Tag: Business

Lowered iPhone Sales Forecast and More

Since Apple announced that it would stop reporting the iPhone unit sales number during Q3 earnings call, things have not become easier.

iPhone Ban in China

The fight between Qualcomm and Apple has led to a sales ban on older iPhone models in China, ordered from a Chinese court (福州市中级人民法院). The case was filed against Apple in China in late 2017, saying the iPhone maker infringed patents on features related to resizing photographs and managing apps on a touch screen.

Apple said it planned a software update that would solve the issue; also, the ban would likely take time to enforce, according to Reuters.

iPhone Ban in German

In German, Apple will be pulling iPhone 7 and iPhone 8 models from its stores there following a win for Qualcomm in the District Court of Munich, which ruled that Apple’s devices were infringing on Qualcomm’s intellectual property related to power savings in smartphones. (The Verge)

Qualcomm said on Thursday (Jan.3) that it posted security bonds of 1.34 billion euros ($1.52 billion) to enforce the German court order.

Apple Outlook Cut Citing Weaker iPhone Demands in China

On Jan 2, a letter from Apple CEO Tim Cook to investors said sales will be about $84 billion in the quarter ended Dec. 29, down from earlier estimates of $89 billion to $93 billion. Apple posted sales of $88.3 billion in the fiscal first quarter a year earlier, so the new forecast would mean Apple is reporting a holiday quarter slowdown for the first time since Cook became CEO in 2011. (Bloomberg)

Apple shares fell 10% to $142.19, the biggest drop in almost six years, the next day.

In the letter, Cook said Apple’s gross margin will be approximately 38%. (also discussed in a previous post about Apple’s pricing strategy)

Chinese Phone Makers Gaining In Zero-growth Market

Although 2018 Q4 numbers are not yet available, Q3 numbers tell the same story. According to IDC Quarterly Mobile Phone Tracker on Nov 1.

Company 3Q18 Shipment Volumes (millions) 3Q18 Market Share 3Q17 Shipment Volumes (millions) 3Q17 Market Share 3Q18/3Q17 Change
Samsung 72.2 20.3% 83.3 22.1% -13.4%
Huawei 52.0 14.6% 39.1 10.4% 32.9%
Apple 46.9 13.2% 46.7 12.4% 0.5%
Xiaomi 34.3 9.7% 28.3 7.5% 21.2%
OPPO 29.9 8.4% 30.6 8.1% -2.1%
Others 119.9 33.8% 149.8 39.6% -19.9%
Total 355.2 100.0% 377.8 100.0% -6.0%

And in Gartner’s December report…

Vendor 3Q18 Units (thousands) 3Q18 Market Share (%) 3Q17 Units (thousands) 3Q17 Market Share (%)
Samsung 73,360.1 18.9 85,605.3 22.3
Huawei 52,218.4 13.4 36,501.8 9.5
Apple 45,746.6 11.8 45,441.9 11.8
Xiaomi 33,219.7 8.5 26,853.2 7.0
OPPO 30,563.4 7.9 29,449.2 7.7
Others 153,960.0 39.6 159,742.0 41.6
Total 389,068.2 100.0 383,593.4 100.0

What is good for Apple…

From Cook’s letter, we know Apple’s wearables sales grew by almost 50% year-over-year, as Apple Watch and AirPods were wildly popular among holiday shoppers.

2019 – A Year of Alliance?

As the first week of 2019 developed with JPM Healthcare Conference in San Francisco and CES in Las Vegas, several alliances across big companies attracted attentions. This might be a year of further cooperations as free growth is not possible and some major developments need different domain knowledge & power.

Intel & Facebook – AI chips (new Nervana Neural Network Processor for Inference) in the second half of this year, according to Reuters, and following the previous collaboration.

Qualcomm & Ford – demonstrating driving situations utilizing C-V2X direct communications, following last year’s partnership announcement.

Celgene & Bristol-Myers Squibb – collaboration-like merger for a stronger presence in oncology & immunology. (news release)

GM & DoorDash – deliver food in self-driving cars. (CNN)

and last month…

Starbucks & UberEats – expanding the partnership to more than 2,000 stores in the United States next year, about a quarter of all of the company’s locations in the country. (TechCrunch)

The Race in Aerospace – Positions of Private Equity Firms

~$40bn Apollo acquisition – GE Capital Aviation Services (GECAS), GE’s aircraft leasing operations

  • Bidder: Apollo, an offer as much as $40 billion according to Bloomberg & Reuters
  • GECAS has a fleet of more than 1,900 planes, which it provides to airlines under long-term leases.
  • 1/4/2019

~$1bn KKR investment – Altavair, focusing on the acquisition of new and used commercial aircraft for leasing to passenger airlines and cargo operators

  • Investor: KKR, $1 billion capital commitment to acquire commercial aircraft in partnership with Altavair + a 50% interest in Altavair; Altavair will be KKR’s partner for aircraft leasing investments going forward
  • Since its inception in 2003, Altavair has completed over $8 billion in commercial aircraft lease transactions with over 40 airline customers in 27 countries representing over 200 individual Boeing and Airbus aircraft
  • 1/3/2019, KKR Commits to Invest $1 Billion with Altavair

~$5bn Carlyle acquisition – StandardAero, largest independent maintenance, repair and overhaul (MRO) providers

  • Bidder: Carlyle, for more than $5 billion (Reuters) from Veritas
  • Veritas acquired StandardAero from Dubai Aerospace Enterprise Ltd (DAE) for $2.1 billion, including debt, in 2015
  • Carlyle first acquired StandardAero in 2004. In 2007, DAE simultaneously purchased StandardAero and Landmark Aviation, also an aircraft maintenance services company, from Carlyle in a transaction valued at $1.8 billion, including debt.
  • 12/18/2018, The Carlyle Group to Acquire Leading Aircraft Engine MRO Provider StandardAero from Veritas Capital

~$15bn Apollo acquisition – Arconic (ARNC), aluminum products used around the world by aerospace manufacturers

  • Bidder 1: Blackstone, Carlyle, Onex and Canada Pension Plan Investment Board
  • (winning) Bidder 2: Apollo, seems winning with a potential acquisition price of $22; also considered is a spin-off of its cladding operation with potential liability from the Grenfell Tower fire of two years ago.
  • 10/8/2018, early report on bidders
Arconic in 2018 | Source: Bloomberg

Half of the 2018 Top 10 Movies in US Are Made by Disney…

2018 Top 10 movies in US

Here is the list by gross sales in US, according to boxofficemojo.com

Rank Movie Title (click to view) Studio Total Gross / Theaters Opening / Theaters Open Close
1 Black Panther BV $700,059,566 4,084 $202,003,951 4,020 2/16 8/9
2 Avengers: Infinity War BV $678,815,482 4,474 $257,698,183 4,474 4/27 9/13
3 Incredibles 2 BV $608,581,744 4,410 $182,687,905 4,410 6/15 12/13
4 Jurassic World: Fallen Kingdom Uni. $416,769,345 4,485 $148,024,610 4,475 6/22 10/4
5 Deadpool 2 Fox $318,491,426 4,349 $125,507,153 4,349 5/18 10/18
6 Aquaman WB $270,596,781 4,184 $67,873,522 4,125 12/21 –
7 Dr. Seuss’ The Grinch (2018) Uni. $269,848,350 4,141 $67,572,855 4,141 11/9 –
8 Mission: Impossible – Fallout Par. $220,159,104 4,395 $61,236,534 4,386 7/27 10/18
9 Ant-Man and the Wasp BV $216,648,740 4,206 $75,812,205 4,206 7/6 11/1
10 Solo: A Star Wars Story BV $213,767,512 4,381 $84,420,489 4,381 5/25 9/20

* BV (Buena Vista) was the brand name which was historically often used for divisions and subsidiaries of The Walt Disney Company, whose primary studios, the Walt Disney Studios, are located on Buena Vista Street in Burbank, California

Top 3 are all from Disney, as are #9 & #10, making Disney occupy half of the Top 10 seats of best-selling movies in US.

And according to ComScore, 2018’s movie business hit all-time benchmarks of $11.9 billion in North America and $41.7 billion globally, with Disney taking in nearly a fifth of that figure. (Variety)

Among Disney’s domestic box office of $3.09 billion, its top 3 got ~$1.99 billion (64.32%), top 5 got ~$2.42 billion (78.25%).

Besides, Disney’s movies in Top 10 all have rating of 7.0 or above, averaging at ~7.56 on IMDb (beating the Top 10 average of 7.35)

2018 US Top 3 Movies | Source: IMDb

Overall…

Total US movie sales is barely growing. The figures below are not inflation-adjusted.

But the number of movie productions is increasing, partially due to a lack of funding after financial crisis (bottomed in 2009 with 521 movies that year).

Yearly US Box Office 2008-2018 | Source: boxofficemojo.com

As streaming is disrupting the market, increasing the number of production seemed to be a way to make up for the total revenue?

Then expenses are up and industry margin is low. It is a sure thing that movies are hard to survive alone.

Then no wonder the consolidation kicked in.

Disney bought Marvel for $4 billion in late 2009, bought Lucasfilm for $4 billion in late 2012. Before the financial crisis, Disney also got Pixar in a $7.4 billion in stock.

With the completion of $71 billion acquisition of Fox, Disney will add X-Men and Avatar to its list of movie series.

Warner Bros. will be under a new umbrella – AT&T’s, together with HBO and Turner.

Universal has been under Comcast since 2011.

Paramount is under Viacom and has teamed up with Netflix.

Movie is not a studio business anymore.

Tesla Model 3 Sales in 2018 Q4 – Not so Exciting

Model 3 has Little QoQ Growth

Tesla had very impressive numbers in Q3, when Model 3 delivery (55,840) was almost tripled from Q2 (18,440).

While no one is expecting another jump, the Q4 numbers are kinda lackluster, especially when adding Model 3 delivery and in transit numbers.

Tesla shares fall 9% on Wednesday when those numbers were reported.

$2,000 Price Cut and Phase-out of Tax Credit

Tesla also announced a price cut of $2,000 for Model S, Model X and Model 3 in the US. The move will partially offset the phase-out of the $7,500 federal tax credit for EV.

[Phase-out will start in the second calendar quarter when the manufacturer has 200,000 plug-in registered in US. The credit is reduced to $3,750 for the next 6 months, then to $1,875 for the next 6 months before expiring completely.]

Source: InsideEVs

According to InsideEVs’ estimate, Tesla hit the 200,000 first in the second half of 2018, while General Motors was second with a breakout month of sales for the Bolt and Volt in November 2018.

The next four manufacturer in EV are Nissan (126,875), Ford (111,715), Toyota (93,011), BMW (79,679).

A combination of flat delivery + in transit Model 3, and a price reduction, warned people about the actual demand for Model 3.

Good news are: 1) people may just be waiting for the basic Model 3, aka $35,000 version that Elon touted but analysts said money-losing for Tesla; 2) Tesla is still way ahead in the EV market

2018 Monthly Sales Chart

Politics in Airline Boarding Process

Since 2017, three major airlines in US have made changes to their boarding process, in the face of different layers/tiers, ticket types and other privileges.

Here is a description of the mess before – “Under American’s old boarding call, Group 1 actually was the fifth group called for boarding, trailing the carrier’s elite frequent-fliers and first- and business-class customers who were subdivided into five groups of their own that all boarded earlier.”

 “Group 1 actually was the fifth group called for boarding”

What are the “new” procedures and how airlines value their customers?

American Airlines – 10 segments

Group Boarding pass type
ConciergeKey℠ members ConciergeKey℠
Group 1 First
Active duty U.S. military with military I.D.
(Business on a 2-class international plane)
Group 2 Executive Platinum
oneworld® Emerald℠
(Business on a 3-class plane)
Group 3 Platinum Pro
Platinum
oneworld® Sapphire℠
Group 4 Gold
oneworld® Ruby℠
AirPass
Premium Economy
Citi® / AAdvantage® Executive cardmembers
Travelers who bought Priority boarding
Group 5 (Preferred boarding) Main Cabin Extra (excluding Basic Economy)
Eligible AAdvantage® credit cardmembers*
Eligible corporate travelers**
Group 6 Group 6
Group 7 Group 7
Group 8 Group 8
Basic Economy to / from Europe
Group 9 Basic Economy within the U.S., Canada, Central America, Mexico & Caribbean

Delta Airlines – 7 segments

Pre-Boarding

Customers needing assistance or additional time to board, including families with car seats or strollers

Active Duty U.S. Military personnel with ID

Premium Boarding Zone

Delta One® customers
First Class customers
Delta Premium Select customers
Diamond Medallion® Members

Sky Priority Boarding Zone

Platinum Medallion® Members
Gold Medallion® Members
Delta Comfort+® customers
Flying Blue Platinum and Gold members
Virgin Atlantic Flying Club Gold members
Virgin Australia Platinum and Gold members
GOL Smiles Diamond members
SkyTeam® Elite Plus members

Zone 1

Silver Medallion® Members

Delta Corporate Travelers

Priority Boarding Trip Extra customers
Gold, Platinum and Reserve Delta SkyMiles® Credit Card Members
Flying Blue Silver members
Virgin Australia Velocity Silver members
GOL Smiles Gold members
Sky Team® Elite

Zone 2

Main Cabin Passengers

Zone 3

Main Cabin Passengers booked in T, X and V fares

Zone 4

Basic Economy Passengers (E)

United Airlines – 6 segments

Pre-boarding

  • Unaccompanied minors
  • Customers with disabilities
  • Active members of the military
  • United Global Services® members
  • Families traveling with children age 2 and younger
  • Premier® 1K® members

Group 1

  • Premier Platinum members
  • Premier Gold members
  • Star Alliance™ Gold members
  • Customers seated in premium cabins: United Polaris®, United First® and United Business®

Group 2

  • Premier Silver members
  • Star Alliance Silver members
  • Customers who have purchased Premier Access® or Priority Boarding
  • United℠ Explorer, Club, Presidential Plus℠ and Awards Cardmembers

Groups 3 – 5

  • Economy Plus®
  • United Economy®
  • Basic Economy*

* Customers who have purchased a Basic Economy ticket will be in the last boarding group, except for Premier members, Chase Cardmembers of qualifying cards and Star Alliance Gold members, who will still receive their priority boarding.

..

Just a reflection on the complicated business development efforts and corporate strategies… think about the internal slides behind the schemes

What Google Can Tell Us (Amazon & Walmart & iPhone)

What Google can tell us

Source: Google Trends
  • holiday season is king and this year is strong (as expected)
  • Walmart is living well; and it becomes more competitive in Thanksgiving shopping
  • Apple’s iPhone in 2018 not as attractive

*Amazon may have lots of volume directly through its own platform

Walmart International Strategies

India

Walmart first announced its acquisition of a 77% stake in Flipkart in May 2018, with a consideration of $16 bn including $2 bn of new equity funding. The deal closed in August.

According to QZ, “in the fiscal year ended March 31, Flipkart had net sales of $4.6 billion, over 50% higher than the previous year, Walmart said. Its gross merchandise value (GMV, or the total value of goods sold from its platform) was $7.5 billion during the period.”

“Amazon India is currently worth $16 billion and has the same 30% marketshare as local competitor Flipkart”, source: Forbes, Citi

Valuation multiple ~4.5x of net sales in FY2017.

China

Walmart chose JD as its partner in China in June 2016 when it used its China business for an initial 5.9% stake in JD (newly issued shares)

Then it doubled the stake in Oct. 2016 to 10.8%; and in Feb. 2017, the ownership level was increased to 12.1% (289.1 mn shares).

Walmart also invested $500mn Aug. 2018 with JD in the Dada-JD JV Daojia, which claimed to have 20 million monthly active users at that time.

Latin America

In June, 2018, Walmart sold 80% of its Brazil business to Advent International, a PE firm and recorded a $4.5 bn loss. In connection with the deal, Advent would also invest 1.9 billion reais ($485.66 million, in three installments; the first two capital raises will total 750 million reais each; the first was already completed in 2018 and the second is expected for 2019; the remaining amount will be invested by 2021, according to Reuters)

Walmart acquired Latin American (Mexico and Chile focused) grocery-delivery marketplace Cornershop for $225 million in Sep. 2018 (WSJ report).

UK

Walmart sold a majority stake in its UK business Asda in Apr. 2018 for $4 bn. Asda was valued at $10 bn (valuing Asda at approximately £7.3 billion on a cash-free, debt-free and pension-free basis, implying an EV / FY17 EBITDA multiple of 5.8x).

 

China Car Sales Slowdown

China’s passenger vehicle sales has been through 6 month of yoy decline (Jun – November) and will post the first yoy annual decline in 2018, after 26 years of boom

Two sources: CAAM and CPCA, passenger car sales down 16-18% yoy in November.

There are two factors to consider here:

  1. Long-term: the market is reaching maturity.
    a. Although there may be another few years before China finds its stable level of car ownership, it has become a fairly high level of –  an average Chinese household has around 0.58 cars. (China’s household number has been estimated to be ~455 mn and China has ~310 mn automobiles by the end of 2017, assuming 6/7  of which are passenger cars)
    b. The second half of China’s car ownership boom is at the beginning of shared vehicles & an era of transportation-as-a-service.  Therefore, China may never reach a stable level of ownership as high as major industrial countries’.
    c. China’s cities are more condensed. Population is so centralized that high car ownership rate in cities may not be possible
    c. an average US household has 1.968 cars
  2. Short-term: consumer confidence & tariffs
    a. The tariff was proposed to be decreased from 25% to 15% in May, but due to trade war the tariff for US produced cars were raised to 40% since July.
    b. Consumer confidence is damaged while financing may also be limited

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