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S&P's Zino on AAPL: Need to Stabilize Replacement Cycle (Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day at Bloomberg
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  Speaker 1: This is a Bloomberg Business flag from Bloomberg World Headquarters,
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  Speaker 1: Signed Charlie Pellett. Twitter reporting second quarter adjusted earnings for
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  Speaker 1: share of thirteen cents estimates there were for nine cents
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  Speaker 1: monthly active users three hundred thirteen million estimates three hundred
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  Speaker 1: twelve million. But Twitter also said it sees third quarter
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  Speaker 1: revenue in the range of five hundred ninety six hundred
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  Speaker 1: ten million estimates there six hundred eighty one million. We
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  Speaker 1: are seeing Twitter shares decline, earnings from McDonald's to Caterpillar,
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  Speaker 1: pulling stocks in opposite directions. Today SMP five hundred index
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  Speaker 1: up less than a point to sixty nine benchmark indexes
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  Speaker 1: Little change down, Industrials down nineteen and drop there of
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  Speaker 1: point one percent. NAS stack up twelve, a gain of
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  Speaker 1: two tenths of one percent. The tenure of four thirty
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  Speaker 1: seconds yield one point five five percent GO Hold up
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  Speaker 1: forty cents the thirteen nineteen little change their crude oil
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  Speaker 1: West Texas Intermediate down thirty two cents a barrel on
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  Speaker 1: w t I, a drop there of seven tenths of
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  Speaker 1: one percent. Apple's numbers Schedule four release just about twelve
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  Speaker 1: minutes from now. I'm Charlie Pellot and that's a Bloomberg
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  Speaker 1: business flash. This is taking Stock with Kathleen Hayes and
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  Speaker 1: Pim Box on Bloomberg Radio. We are waiting for Apple earnings.
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  Speaker 1: It around four thirty Wall Street time. We're gonna be
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  Speaker 1: previewing those in just a moment, but Pim and I
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  Speaker 1: want to take a minute just to kind of take
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  Speaker 1: a look at what Charlie Polloge has reported. Because when
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  Speaker 1: you first saw Twitter beating its uh it's earnings forecast
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  Speaker 1: by four cents, when you saw the monthly average users
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  Speaker 1: uh also just exceeding forecast, Pim, when you see the
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  Speaker 1: drop in the stock price after the third quarter forecast missed, Wow,
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  Speaker 1: that was that's quick punishment. Yes, shares of Twitter are
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  Speaker 1: now down about ten percent in after hours trading. And
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  Speaker 1: you're referring to the guidance that the company is offering
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  Speaker 1: for the third quarter having to do with revenue, expecting
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  Speaker 1: between five hundred and nine million and six hundred and
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  Speaker 1: ten million revenue for the third quarter. Avage analyist estimate
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  Speaker 1: had been for six hundred and eighty one million dollars
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  Speaker 1: and the stock, as you say down right now, more
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  Speaker 1: than ten and a half percent. And of course if
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  Speaker 1: you want to follow on your Bloomberg, there's a top
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  Speaker 1: live going right now to look at the Twitter results,
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  Speaker 1: to look at how the market reacts so you can
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  Speaker 1: follow it there. Let's get right to Angela Xeno now
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  Speaker 1: equity analysts of SMP Global Market Intelligence here in New York,
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  Speaker 1: to discuss what he has to see in the Apple
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  Speaker 1: earnings report this afternoon to with uphold his strong buy
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  Speaker 1: on the stock. Angela, welcome back. So, uh, you're still
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  Speaker 1: very positive with a very high profile uh downgrade to
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  Speaker 1: sell actually of Apple share yesterday by Colin Gillis of
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  Speaker 1: B Cheesy b g C. Why are you maintaining your
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  Speaker 1: strong by yeah? I mean the main reason for the
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  Speaker 1: strong buy here is has to do mainly with the
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  Speaker 1: risk reward on the stock here. We just think that
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  Speaker 1: there's um significantly more upside to the to our recommendation
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  Speaker 1: than there is downside and because of that we have
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  Speaker 1: a we have a strong by um as we kind
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  Speaker 1: of go into the earnings here. Uh, you know, I
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  Speaker 1: think most are well aware of that, you know, iPhones,
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  Speaker 1: um are not going to be good. We're looking at
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  Speaker 1: forty million units. But that being said, we think the
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  Speaker 1: fundamentals on both the the iPhone numbers as well as
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  Speaker 1: the margins hit a bottom here in the June quarter
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  Speaker 1: and we should start to see sequential UH improvement ahead
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  Speaker 1: of the iPhone seven launch in September. What's your estimate
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  Speaker 1: for revenue? Do you concur with that revenue dropped at
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  Speaker 1: analysts or for telling? Yeah, on the iPhone side, we're
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  Speaker 1: looking for the units to drop about fIF um with
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  Speaker 1: you know, a more pronounced con on the iPhone side
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  Speaker 1: of things about and that kind of gets it to
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  Speaker 1: where um, you said on the on the sales front,
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  Speaker 1: So um, we do concur with that. Um. It's it's
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  Speaker 1: not going to be pretty. At that being said, you know,
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  Speaker 1: I think it's well articulated across the street at this point.
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  Speaker 1: And of course, looking at the the the downgrade by
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  Speaker 1: by b GCS Colin Gillis yesterday and you're touching on this,
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  Speaker 1: but the the risk that the upgrade rate for the
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  Speaker 1: next iPhone may slow even more than the upgrade rate
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  Speaker 1: of cycle of the success and I guess just this
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  Speaker 1: sense that for a lot of people. I mean, can
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  Speaker 1: you remember a couple of years ago when every Apple
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  Speaker 1: phone user had to get the latest one. I think,
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  Speaker 1: basically what some people are saying, it's becoming more of
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  Speaker 1: a commodity. Phones just don't mean to us what they
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  Speaker 1: once did. Yeah, and I think that might be, you know,
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  Speaker 1: there's definitely some truth to that. I think if you
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  Speaker 1: look at the replacement cycle, it's of course extended here
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  Speaker 1: over the last year because of a lackluster iPhone success launched.
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  Speaker 1: That being said, I mean, I think what the key
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  Speaker 1: here is the installed base has grown, you know, about
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  Speaker 1: eight percent over the last three years, more than ten
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  Speaker 1: percent here over the last year, despite the lackluster success launch.
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  Speaker 1: Um So, I all you really need to see at
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  Speaker 1: this point is a stabilization in the replacement cycle. You
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  Speaker 1: don't even need to see improvement, You just need to
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  Speaker 1: see some still sort of stabilization because that installed base
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  Speaker 1: has grown so much. And we think you're going to
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  Speaker 1: see that with the iPhone seven launch. And I think
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  Speaker 1: if you see it, um we should see at least
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  Speaker 1: flat to slightly up I Phone seven numbers and we
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  Speaker 1: think that's enough to really start, um, you know, getting
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  Speaker 1: the stock moving in the right direction. What do you
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  Speaker 1: want to hear about Apple's business in China? Um? You know,
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  Speaker 1: once again we're probably looking at steep the clients for
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  Speaker 1: the June quarter out of China. UM. You know, any
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  Speaker 1: type of you know, positive sentiment out of China would
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  Speaker 1: be great. From Tim Cook. I don't know if you
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  Speaker 1: necessarily hear that from him. UM, but you know, I
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  Speaker 1: I think you know, if you kind of listen to
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  Speaker 1: what he said, he said in recent quarters, despite the
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  Speaker 1: bad numbers, he remains very bullish on the long term
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  Speaker 1: potential of China. You probably hear that. But you know,
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  Speaker 1: whether or not, you know, that's good enough for investors.
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  Speaker 1: I think it remains to be saying how much does
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  Speaker 1: the Apple Watch matter to you? At this point? It
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  Speaker 1: was reported recently the Apple Watch sales were down more
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  Speaker 1: than fifty percent. Is that just like, Okay, it didn't work,
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  Speaker 1: We move on? Or is that a big deal for Apple? No?
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  Speaker 1: Not necessarily with regards to the Apple Watch. The reason
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  Speaker 1: that the sales have been so dismal. Dismal is, you know,
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  Speaker 1: we we just haven't seen the new product launched since
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  Speaker 1: the March of last year. And because of that, UM,
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  Speaker 1: you know, were I think we're at a point now
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  Speaker 1: we're just waiting for that next kind of um product
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  Speaker 1: to ramp. We're expecting a new Apple Watch in September.
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  Speaker 1: We actually think it could contribute about four points of
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  Speaker 1: growth in the December quarter and that should help, uh,
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  Speaker 1: you know, December numbers because the the expectations are pretty
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  Speaker 1: lofty four December. So we know, we remained very positive
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  Speaker 1: on the long term story of the Apple Watch. However,
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  Speaker 1: you are definitely in a self past right now with
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  Speaker 1: regards to the product. Do you, by any chance a
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  Speaker 1: fan of Carpool Karaoke? Not necessarily, but you know about it? Ah, yeah,
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  Speaker 1: I've heard of it all right, Well, carpool Karaoke. Apple's
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  Speaker 1: decision to buy Carpool Karaoke. He's got a chance to
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  Speaker 1: listen to James Cordon of The Late Late Show. He's
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  Speaker 1: turned that into an entertainment phenomenon is Apple. Uh, as
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  Speaker 1: far as you're concerned, Apple just needs to stabilize its
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  Speaker 1: results any at this point in time, given how poor
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  Speaker 1: the sentiment is. Yes, they need to stable as the
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  Speaker 1: results and then we can worry about improvement there after.
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  Speaker 1: Thanks very much, Angelo. As you know, he is equity analyst,
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  Speaker 1: for SMP Global Market Intelligence, giving us his view on Apple.
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  Speaker 1: This is taking stock. I'm PIM Fox. My co host
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  Speaker 1: Kathleen Hayes, This is Bloomberg coming up Bloomberg Law. Brought
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