10 Takeaways From Apple’s Latest SEC Filing, Part 2

Take a walk with me through {complink 379|Apple Inc.}'s latest 10-K filing. (See: 10 Takeaways From Apple’s Latest SEC Filing, Part 1 for the previous article.)

The sentences in italics are from Apple's filing.

  1. On stock price volatility:
  2. The Company’s stock price continues to be volatile. The Company’s stock has at times experienced substantial price volatility due to a number of factors, including but not limited to variations between its actual and anticipated financial results, announcements by the Company and its competitors, and uncertainty about current global economic conditions.

    My take: All I need say here is: Thank you, Apple, for acknowledging what many investors and analysts would rather ignore. Apple's is one of the more volatile stocks on the Nasdaq Exchange. If you cannot handle stomach-churning moves, don't buy Apple shares. The wide arc carved by Apple shares is actually a reflection of the level of uncertainty surrounding the company, combined with the fuzziness of guidance provided by analysts.

    Take analysts' fiscal sales estimates, for instance — the range of forecasts provided by analysts for the 12 months ending September 2010 is $71.6 billion to $94.57 billion. The range for fiscal 2012 is even more jarring — between $100 billion and $124 billion. In my opinion, these figures only fuel uncertainty about the company's future, simultaneously exciting and spooking investors.

  3. On geographic representation:
  4. The U.S. represents the company’s largest geographic marketplace. Approximately 44 percent of the Company’s net sales in 2010 came from sales to customers inside the U.S.

    My take: This can only mean Apple's revenue from current products has extensive room for growth. The company is yet to really fully take advantage of international demand for its products. In my opinion, Apple's future sales outside the United States can potentially and easily exceed 60 to 70 percent of worldwide sales. Apple has in recent years tested demand for its products locally before pushing into global markets in stages. When the company opens up sales of its iPad to the rest of the world, for instance, demand for the product will certainly exceed US sales.

  5. On foreign currency moves:
  6. Weakening of foreign currencies relative to the U.S. dollar will adversely affect the U.S. dollar value of the Company’s foreign currency-denominated sales and earnings, and generally will lead the Company to raise international pricing, potentially reducing demand for the Company’s products. In some circumstances, due to competition or other reasons, the Company may decide not to raise local prices to the full extent of the dollar’s strengthening, or at all, which would adversely affect the U.S. dollar value of the Company’s foreign currency denominated sales and earnings.

    My take: This is the proverbial rock-and-hard-place dilemma. Apple can protect its foreign currency holdings through the use of hedging instruments and derivatives such as “forward and option contracts,” but this will not protect future sales fully because of the points identified by the company. Apple is not alone in this tough corner, however. All major companies that generate a substantial portion of their sales from international operations denominated in foreign currencies will face increasing challenge as the dollar continues to weaken.

  7. On cash holding:
  8. The company is exposed to credit risk and fluctuations in the market values of its investment portfolio. Although the company has not recognized any significant losses to date on its cash, cash equivalents and marketable securities, any significant future declines in their market values could materially adversely affect the company’s financial condition and operating results. As a result, the value or liquidity of the company’s cash, cash equivalents and marketable securities could decline and result in a material impairment, which could materially adversely affect the company’s financial condition and operating results.

    My take: This is where Apple's large cash holding can easily turn into a major problem or opportunity, depending upon how the company responds. The company at the end of its last fiscal year had $11.3 billion in cash and $14.4 billion in short-term investments. An additional $25.4 billion was packed away in long-term investments for a hefty total of $51.1 billion. Understandably, a large portion of this money is being held overseas in investment accounts whose yield will be positively or negatively affected by currency fluctuations. What this also means is that Apple's future results will vary, depending upon returns on these investments. Analysts and investors consider items like this in their valuation considerations.

  9. On legal disputes:
  10. As of September 25, 2010, the Company was subject to the various legal proceedings and claims.

    My take: By my count, Apple is involved in eight legal disputes, including claims and counter-claims of patent violations involving rivals Motorola Mobility and Nokia. None of the eight claims are likely to come close to hobbling Apple. Plus, when you have $51 billion in the bank, you can afford to take on anyone in court!

8 comments on “10 Takeaways From Apple’s Latest SEC Filing, Part 2

  1. AnalyzeThis
    November 24, 2010

    I'm actually slightly surprised that 44% of the net sales came from inside the U.S., obviously (as you mention) there is extensive room for growth there and the company has yet to fully take advantage of international demand.

    A small example of this: here in NYC, the Apple stores were briefly criticized for being hesitant to sell iPads to groups of Asian people paying in cash (more information here). That's because — for a time — there was significant money to be made simply by buying iPads in the states and shipping them to buyers overseas for a premium.

    Now I'm not sure when (or even if) Apple will ever reach that 60 to 70 percent worldwide sales ratio you mention, but I'm fairly certain that won't be achieved in the short-term. 5, 10 years ago… who knows? If we've learned one thing from Apple's ups-and-downs thus far, it should be that their future is a great big unknown.

  2. SP
    November 24, 2010

    Why would Apple store not let people buy in cash?? Even if someone buys with credit card he can still sell it overseas.


  3. AnalyzeThis
    November 24, 2010

    True, also I'm pretty sure that people of non-Asian origin are perfectly capable of shipping packages overseas.

    Anyhow, that whole ordeal would have never happened had they had a more coordinated worldwide launch. Just a small example of Apple's current attitude towards the International market.

  4. Susan Fourtané
    November 25, 2010

    $51 billion in the bank account shouldn't be a reason to be in legal dispute with other companies. This is the black side of Apple. 


  5. Backorder
    November 25, 2010

    I think it would be fair to say that Apple has not really impacted the developing world, which reflects the not-so-impressed attitude of the population in these countries. This could be a challenge with other platforms catching the imagination of the young folks in countries like India, Brazil, China and this group is a huge market!

  6. Ms. Daisy
    November 27, 2010

     Using credit cards for sales is a good tracking tool for business owners. I bet Apple would not necessaily mind cash or credit, but the data generated with these cards helps their business team to project future sales by geography.

    In addition, Apple's total of $51.1 billion, out of which 25.4 billion is packed away in long-term investments is a proberly why investors can look away from the volatility of their stocks.

  7. eemom
    November 28, 2010

    I actually wasn't as surprised that 44% of Apple's sales are her in the US.  Their product launches are timed in the US first creating a backlog in demand.  However, I'm not sure I understand Apple's hesitancy to do a global launch a create a worldwide demand and therefore maybe even a worldwide standard.  This, I believe may open up the doors for their competitors when they release like products.  Maybe Apple has been doing business a certain way for so long, they are hesitant to change and having $51B in the bank is their affirmation that they are doing something right!

  8. Mydesign
    November 29, 2010

        Even I also, some times get confused about why apple releasing the new products only in US market, why they can’t they go for global. Each product coming from Apple is a resultant of their continuous research and innovation for several years, by spending billions of dollars. While they are releasing the new products locally, it gives a green room to the competitor, for at par products. During one of my foreign trip, happened to use a gadget which is similar to that of Ipad in function and feature wise, But cost wise its half of Ipad. Here the innovative power of Ipad is copied by the local manufacture and they are selling the same thing with different brand name.

      If apple is planning the release of new products globally, they can reduce the production cost and hence the customer can also be benefited.

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