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Apple Roundup: Valuation, Smartphones, Hate Speech, TSMC

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This roundup covers Apple’s (AAPL - Free Report) trillion-dollar valuation, its smartphone share loss to Huawei, its actions against hate speech and the impact of the virus that attacked key supplier Taiwan Semiconductor (TSMC). Here are the details-

A Trillion Dollars and Counting

Tim Cook has done a great job of showing all those who ever doubted him that he was a man with a plan. When he assumed the CEO role back in 2011, Apple’s valuation was a little over $300 billion and last week, that just tripled to a trillion dollars.

Cook said all the right things, pointing to the valuation, then saying how it was "not the most important measure" of Apple’s success and certainly not what he and the company were focused on. The focus areas were, according to his memo to employees, "innovation, putting our products and customers first, and always staying true to our values."

Nothing succeeds like success. But other than the increased stature and consequent positive impact on the brand name, it isn’t really such an important milestone for Apple. The company’s quarterly results that sent the shares soaring showed that Apple’s resources are increasingly being employed on services, so it can continue milking its user base that is now growing at a very slow rate. Some analysts are also looking forward to its AR headset and self-driving technology that they expect will be its next huge product genres.

Apple may develop some great technology, but it remains a consumer company. That’s probably why unlike tech, it has a reasonable valuation. At this point, it appears highly unlikely that Apple won’t substantially hold its gains.

Can Huawei Consolidate Its Gain On Apple?

Huawei’s founder CEO Ren Zhengfei sounded triumphant coming off a strong first half, in which the company shipped 95 million smartphones. Raising the full-year forecast from 180 million units to 200 million units in a media briefing at its Shenzhen headquarters he said, "I think it's no problem that we become the global No.2 next year; in Q4 next year, it's possible we become No.1".

Huawei announced its first phone 15 years ago and pushed Apple to the third position in the second calendar quarter of 2018, according to IDC. This is the first time since 2010 that Apple didn’t make it to the top two. Moreover, Huawei’s feat was achieved despite a virtual ban on the company’s phones in the U.S. and relatively small share in India, the second largest smartphone market. Huawei’s strength comes from its wide ranging product line that made it popular in the EMEA region, where sales grew 73% and in China where they were up 37%.

Apple dominates its category in the U.S. and some European countries, has had reasonable success in China but has failed miserably in India where it is overhauling its strategy. The company has new products in the pipeline that should allow more profitable growth, which has always been its goal. So while the Chinese companies may grow into bigger players, this doesn’t really squeeze opportunity for Apple. As far as the high end segment is concerned, there are only a few models that can challenge Apple (although it really needs to work on things like Siri and Maps).  

Apple Against Hate Speech

In what definitely appears to be collusion between the top technology companies, Apple joined Facebook (FB - Free Report) , Spotify (SPOT - Free Report) and Alphabet’s (GOOGL - Free Report) YouTube in taking down content related to Infowars and Alex Jones. Twitter (TWTR - Free Report) maintains that Jones and his supporters have not violated its rules of conduct yet.

Jones, who is well known for his support of republicans, for abusing people like Obama and Hillary Clinton and also for propagating false news, was however not taken down for these reasons. The technology companies decided that hate speech was a better way to remove him, first because it’s such a vague term that it doesn’t require much explanation and covers just about anything. And second, because this way, they can keep the political angle from the argument, so diplomats don’t have a direct reason to get involved.

This is what they said in statements-

Apple said, “Apple does not tolerate hate speech, and we have clear guidelines that creators and developers must follow to ensure we provide a safe environment for all of our users…podcasts that violate these guidelines are removed from our directory.” Also, assuming the role of moral guardian, "We believe in representing a wide range of views, so long as people are respectful to those with differing opinions."

Spotify said Infowars “expressly and principally promotes, advocates, or incites hatred or violence against a group or individual based on characteristics.”

Facebook accused Jones and Infowars of “glorifying violence, which violates our graphic violence policy, and using dehumanizing language to describe people who are transgender, Muslims and immigrants, which violates our hate speech policies.”

YouTube said, "All users agree to comply with our Terms of Service and Community Guidelines when they sign up to use YouTube. When users violate these policies repeatedly, like our policies against hate speech and harassment or our terms prohibiting circumvention of our enforcement measures, we terminate their accounts."

Some have protested the high-handedness of the technology companies:

Wikileaks tweeted, “Infowars says it has been banned by Facebook for unspecified 'hate speech'. Regardless of the facts in this case, the ability of Facebook to censor rival publishers is a global anti-trust problem, which along with San Francisco cultural imperialism, reduces political diversity.”

Senator Ted Jones tweeted, “Am no fan of Jones — among other things he has a habit of repeatedly slandering my Dad by falsely and absurdly accusing him of killing JFK — but who the hell made Facebook the arbiter of political speech? Free speech includes views you disagree with.”

But it appears that technology companies have the right to do what they like. According to Marissa Lang in the San Francisco Chronicle via Vox, “As private companies, social networks are not required to adhere to the First Amendment. They set their own rules and retain the right to moderate content, routinely screening it for instances of gratuitous violence, harassment, profanity and other offensive material.”

So when companies like Facebook take down well argued commentaries without attempting to test their veracity while also banning writers just because the content was reported by somebody, it is within its rights.

The Infowars website gets as many as 10 million visitors a month, so that’s where followers will be headed for future content. And there are many of those since Alex Jones’s YouTube channel alone has roughly 2.4 million subscribers, garnering 17 million views in the past 30 days.

TSMC Virus Could Bite Apple

Taiwan Semiconductor, which makes Apple’s A11 chip and is scheduled to make its A12 chip to go into the next generation of iPhones, attributed the computer virus that impacted some of its computer systems and fab tools on Aug 3 to "misoperation" of a software installation process for a new tool. The company has said that the resultant delay in shipments would impact its third-quarter revenue by 3%, or $255 million.

There has been some speculation about how this might impact Apple. According to Fubon Research, which expects Apple to ship 83 million iPhones in the second half, the setback will delay shipment of 1.5-1.7 million A12 chips with no material impact on Apple’s new iPhone because TSMC will make good in the next quarter.

Mark Li of Sanford C. Bernstein holds a similar view.

According to KGI Securities, the delay in 12-inch wafer shipments won’t materially impact Apple because "the upstream supply chain usually prepares for these incidents and manufactures surplus chipsets during the initial ramp-up stage".

Recommendation

Apple shares carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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