WEBVTT - S&P's Zino on AAPL: Need to Stabilize Replacement Cycle (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>dot com, the Radio plus Mobile Act and on your radio.

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<v Speaker 1>This is a Bloomberg Business flag from Bloomberg World Headquarters,

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<v Speaker 1>Signed Charlie Pellett. Twitter reporting second quarter adjusted earnings for

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<v Speaker 1>share of thirteen cents estimates there were for nine cents

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<v Speaker 1>monthly active users three hundred thirteen million estimates three hundred

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<v Speaker 1>twelve million. But Twitter also said it sees third quarter

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<v Speaker 1>revenue in the range of five hundred ninety six hundred

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<v Speaker 1>ten million estimates there six hundred eighty one million. We

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<v Speaker 1>are seeing Twitter shares decline, earnings from McDonald's to Caterpillar,

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<v Speaker 1>pulling stocks in opposite directions. Today SMP five hundred index

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<v Speaker 1>up less than a point to sixty nine benchmark indexes

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<v Speaker 1>Little change down, Industrials down nineteen and drop there of

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<v Speaker 1>point one percent. NAS stack up twelve, a gain of

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<v Speaker 1>two tenths of one percent. The tenure of four thirty

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<v Speaker 1>seconds yield one point five five percent GO Hold up

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<v Speaker 1>forty cents the thirteen nineteen little change their crude oil

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<v Speaker 1>West Texas Intermediate down thirty two cents a barrel on

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<v Speaker 1>w t I, a drop there of seven tenths of

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<v Speaker 1>one percent. Apple's numbers Schedule four release just about twelve

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<v Speaker 1>minutes from now. I'm Charlie Pellot and that's a Bloomberg

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<v Speaker 1>business flash. This is taking Stock with Kathleen Hayes and

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<v Speaker 1>Pim Box on Bloomberg Radio. We are waiting for Apple earnings.

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<v Speaker 1>It around four thirty Wall Street time. We're gonna be

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<v Speaker 1>previewing those in just a moment, but Pim and I

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<v Speaker 1>want to take a minute just to kind of take

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<v Speaker 1>a look at what Charlie Polloge has reported. Because when

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<v Speaker 1>you first saw Twitter beating its uh it's earnings forecast

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<v Speaker 1>by four cents, when you saw the monthly average users

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<v Speaker 1>uh also just exceeding forecast, Pim, when you see the

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<v Speaker 1>drop in the stock price after the third quarter forecast missed, Wow,

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<v Speaker 1>that was that's quick punishment. Yes, shares of Twitter are

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<v Speaker 1>now down about ten percent in after hours trading. And

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<v Speaker 1>you're referring to the guidance that the company is offering

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<v Speaker 1>for the third quarter having to do with revenue, expecting

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<v Speaker 1>between five hundred and nine million and six hundred and

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<v Speaker 1>ten million revenue for the third quarter. Avage analyist estimate

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<v Speaker 1>had been for six hundred and eighty one million dollars

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<v Speaker 1>and the stock, as you say down right now, more

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<v Speaker 1>than ten and a half percent. And of course if

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<v Speaker 1>you want to follow on your Bloomberg, there's a top

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<v Speaker 1>live going right now to look at the Twitter results,

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<v Speaker 1>to look at how the market reacts so you can

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<v Speaker 1>follow it there. Let's get right to Angela Xeno now

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<v Speaker 1>equity analysts of SMP Global Market Intelligence here in New York,

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<v Speaker 1>to discuss what he has to see in the Apple

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<v Speaker 1>earnings report this afternoon to with uphold his strong buy

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<v Speaker 1>on the stock. Angela, welcome back. So, uh, you're still

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<v Speaker 1>very positive with a very high profile uh downgrade to

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<v Speaker 1>sell actually of Apple share yesterday by Colin Gillis of

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<v Speaker 1>B Cheesy b g C. Why are you maintaining your

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<v Speaker 1>strong by yeah? I mean the main reason for the

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<v Speaker 1>strong buy here is has to do mainly with the

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<v Speaker 1>risk reward on the stock here. We just think that

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<v Speaker 1>there's um significantly more upside to the to our recommendation

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<v Speaker 1>than there is downside and because of that we have

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<v Speaker 1>a we have a strong by um as we kind

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<v Speaker 1>of go into the earnings here. Uh, you know, I

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<v Speaker 1>think most are well aware of that, you know, iPhones,

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<v Speaker 1>um are not going to be good. We're looking at

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<v Speaker 1>forty million units. But that being said, we think the

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<v Speaker 1>fundamentals on both the the iPhone numbers as well as

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<v Speaker 1>the margins hit a bottom here in the June quarter

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<v Speaker 1>and we should start to see sequential UH improvement ahead

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<v Speaker 1>of the iPhone seven launch in September. What's your estimate

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<v Speaker 1>for revenue? Do you concur with that revenue dropped at

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<v Speaker 1>analysts or for telling? Yeah, on the iPhone side, we're

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<v Speaker 1>looking for the units to drop about fIF um with

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<v Speaker 1>you know, a more pronounced con on the iPhone side

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<v Speaker 1>of things about and that kind of gets it to

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<v Speaker 1>where um, you said on the on the sales front,

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<v Speaker 1>So um, we do concur with that. Um. It's it's

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<v Speaker 1>not going to be pretty. At that being said, you know,

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<v Speaker 1>I think it's well articulated across the street at this point.

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<v Speaker 1>And of course, looking at the the the downgrade by

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<v Speaker 1>by b GCS Colin Gillis yesterday and you're touching on this,

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<v Speaker 1>but the the risk that the upgrade rate for the

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<v Speaker 1>next iPhone may slow even more than the upgrade rate

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<v Speaker 1>of cycle of the success and I guess just this

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<v Speaker 1>sense that for a lot of people. I mean, can

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<v Speaker 1>you remember a couple of years ago when every Apple

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<v Speaker 1>phone user had to get the latest one. I think,

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<v Speaker 1>basically what some people are saying, it's becoming more of

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<v Speaker 1>a commodity. Phones just don't mean to us what they

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<v Speaker 1>once did. Yeah, and I think that might be, you know,

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<v Speaker 1>there's definitely some truth to that. I think if you

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<v Speaker 1>look at the replacement cycle, it's of course extended here

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<v Speaker 1>over the last year because of a lackluster iPhone success launched.

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<v Speaker 1>That being said, I mean, I think what the key

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<v Speaker 1>here is the installed base has grown, you know, about

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<v Speaker 1>eight percent over the last three years, more than ten

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<v Speaker 1>percent here over the last year, despite the lackluster success launch.

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<v Speaker 1>Um So, I all you really need to see at

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<v Speaker 1>this point is a stabilization in the replacement cycle. You

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<v Speaker 1>don't even need to see improvement, You just need to

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<v Speaker 1>see some still sort of stabilization because that installed base

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<v Speaker 1>has grown so much. And we think you're going to

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<v Speaker 1>see that with the iPhone seven launch. And I think

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<v Speaker 1>if you see it, um we should see at least

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<v Speaker 1>flat to slightly up I Phone seven numbers and we

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<v Speaker 1>think that's enough to really start, um, you know, getting

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<v Speaker 1>the stock moving in the right direction. What do you

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<v Speaker 1>want to hear about Apple's business in China? Um? You know,

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<v Speaker 1>once again we're probably looking at steep the clients for

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<v Speaker 1>the June quarter out of China. UM. You know, any

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<v Speaker 1>type of you know, positive sentiment out of China would

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<v Speaker 1>be great. From Tim Cook. I don't know if you

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<v Speaker 1>necessarily hear that from him. UM, but you know, I

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<v Speaker 1>I think you know, if you kind of listen to

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<v Speaker 1>what he said, he said in recent quarters, despite the

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<v Speaker 1>bad numbers, he remains very bullish on the long term

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<v Speaker 1>potential of China. You probably hear that. But you know,

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<v Speaker 1>whether or not, you know, that's good enough for investors.

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<v Speaker 1>I think it remains to be saying how much does

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<v Speaker 1>the Apple Watch matter to you? At this point? It

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<v Speaker 1>was reported recently the Apple Watch sales were down more

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<v Speaker 1>than fifty percent. Is that just like, Okay, it didn't work,

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<v Speaker 1>We move on? Or is that a big deal for Apple? No?

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<v Speaker 1>Not necessarily with regards to the Apple Watch. The reason

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<v Speaker 1>that the sales have been so dismal. Dismal is, you know,

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<v Speaker 1>we we just haven't seen the new product launched since

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<v Speaker 1>the March of last year. And because of that, UM,

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<v Speaker 1>you know, were I think we're at a point now

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<v Speaker 1>we're just waiting for that next kind of um product

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<v Speaker 1>to ramp. We're expecting a new Apple Watch in September.

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<v Speaker 1>We actually think it could contribute about four points of

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<v Speaker 1>growth in the December quarter and that should help, uh,

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<v Speaker 1>you know, December numbers because the the expectations are pretty

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<v Speaker 1>lofty four December. So we know, we remained very positive

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<v Speaker 1>on the long term story of the Apple Watch. However,

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<v Speaker 1>you are definitely in a self past right now with

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<v Speaker 1>regards to the product. Do you, by any chance a

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<v Speaker 1>fan of Carpool Karaoke? Not necessarily, but you know about it? Ah, yeah,

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<v Speaker 1>I've heard of it all right, Well, carpool Karaoke. Apple's

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<v Speaker 1>decision to buy Carpool Karaoke. He's got a chance to

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<v Speaker 1>listen to James Cordon of The Late Late Show. He's

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<v Speaker 1>turned that into an entertainment phenomenon is Apple. Uh, as

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<v Speaker 1>far as you're concerned, Apple just needs to stabilize its

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<v Speaker 1>results any at this point in time, given how poor

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<v Speaker 1>the sentiment is. Yes, they need to stable as the

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<v Speaker 1>results and then we can worry about improvement there after.

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<v Speaker 1>Thanks very much, Angelo. As you know, he is equity analyst,

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<v Speaker 1>for SMP Global Market Intelligence, giving us his view on Apple.

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<v Speaker 1>This is taking stock. I'm PIM Fox. My co host

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<v Speaker 1>Kathleen Hayes, This is Bloomberg coming up Bloomberg Law. Brought

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