a new smartphone. Apple sales will suffer, perhaps a lot, which explains why the stock has fallen 28% from its all-time high.

I am firmly ensconced in the Apple ecosystem and will buy a new iPhone when the creaky 2018 iPhone XS Max gives up its ghost, but not sooner. The WSJ:

This tariff matter is far from settled. Our advice is to hold off on stockpiling last year’s iPhones, and make that one in your hand last as long as it can.

Lockdown Mode

After reading about it, I gave Lockdown Mode a try:

Lockdown Mode disables or restricts such commonly used tools and activities as photo sharing, payment applications and use of unsecured local networks—all features that attackers often exploit to install spyware through phishing attempts and malicious downloads.

Unsolicited FaceTime calls and messages from unknown contacts are blocked. Standard features of modern messaging, like preview links and automatic media downloads, also are disabled. Links to images or files appear as plain text URLs without previews or direct opening options. Popular features like Apple Pay become limited, too. When someone sends money through Apple Cash, recipients see only a generic notification rather than specific payment details. Payment integrations also become more limited in third-party apps.

Users can still approve access to trusted websites and applications for more flexibility. But in return for beefed up security, Lockdown Mode essentially transforms iPhones, iPads and Macs into stripped-down versions of themselves.

Accessing the feature on the iPhone is easy. Go to Settings>Privacy and Security>Lockdown Mode, then press a series of buttons to restart the phone.

The only drawbacks seem to be that there now are constant reminders to set Lockdown mode on my other Apple devices (iPad, Mac) and that the phone works more slowly.

Trading speed for more security is worthwhile for this non-power user, and I will be using Lockdown Mode when I go out of town.

Warren Buffett Thinks Taxes are Going Up, and So Should You

The Berkshire Hathaway shareholders' meeting in Omaha last May.

Continuing its liquidation of Apple stock, Berkshire Hathaway sold a lot more in the third quarter: [bold added]

The Omaha, Neb., company ended September with $69.9 billion of the iPhone maker’s shares, according to a quarterly report released Saturday. That means Berkshire sold about 25% of the 400 million Apple shares it brought into the third quarter. Berkshire held slightly more than 900 million Apple shares at the end of last year.

Even after the sales, Apple was Berkshire’s largest stockholding at the end of September. Apple has been a major bet for Berkshire, and one that paid off big time as tech-hungry investors drove the stock ever higher in recent years.

This year, Berkshire has slashed the position, though Buffett has continued to praise the company. He told an arena of shareholders at Berkshire’s annual meeting in May that Apple was “an even better business” than American Express and Coca-Cola, two other big holdings, and hinted that tax considerations might have played a role in the decision to sell some shares.

Apple shares are up 16% this year and trading near records.

Market commentators generally have explained Berkshire's actions to be the result of portfolio-risk reduction (overconcentration in one stock) and the perceived over-valuation of Apple stock according to several metrics. However, the impact of higher corporate income tax rates after 2025 should not be underestimated in Warren Buffett's decision-making. Higher tax rates have a direct, immediate negative impact on cash flow, while portfolio diversification increases portfolio returns probabilistically but are not guaranteed.

Unless the Republicans make a clean sweep of the Presidency and Congress, tax rates are likely to go up. And even if the Republicans do win, the Grand Old Party still has traditionalists who are fiscally conservative. Higher-income taxpayers would be foolish not to take into consideration the likelihood of higher tax rates after 2025, and some are taking action now.

Among the moves investors might want to make if they are convinced taxes are headed higher is to sell stocks. Selling now would lock in capital gains at the current 20% top rate.

Kamala Harris proposes a new top capital-gains rate of 28% for high earners. She is also proposing to increase the investment income surtax. Although Donald Trump has campaigned on extending the 2017 law, taxpayers are also worried taxes could move higher if he wins, because of the nation’s finances and economy...

Potential changes to capital-gains taxes, more likely with a Democratic sweep, are prompting some taxpayers to sell stock or shares in a business. In addition to the higher capital-gains rate for those earning $1 million or more, Harris proposes increasing the 3.8% investment income surtax to 5% for taxpayers with income above $400,000.

Your humble taxpaying blogger may make some income-accelerating moves, such as converting traditional IRA moneys to a Roth IRA before year-end, but will wait till next year to take action after the election smoke clears.

"Not First, But Best"

AAPL is 10X as valuable as it was when Steve Jobs died on October 5, 2011

(Photo by Sakuma/WSJ)

Steve Jobs gets all the adulation, but Tim Cook deserves his own chapter in the history of American business. Steve Jobs rescued Apple from insolvency and transformed it into the world's most innovative consumer company; Tim Cook was handed the keys in 2011 and oversaw its growth into an international colossus that is worth ten times as much as it was when he took over. Perhaps we should focus less on what Apple products are in the pipeline than the man himself. The WSJ ran a profile over the weekend: [bold added]

There is one idea that encapsulates the approach to innovation that makes all of it possible—and it’s maybe the closest thing to a grand unified theory of Apple. It’s a philosophy of just four words that describe Apple’s past, present and definitely its future. Four words that help explain why this was the year the company plowed into spatial computing and artificial intelligence. During one of those epochal years when it feels like everything is about to change again, I heard them over and over, in conversation with Apple executives and Cook himself: Not first, but best.

...“We weren’t the first to do intelligence,” he says. “But we’ve done it in a way that we think is the best for the customer.”...He puts Apple Intelligence in the same pantheon of innovative breakthroughs as the iPod’s click wheel and the iPhone’s touch interface. “I think we’ll look back and it will be one of these air pockets that happened to get you on a different technology curve,” he says.

Tim Cook, 64, may not be as inventive as Steve Jobs, but he has arrived at the point where he trusts his ability to select that one "great" idea from the merely good ones that Apple considers every day. As a shareholder, I hope his tenure continues for a long, long time.

iPhone 16: I've Deferred Gratification Long Enough

It's been six years since I bought my iPhone XS Max. The XS Max has performed well, and I've been patiently watching as successor iPhones have improved the camera, speed, and battery life.

This year I'm going to pull the trigger on a new iPhone 16. The hyped AI (Apple Intelligence) features are just an added bonus, since the XS Max battery health had declined to 81% (80% is Apple's recommended minimum) and I was going to get a new iPhone regardless.

Here's the WSJ's first look at the new iPhone 16 announced today.

NVDA: Now the Top of the Heap

MSFT and AAPL rose 81% and 65%, respectively, while NVDA returned 754% over the last two years.

Today, with no international crises or natural disasters as competition, the headlines again return to Nvidia, which surpassed Microsoft as the most valuable company in the world. [bold added]

Nvidia, a 31-year-old company, became the world’s most valuable firm on Tuesday. The stock closed at $135.58, giving the chip maker a valuation of $3.335 trillion, just above Microsoft at $3.317 trillion. [Blogger's note: Apple closed in third place at $3.286 trillion.]

It marks the first time a company other than Microsoft or Apple has held the title of largest company since February 2019 when Amazon.com briefly topped the list. Nvidia was ranked fifth largest by market valuation a year ago and was ranked 10th largest two years ago. Five years ago, it wasn’t in the top 20 largest companies.

How could so many on Wall Street have been so wrong about Nvidia? One easy explanation: investors had become jaded because the realization of artificial intelligence was always sometime in the future. That is, until the release of ChatGPT in November, 2022, showed everyone how millions could become instantaneously more productive in research and writing reports. Just imagine the possibilties in hundreds of other endeavors. Note from the graph that Nvidia's stock price growth separated itself from Microsoft, Apple, and other tech companies in November, 2022.

Nvidia's limits will eventually be reached when the companies that can buy its chips for multi-million-dollar data centers find that they can't realize a return on their investment. But that moment is years away, especially with everyone jockeying for leadership positions in markets that no one fully understands.

Quick Vindication Leads to Chortling

AAPL rose $14.03 to an all-time high

Permit me to chortle a little.

After Apple made its AI announcements and an unimpressed Wall Street knocked Apple stock down by 2% yesterday, I wondered why the experts didn't see the benefits from "Apple Intelligence" that I was seeing ("if I didn't already own Apple stock, I'd be buying some.")

Just before yesterday's close I bought a few Apple call options. Your humble blogger was under no illusion that he was "investing" in AAPL; this was gambling--backing my judgment that Apple's artificial-intelligence strategy was a winner--and that the market would come around to this point of view very soon. Whatever the result, I intended to get out of the position by the end of the week.

Within 24 hours various Wall Street analysts (not the first take people) published glowing reports on Apple's strategy, and the stock rocketed up $14 to an all-time high. I sold my position and made enough $$$ to pay for the iPhone 16 that will be issued later this year.

Buying and selling options successfully is more luck than skill, but I am chortling anyway.

Apple: the Primacy of Privacy

AAPL sold off 2% today

After its run-up to the Worldwide Developers Conference, Apple stock sold off 2% today, as traders greeted Apple's introduction of its artificial-intelligence products with a yawn.

Apple said its new software will retrieve information from across apps and scan personal information to help users proofread text, call up photographs of specific family members or gauge traffic patterns ahead of an atypical commute. Users can create images and emojis and even convert rough sketches into polished diagrams...

For certain complex Siri requests, Apple will surface a prompt to ask if the user wants to connect with ChatGPT to get a better answer. Apple is also allowing ChatGPT to connect with other areas of the operating system, such as using the AI to help with composing text. Apple said it gives users the ability to control when and if they want to use ChatGPT...

Apple's AI features didn't overtake the competition technically, but as an Apple customer I really liked the emphasis on privacy. (By way of contrast Microsoft Windows' AI tool "Recall" takes snapshots of users' screens every five seconds and stores the images on an unencrypted database that is easily hacked.) [bold added]

Privacy is at the heart of Apple’s new AI capabilities, a feature that could further lock users into its ecosystem. Most processing will be done on a device instead of shipping to the servers in the cloud. But the company said for running larger AI models Apple will keep it private by running its own servers with what it calls Private Cloud Compute. It will only send data relevant to the task to these servers. The data isn’t stored or accessible by Apple for further training, the company said.

ChatGPT queries from Apple devices will be routed to OpenAI servers, but user information won’t be shared with OpenAI, and the startup won’t be able to identify the queries from specific Apple users. Apple will use a version of ChatGPT that is available free elsewhere online, but those with premium ChatGPT subscriptions will be able to link their accounts.

Users' data is stored on the device itself. If more processing power is needed, then tasks are diverted to Apple's private servers. Users can call on Open AI's ChatGPT, but even here protections are in place.

user information won’t be shared with OpenAI, and the startup won’t be able to identify the queries from specific Apple users.

As an Apple investor and a customer with privacy concerns, I appreciate the fact that Apple will be using its own silicon and not be as beholden as everyone else to external data centers running on Nvidia chips.

This fall I'll be buying a new iPhone 16. My six-year-old iPhone XS Max has served me well, but it's time to move on to the brave new AI world (as well as a much better camera and battery).

I'm not so presumptuous as to believe that hundreds of millions of iPhone, Mac, and iPad customers think like me and will soon upgrade their hardware, but there's a good chance that will be true, so if I didn't already own Apple stock, I'd be buying some.

Nvidia and Apple: Matters of the Heart

Nvidia's Santa Clara HQ (NY Post)

Homegrown $2.3 trillion-dollar tech giant Nvidia gives a much needed shot in the arm to the Bay Area economy.

Headline: Nvidia widens South Bay property holdings with $350 million-plus deal

Nvidia has bought several office and research buildings in Santa Clara in a deal that tops $350 million and greatly broadens the fast-expanding tech company’s holdings in Silicon Valley...

The sites Nvidia bought are adjacent to and near the tech company’s modern and futuristic-looking headquarters complex at 2788 San Tomas Expressway. The just-bought properties could be redeveloped with new office and research buildings, potentially totaling up to 2 million square feet, according to Santa Clara city planning records.

Unlike big-name companies (Tesla, Oracle, HP) that have moved their headquarters from California, Alphabet (Google) and Meta (Facebook) have indicated that they are staying put by continuing to add people and real estate in the Bay Area, recent layoffs notwithstanding.

But Apple and Nvidia are special cases. When Apple built its $5 billion spaceship headquarters in Cupertino, it was an announcement to the world that it would always be based in Cupertino. Similarly, Nvidia bought, not rented, additional real estate, a signal that it, too, would not only be staying but expanding in Silicon Valley.

Cost-benefit analysis always produces the same result: expand anywhere outside of California because of California's high-cost housing, high taxes, and onerous regulation. Sometimes, after succeeding with a far-flung workforce, these companies move their headquarters away.

But Nvidia and Apple won't be moving away for the foreseeable future. Nvidia and Apple's founders got their start in the Bay Area, have a great deal of affection for their home towns, and most importantly controlled their companies. And who knows...the heart sometimes sees the future better than the head.

Apple's Ad Misfire: Grist for Social Media But That's All

In the age of social influencing, quick first takes, and harvesting of clicks, the crowds swarm over topics important and trivial, then move on to the next thing.

One of Apple's ads for the new iPad has attracted negative attention:[bold added]

An Apple advertisement that depicts a patchwork of creative tools being crushed and revealing a new iPad in their place is facing broad criticism on social media.

The ad, which Chief Executive Tim Cook posted on X after Apple unveiled new iPads Tuesday, depicts a studio filled with musical instruments, a record player, cans of paint with vibrant colors and other items being physically crushed by what appears to be a giant compressor.

When the compressor lifts, an ultrathin iPad is all that remains in place of the tools.

“Apple’s new iPad Pro ad is a rare fail from a normally flawless advertiser,” Peter Intermaggio, a former marketing and advertising executive for companies including Comcast, wrote on LinkedIn. For a brand that “elevates creators, this is an ad that celebrates destruction. It is heavy handed and nihilistic.”

While the ad, named “Crush!” emphasizes the thinness of the iPad, a point Apple executives highlighted when they unveiled the device, some critics saw it as an ominous symbol of the company’s power, the rise of artificial intelligence and its potential to replace human creativity.

Your humble blogger felt a little uncomfortable watching the artifacts of his era being "crushed" and amalgamated into a new iPad.

Not liking this ad should have no bearing on customers' decision to purchase an iPad. Dear reader, if that was the determining factor in not buying a thousand-dollar item, your decision-making process likely needs some work (in my humble opinion).

Below is the ad in question.



Update - 5/9: Apple Apologizes for iPad Ad Depicting Crushed Creative Tools

Buffett to Apple: It's Not You, It's Me

The Berkshire Hathaway shareholders' meeting in Omaha last Saturday.

Apple stock has been Berkshire Hathaway's largest and most successful investment in Warren Buffett's storied history. [bold added]

Apple is Warren Buffett’s greatest investment. It has also become one of his riskiest.

In 2016, Buffett made perhaps the most surprising bet of his career. That year, Berkshire Hathaway, the company he runs, began buying up shares of Apple—the exact kind of stock Buffett and his longtime partner, Charlie Munger, had long avoided...

Yet working with protégés, Buffett soon transformed into an Apple bull in a remarkable about-face. After an initial purchase of nearly 10 million shares worth about $1 billion in 2016, Berkshire added to its holdings later that year and then stepped up its buying in 2017 and 2018, spending about $36 billion on the stock over those years. Berkshire later trimmed some of those holdings.

By the end of the third quarter of 2018, Berkshire’s Apple stake represented about a quarter of its entire investment portfolio. In dollar terms, it was twice as large an investment as Buffett had previously made.

The move has paid off, in a very big way. Today, Berkshire’s 5.9% stake in Apple is worth about $157 billion, even though Apple has fallen lately. Berkshire is sitting on about $120 billion in paper gains, likely the most money ever made by an investor or a firm from a single stock. Nothing in Buffett’s long career comes close. Apple stock represented nearly 50% of Berkshire’s stock portfolio at year-end.

Warren Buffett has never followed hard-and-fast rules for portfolio diversification. Many portfolio managers would sell an individual stock if its value exceeded, say, 10% of their portfolio, but Warren Buffett rode a seven-year wave until Apple equalled nearly half of Berkshire's $370 billion stock holdings.

At that point no one would criticize Warren Buffett for trimming his position, which he did in the first quarter. He announced his action in last Saturday's Berkshire shareholders meeting, all the while continuing to praise Apple:

Warren Buffett is still a big fan of Apple.

The legendary investor praised the iPhone maker on Saturday from the stage of his annual meeting, even after revealing that Berkshire Hathaway had slashed its stake in the first quarter. He hinted that tax considerations may have played into the decision.

Buffett told an arena of Berkshire shareholders that Apple is “an even better business” than American Express and Coca-Cola, two other big positions in his company’s massive stock portfolio.

Berkshire sold about 13% of its mammoth stake in Apple in the first months of 2024, leaving it with $135.4 billion of the iPhone maker’s shares at the end of March, according to a regulatory filing released Saturday morning.

He really didn't have to justify the sale, but what was the reference to "tax considerations"? Was there some esoteric tax rule that applied to unbalanced insurance company investments?

No, Mr. Buffett was simply referring to the likelihood that the Federal government, facing unprecedented deficits and unwilling to cut spending, will soon raise the long-term capital gains rate from 21%. (He elaborates on YouTube.)

We don’t mind paying taxes at Berkshire , and we are paying a 21% federal rate on the gains we’re taking in Apple. That rate was 35% not that long ago and has been 52% in the past when I’ve been operating. The Federal government owns a part of the earnings of the business we make. They don’t own the assets but they own a percentage of the earnings. They can change that percentage in a year and the percentage is currently 21%, and I would say that with the present fiscal policies I think that something has to give and I think that higher taxes are quite likely, and if the government wants to take a greater share of your income or mine or Berkshire’s, they can do it.

They may decide that someday they don’t want the fiscal deficit to be this large because that has some important consequences and they may not want to decrease spending a lot and they may decide they’ll take a larger percentage of what we earn, and we’ll pay it. We always hope at Berkshire to pay substantial Federal income taxes. We think it’s appropriate that a country that has been as generous to our owners—Berkshire was lucky that it was here—and if we sent in a check like we did last year, we sent in over $5 billion to the US Federal government—and if 800 other companies had done the same thing no other person in the United States would’ve had to pay a dime of Federal taxes [applause], whether income taxes, no Social Security taxes, no estate taxes, all down the line. I hope things develop well enough with Berkshire—we say we’re in the 800 club [companies with a market capitalization of at least $800 billion]-- and maybe even move up a few notches. It doesn’t bother me in the least to write that check, and I would really hope with all that America has done for all of you, it shouldn’t bother you that we do it, and if I’m doing it at 21 percent this year and we’re doing it at a lot higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year.

Far be it for me to argue with Warren Buffett, but his statement that no one would pay any taxes if 800 companies paid $5 billion to the Treasury is technically true, but fantastical. Excluding banks, who need multi-$billions to conduct operations, there are fewer than 50 companies that have at least $10 billion on hand. (It's like saying that if everyone had an EV there would be no climate crisis.)

However, the Oracle of Omaha is very likely to be correct in his prediction that the government is unwilling to cut spending and will raise taxes in the near future. At 93, Warren Buffett talks about the way things are, not the way he wishes they could be.

AAPL Bounces

Despite its recent difficulties, AAPL has outperformed
MSFT over the past five years. (WSJ)

Unlike its other mega-cap peers, Apple stock had barely moved in the past twelve months. It had not outlined an artificial-intelligence strategy, its iPhone sales had fallen in China, and the Justice Department had launched a broad antitrust action against Apple. Expectations had been set very low for Apple's quarter ended March 31, 2024.

Apple's report on May 2nd provided a pleasant surprise:

Apple stock rallied in afternoon trading, after results narrowly beat estimates and the company touted a new $110 billion buyback program.

Apple also signaled sales are likely to grow this quarter, when it reported earnings late Thursday.

Shares in Apple stood more than 6% higher in recent trading, mirroring a late-Thursday rally. The stock hasn't risen more than 5% in a single session since late 2022, FactSet data shows.

Here is how the results stacked up against analysts' consensus expectations from FactSet:

Revenue of $90.8 billion vs. expected $90.4 billion

Net income of $23.6 billion vs. expected $23.3 billion

GAAP earnings of $1.53 per share vs. expected $1.51 per share

Apple approved an additional $110 billion in share repurchases, and raised its quarterly dividend by a penny to 25 cents.

Apple may have already hit its bottom this year. I'm holding on.

Going Up and Going Down

430 California (Chron)

S.F. tech company quadruples office space as it looks to hire hundreds

Tech firm Rippling has signed a 123,000-square-foot lease for a new San Francisco headquarters, quadrupling its office space as it plans to hire hundreds of new local workers.

Rippling, which creates workplace management software for human resources and finance, will move into nine floors at 430 California St. It now leases 30,000 square feet across two floors at 55 Second St.

The new lease is the city’s second-largest of the year, following Adyen’s 150,000-square-foot deal last month.

(cocoadocs image)

Apple lays off hundreds of Bay Area workers in first mass cuts since the pandemic

Apple is laying off 614 employees in Santa Clara as part of its first mass job cuts in years, according to a state filing.

An attorney for the tech giant wrote that the layoffs are effective on May 27, in a letter last week to the California Employment Development Department.

The move, which spans eight offices in Santa Clara, follows reports that the company canceled a decade-long electric car project. The filing did not mention the project, but affected roles include “machine shop” managers, hardware engineers and product design engineers...

The layoffs affect 371 jobs at 3689 Kifer Road, 58 at 1705 Wyatt Drive, 52 at 3260 Scott Blvd., 49 at 3111 Coronado Drive, 35 at 3250 Scott Blvd., 23 at 2945 San Ysidro Way, 15 at 2975 San Ysidro Way, and 11 at 3000-3008 Kifer Road.

Among its mega-cap peers, Apple is known for being slow to hire and fire. The layoffs should not come as a surprise, since Apple discontinued its electric-car initiative last month. Nevertheless, Apple couldn't move 614 employees to other parts of the company, perhaps a sign of dimming growth prospects.

Meanwhile, Rippling's new lease is another counter to the validity of San Francisco's "doom loop" narrative. Furthermore, Rippling is not in the AI industry, where San Francisco's bounce-back seems to be coming from. The reports of the City's death appear to be premature, if not greatly exaggerated.

Radio Shack: the "Unsung Hero" of the Personal Computing Revolution

A $4.01 Apple Computer check written by Steve Jobs to Radio Shack in 1976 is being auctioned for at least $30,000.

The check is made out on an Apple Computer Company account opened at a Wells Fargo branch in Los Altos.

Listed is Apple’s first official address at 770 Welch Rd., Ste. 154, Palo Alto — “the location of an answering service and mail drop that they used while still operating out of the famous Jobs family garage,” the webpage says.

RR Auction, a Boston-based specialist in Jobs and Apple memorabilia, calls Radio Shack an “unsung hero” of the personal computing revolution and notes that co-founder Steve Wozniak would spend hours roaming the aisles of the store.

Comments:
1) Steve Jobs must have been a careful business manager to write a check, thereby documenting a $4.01 expense.
2) Palo Alto, in fact the entire Peninsula, used to have area code 415, the same as San Francisco and Marin County. It was reassigned to 650 in 1997.
3) Can you tell from his writing that Steve Jobs is left-handed?
4) Radio Shack, which employed several of my relatives in Hawaii and California, was indeed historically important to the history of Silicon Valley, as hardware geeks like Steve Wozniak prowled its aisles for parts hoping to build the next big thing.

The Shine Will Return

At Friday's close, Apple was up 36% for the year, beating the NASDAQ's 27%.

The conventional wisdom is that Apple is a great company but just a mediocre stock. After announcing its September quarter results on Thursday night, AAPL fell 92 cents (0.52%) on Friday:

Apple said sales fell for the fourth consecutive quarter, including a decline in China that came as the company faces a broad economic slowdown in the country and new competition from rival Huawei Technologies...

The challenges in China have spooked Apple investors, sending shares down more than 10% since the company’s all-time high earlier in the summer. In late June, Apple became the world’s first corporation to close with a market value above $3 trillion.

The reasons that Wall Street has become less enamored of AAPL are simple:
1) Sales in China have fallen because the government has openly discouraged the purchase of non-Chinese products;
2) overall iPhone unit sales have declined world-wide;
3) services and new products aren't growing rapidly like Apple's peers, especially in artificial intelligence,
4) Apple's stock performance is the worst of the "Magnificent Seven" megacaps (Alphabet/Google, Apple, Amazon, Meta/Facebook, Microsoft, Nvidia, and Tesla).

Your humble blogger has reached the age where he no longer fears missing out on the stocks that got away, believes that the shine will return next year, and is quite happy with 36%.